Under UAE Federal Law No. 8 of 1980, employees may be engaged under limited or unlimited employment contracts. It is the employer's decision what type of contract the employee is engaged under, however it is important for both employers and employees alike to understand the differences between the contracts.
Unlimited
An unlimited contract is for an unspecified/unidentified period and is the more common type of contract in the UAE. A contract is deemed unlimited if it is not written, if it is for an unspecified duration, if it is for a specific period(but after expiry both parties continue to implement it without a written agreement), or if it is for execution of a special job of an unspecifiedperiod.
Limited
A fixed contract shall not be for a period exceeding 4 years and may be renewed for a similar period by mutual agreement of the parties, or for a lesser period, one or more times.
Termination
Unlimited
Both the employer and employee may cancel an unlimited contract for a legitimate reason and on the provision of at least 30 days notice. Notice for daily workers is different depending on their length of service.
Limited
If the labour contract is made for a limited term and the employer cancels it for a reason other than those listed in Article 120, the employer shall compensate the employee for any harm caused, provided the compensation does not exceed three months wages, or the remainder of the period of the contract (whichever is shorter).
The same applies if the employee, for reasons other than those listed in Article 121, cancels the contract prior to the completion of the term. If so, the employee shall compensate the employer for any resulting loss, provided it is not more than half the employee's wage for each month (for three months), or the remainder of the contract, whichever is shorter.
Gratuity
Unlimited
An employee under an unlimited contract, who resigns on his or her own accord after service of not less than a year and not more than three years, is entitled to one third of the gratuity (ie 7 days). If the employee's service exceeds three years but is less than five years, he or she is entitled to two thirds (ie 14 days). If the employee's continuous service exceeds five years, the employee is entitled to full gratuity (ie 21 days).
Limited
An employee under a limited contract who resigns before the contract is completed shall not be entitled to end of service gratuity, unless the employee's continuous service exceeds five years.
Implications in Summary
Unlimited contract
Has a commencement date but no completion date;
It will be deemed unlimited if oral, if for an unspecified period, or if was specified but the parties continued to act on its terms and conditions after expiry;
It may be terminated by mutual agreement on 30 days notice;
It may be terminated for justified cause on 30 days notice;
The notice period may be extended to longer than 30 days;
An employee's wages, during the notice period, should be paid in full;
If no notice is given, the party terminating must compensate the other party for 30 days wages;
If the employee violates one of the provisions under Article 120, the employer may terminate without notice;
The employee may terminate without notice if Article 121 is applicable;
The employee will be entitled to compensation if the termination is for unjustified cause("ArbitraryDismissal"); and
Compensation for damages for Arbitrary Dismissal are without prejudice to the employee's entitlement to end of service.
Limited contract
Has a commencement and completion date;
It can not be over 4 years but can be renewed through mutual consent;
It will terminate at the end of the period unless renewed by mutual consent;
If terminated by the employer for reasons other than Article 120, the employer will be liable to pay compensation; and
If terminated by the employee for reasons other than Article 121, the employee will be liable to pay compensation.
Entering into either an unlimited or limited contract has different implications for both parties. Therefore, both the employee, and the employer should be made aware of the effects of the contracts they are entering.
By Kirsty Marshall
© Al Tamimi & Company 2007