According to Law No. 8 of 1980 UAE Labor which applies to all employers in the UAE (“UAE Labor Law”) except for employers located in Dubai International Financial Centre (DIFC), employers can issue two types of Labor contracts; limited or indefinite contracts.
There are differences between the two types of contracts, including the consequences of termination and the entitlement to end-of-service gratuities.
What is a fixed-term contract?
A fixed-term contract is a contract, usually related to the validity of the UAE residence visa that is two or three years, depending on the employer’s location. Unless either party terminates the contract early or is renewed by both parties, it will automatically terminate at the end of the period.
When is the contract used?
If the employer needs to hire employees to participate in specific projects, and know in advance the duration of these projects, then a limited-term contract is beneficial.
Terminate the limited-term contract
A limited-term contract usually does not have a notice requirement. Still, it only expires at the end of the contract or on the date specified in the contract unless either one of the parties terminates early. According to one of the eleven specific reasons of Articles 88 and 120 of the UAE’s “Labor Law,” the employer can be dismissed immediately. According to Article 121 of the law, employees can effectively resign before the contract expires.
Renew a limited-term contract?
It is possible to renew a contract with a time limit if both parties agree, or at the end of the deal, both parties can agree to convert the agreement into an indefinite contract.
Does the employer want to terminate the contract early? According to the UAE Labor Law, employees are entitled to “early termination compensation” of at least three months ’salary, including salary and allowance if the remaining period is less than three months, the remaining period of the contract if the employer tries to terminate the agreement before the end of the period.
Does the employee want to terminate the contract early? Unless the employment contract specifies otherwise if the employee wishes to terminate the limited-term agreement before the expiration of the time limit, according to the UAE Labor Law, he is obliged to pay the employer the “early termination compensation” of half of the employer’s three-month salary, This includes wages and allowances, or if the contract is valid for less than three months, it will be half the salary of the remaining period.
Unless the employment contract specifies otherwise if the employee wishes to terminate the limited-term agreement before the expiration of the time limit, according to the UAE Labor Law, he is obliged to pay the employer the “early termination compensation” of half of the employer’s three-month salary, This includes wages and allowances, or if the contract is valid for less than three months, it will be half the salary of the remaining period.
What if the limited-term contract includes a notice period? If notice is provided in a limited-term agreement, in addition to any compensation that should be terminated early, the notification must also be provided to the other party.
How to calculate the end-of-service remuneration based on the limited-term contract when the employer terminates the contract?
The employees who have completed one or more years of continuous service are entitled to receive end-of-service remuneration in the following ways:
- The basic salary is increased by 30 calendar days per year.
- The basic salary for 21 calendar days per year for the first five years of service.
- But the total salary does not exceed two years’ salary.
According to the UAE’s Labor Law, employees are immediately dismissed due to serious misconduct and have no right to receive end-of-service remuneration.
How to calculate the end-of-service remuneration in the limited-term contract for employees to resign?
If an employee resigns for less than five years, they are not entitled to end-of-service remuneration. If he has more than five years of service, he is entitled to the same compensation as the service contract, just as he resigned on a universal agreement.
List of things to be included in fixed-term contracts.
According to the UAE Labor Law, a limited-term employment contract must specify at least:
- Nature of the work;
- Date of conclusion;
- The time the job started;
- Remuneration amount; and