Four things to know about UAE labour contracts

From enforcing to terminating agreements, here is a rundown of rules to help your business comply with the country's Labour Law

Aerial view of urban skyline and skyscrapers in Dubai UAE. Image used for illustrative purpose

Aerial view of urban skyline and skyscrapers in Dubai UAE. Image used for illustrative purpose

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A contract of employment is an agreement between an employer and an employee. It establishes the terms and conditions of the employment, as well as the respective rights and responsibilities of the employer and the employee. In the UAE, specific rules apply with regard to the enforcement and termination of labour contracts. 

Mutuality of rights and obligations

Under the employment relationship, both parties have respective rights and obligations to each other. Employers are required to pay employees timely, provide employees with certain working conditions, vacation, holidays and sick days. For example, the maximum working hours shall be 48 hours, except for certain professions and management designations. During the month of Ramadan, working hours must be reduced.  Employers are also required to provide a special once-in-a-lifetime pilgrimage leave. 

Employees, on the other hand, must perform their obligations to the company and follow the laws. But to terminate employees for their failure to perform, without paying benefits that they would otherwise be entitled to under the law, requires clearly documented and timely record. 

Employment at will

Despite common perception, the relationship between companies and employees in the UAE is one at will. This means that no one can force employees to work against their will. And similarly, no one can force companies to employ someone against their will. Irrespective of the terms and conditions of the underlying employment contract, an employee can leave a company and a company can terminate employees at any time. 

The matter becomes one of compensation. If an employee leaves prematurely a limited-term contract, he or she has to pay the company 1.5 month of salary and forego end-of-service benefits.  If an employer terminates an employee either prematurely and/or without cause, it may be liable to pay the employee up to three months of compensation as arbitrary dismissal, along with the standard end-of-service benefits and other outstanding payments.  

Validity and enforceability of employment contracts

Employment relationships are primarily based on the government-issued contract, irrespective of the particular economic zone. Nevertheless, most companies also have their own employment contracts, varying in form and substance. Sometimes these contracts are all together separate employment agreements. Other times, they outline additional benefits for employees. Commission, bonus, confidentiality and non-competition agreements are some such examples.

As a general rule, the government documents will always prevail and serve as governing instruments in the event of dispute. The validity and enforceability of the private agreements heavily depends on how those agreements are structured and presented. Any agreements that take away rights or benefits to which employees would be entitled under the Labour Law will be held invalid. Similarly, any private agreements that are either too broad or unreasonable will also be held invalid. 

Termination of employment relationship

One of the most contested issues in the employment relationship in the UAE is one of termination and, in particular, as it relates to compensation. Compensation, in turn, is determined by whether termination is premature and/or for cause. Establishing the nature of termination falls heavily on the requirement and form of notice.

There are two types of notices. One notice refers to the notice of termination. The minimum termination notice under the Labour Law is one month. The other form of notice is termination for cause. To be valid, the termination-for-cause notice must be served pursuant to Article 120 of the Labour Law. Article 120 refers to the employee’s misconduct and sets out requirements for the company to document and notify employees accordingly. 

Under the Article 120 notice, the company can terminate the employee without any further notice and, potentially, without having to pay any other dues. In the event, however, a company terminates an employee prematurely and does not serve proper Article 120 notice, it may be held liable for arbitrary dismissal. Compensation for arbitrary dismissal, in turn, can be based on up to three months of gross salary. In practice, judges, almost as a matter of course, award the maximum three months of gross salary. 

When termination is at the end of the employment contract, no notice is required and no additional payments, other than outstanding dues and end-of-service benefits. 

Ludmila Yamalova is the founder and managing partner of HPL Yamalova & Plewka DMCC since 2009.  She is a US qualified attorney, Juris Doctor, admitted to practice before the California Bar of Association, with 13 years of legal experience. She and her firm provide general corporate advisory and all forms of dispute resolution services.

Note: This article was originally published on Accelerate SME and it has been republished on Zawya with full copyright permission.

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