Find the 10 key elements to consider in an Unlimited Contract in UAE
1. What is an Unlimited Contract under UAE labour law?
In simple terms, an Unlimited contract is a type of contract that has a commencement date, but there is no specified end date. The contract can be mutually cancelled with both parties’ consent by providing the required notice period specified in the employment agreement. Typically, an unlimited contract includes the commencement date, the nature and area of work, and the amount of remuneration. It is to be noted that the new Labour law has invalidated unlimited contacts, and employment contracts must be limited in nature. There is, however a time limit of one year for employers to convert their unlimited contracts into limited ones within the year since the issuance of the new law.
2. When are Unlimited Contracts used, and what are its benefits?
Limited term contracts are considered less user-friendly and flexible than unlimited contracts. As a result, an unlimited contract rather than a limited duration contract is more frequently used in the UAE. It is suitable for staff who are anticipated to be permanent employees or in situations where the project’s duration is known in advance.
3. What is the notice period for an Unlimited Contract in the UAE?
The notice time for terminating a labour contract is 30 calendar days. Alternatively, the employee may resign without notice in specific circumstances, such as when the employer fails to honor his obligations to the employee or when the employer’s legal representative commits an act of violence against the employee.
4. How does one resign when employed under an unlimited contract?
The employer and the employee can mutually cancel the contract with a minimum of 30 days’ notice. The employer may keep the notice period for more than 30 days, up to a maximum of three months. If the employee fails to serve the notice term, they must compensate the employer for that time. If the employer terminates the employee, he must have a valid reason, such as unsatisfactory performance defined in the employment contract. If there is no acceptable reason, the termination is deemed arbitrary, and the employer must pay the employee’s salary for three months. Furthermore, if the employee departs while on probation, they must still provide a 30-day notice period.
5. How is the end-of-service gratuity calculated under Unlimited Contracts in the UAE?
When an employee has worked for one year or more of continuous service, he is entitled to end-of-service gratuity in case the employer has terminated the contract. An employee is not entitled to an end-of-service gratuity when terminated for serious misconduct under the rules of the UAE Labour Law. The calculation of the end of gratuity is as given:
⦁ Each year of the first five years of service, you will receive 21 calendar days of basic pay.
⦁ Thirty calendar days’ basic pay for each additional year, as long as total remuneration does not exceed two years’ salary.
If an employee resigns from an unlimited term contract, they are entitled to an end-of-service gratuity on the following sliding scale:
⦁ Service period of one to three years: 2/3 decrease;
⦁ Service period of three to five years: one-third reduction
⦁ There is no reduction if the service time exceeds five years.
6. Can an employer impose a labour ban under an Unlimited Contract in the UAE?
Under an unlimited contract, the employer may impose a labour prohibition if the contract is terminated without the parties’ mutual agreement.
7. What is a Limited / Fixed term contract?
The Limited term contracts are a type of employment contract that are valid for a specified amount of time which does not exceed 3 years. The time duration of the contract are dependent on a start and end date unless the contract is renewed by the employer these dates are fixed. The new labour law that has been in force since February of 2022 has invalidated unlimited contracts and emphasized that only limited contracts will be implemented in application of the new labour law.
8. What is the notice period for limited term contracts?
A limited-term contract does not have a notice period as the contract specifies the term. Suppose the employer revokes the limited agreement before its stipulated end date. In that case, depending on the remaining time being less than three months, the employer must pay the employee for the remaining time in three months. If the employee cancels the limited contract, they will be responsible for paying a sum that doesn’t exceed half of their monthly salary for the next three months or the remaining time, whichever comes first.
9. How is the end of service gratuity calculated under a limited term contract?
Under a limited term contract, the following formula is used to determine the end-of-service gratuity:
(a) The employee is not entitled to any benefits if the contract is terminated at the employee’s choice before its expiration or five years of continuous service.
(b) With a few exceptions, an employee who has completed one year or more of continuous service is entitled to the end-of-service gratuity computed as follows when the employer ends the contract before expiration:
⦁ The employee will get 21 calendar days of basic pay for the first five years of employment.
⦁ Thirty calendar days of basic income for every extra year, up to maximum total compensation of two years’ income.
(c) If a person leaves their position after five years of employment, they are still entitled to the same end-of-service bonus as if they had an unlimited contract.
10. How can a limited term contract in the UAE be terminated?
The employer and the employee have the right to end a limited term agreement. In each instance, there are different grounds. If any of the conditions stipulated are met, the employer may terminate a limited-term employee’s employment immediately without giving a notice period. When an employer or employee intends to terminate the contract, they must first notify the other party of their intent to terminate the agreement. Secondly, they need to honor the contractual obligation during the notice period. Lastly, they must pay the other party what both parties previously agreed upon in terms of compensation which must not exceed the equivalent of three months of gross wages, including salary and other allowances.
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