There are two sorts of employment contracts that employers may give to workers under the UAE Labour Law, which applies to all businesses in the UAE. Limited-term or unlimited-term contracts are the names given to these contracts.
There are several distinctions between the two types of contracts, including the treatment of statutory end-of-service gratuity rights and termination consequences.
In general, limited-term contracts contain the start and end dates of the employment period. Unless otherwise specified in the contract, it is automatically terminated when it ends. These contracts are used when an organization needs to engage workers for a limited time or for a specific purpose.
According to recent changes in the UAE’s labour market, limited-term contracts should be for a maximum of two years rather than four years previously. Notice for termination is also required by law.
A long-term agreement has no time limit and is more open-ended. It can be discontinued with a mutual agreement or by giving a notice of 1 to 3 months. During the notice period, the parties must keep to their responsibilities.
When either the employer or employee terminates the relationship without following prescribed legal processes, it is presumed that an employment relationship has ended without due process. In this situation, the injured party has the option of pursuing legal action and compensation.
A Limited-term contract is a fixed-term contract with an expiration date that is tied to the length of your residency visa in the UAE (i.e., two or three years, depending on the site of employment). It will terminate automatically at the conclusion of the term unless one party decides to terminate it sooner. Limited-term contracts are useful where an employer needs to engage workers on short-term projects and the length of those projects is known ahead of time. Limited-term contracts generally lack a notice clause and simply expire at the conclusion of the term or on the date indicated in the contract (unless terminated earlier by either party). On the basis of one of the 11 exhaustive grounds under Articles 88 and 120 of the UAE Labour Law, an employer may lawfully terminate your employment. Prior to the expiration of a contract, an employee may properly resign according to Article 121 of the law. A limited-term contract can be extended with the agreement of both parties, or it may be converted to an unlimited-term contract at the end of the term. If an employer tries to terminate a contract before the end of the limited-term, an employee is entitled to “early termination compensation” of at least three months’ pay (or the remainder of the term if less than three months remain), under UAE Labour Law. If the employment contract does not specify otherwise, if the employee wishes to terminate the limited-term contract before its expiration, he will be required to pay half of three months’ remuneration, which includes salary and allowances, or half of the remuneration for the remaining period if there are fewer than three months left on the contract. If there is a provision in your limited-term contract for notice, this will also have to be provided to the other party in addition to any early termination payment owed.
Employees who have served for one year or more are entitled to a gratuity at the end of service. The benefit is calculated as follows:
Provided that the aggregate total compensation does not exceed two years’ pay. An employee is not eligible for an end of service gratuity if he has been summarily dismissed for gross misconduct under the UAE Labour Law.
An employee who resigns with less than 5 years of service is not eligible for an end of service gratuity. If he has more than 5 years of service, he is entitled to the same end of service payment as if he had resigned on an unlimited contract.
An unlimited-term contract in the UAE can be ended by a variety of reasons under the UAE Labour Law. Unlimited term contracts are often perceived to be more adaptable and user-friendly than limited duration contracts. As a result, an unlimited period contract is more frequently used in the UAE than a limited duration contract. It may be utilized for people who are intended to stay on for good and do not participate in project work. Two main ways for an employer to lawfully terminate an unlimited term contract in the UAE are outlined under UAE Labour Law:
An employee may quit by giving the employer the required notice period (which must be at least 30 days but may be longer under the contract of employment). Alternatively, the employee may choose to leave without notice as provided for in Article 121 of the legislation.
Employees with at least one year of continuous service are entitled to an end-of-service gratuity, which is calculated as follows:
Provided that the aggregate total compensation does not exceed two years’ pay. An employee is not eligible for an end of service gratuity if he has been summarily dismissed for gross misconduct under the UAE Labour Law.
On a sliding scale, an employee who resigns from an unlimited term contract will be entitled to an end of service gratuity in the following proportions:
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