Federal Law No. 8 of 1980 which is also known as the Labour Law provides all the provisions that regulate labour relations in the United Arab Emirates (‘UAE’). It is applicable to all the employers, employees (including UAE nationals and expatriate) in the UAE except a few categories like the federal government, the municipalities, federal and local public institutions, etc.
The Labour Law provides for two types of employment contracts in the UAE- employment with limited contract and employment with unlimited contract. A limited contract is for a fixed term normally linked to the UAE residence visa duration (for example, 2 years or 3 years). An unlimited contract is a contract that does not end after a fixed term, that is, it is an open-ended contract.
How can a contract be renewed?
A limited contract can be renewed at the end of the fixed term of the contract. Both parties may mutually agree for the same. They may also convert it to an unlimited contract at the end of the fixed term by mutual consent and agreement. An unlimited contract cannot be renewed since its is an open-ended contract.
How can a contract be terminated?
A limited contract automatically terminates at the end of the fixed period. It can be terminated before the defined fixed term. Usually, the contract does not provide a notice period.
An unlimited contract can be terminated at any time by giving notice as mentioned in the contract by either party to the contract.
Under the Labour Law, the employer has grounds to terminate the employee for a violation of the provisions mentioned under Article 120 and where the employee is at a fault.
What if an employer wants to terminate the contract early?
The employer may do so by providing the employee an “early termination compensation” of a minimum of three months’ salary or the salary for the remainder period of the fixed term contract, where the remainder period is less than three months.
For an unlimited contract, the employer may terminate the contract either by giving notice as mentioned above or terminate upon violation of the provisions mentioned under Article 120.
What if an employee wants to terminate the contract early?
Where the employee intends to terminate the contract early, the employee shall provide the employer with an “early termination compensation” as mentioned above. However, this is subject to the employment contract. If the employment contract provides otherwise, the employee may not be required to pay the same.
For an unlimited contract, the employee may terminate the contract either by giving notice as mentioned in the employment contract or terminate upon violation by the employer of the provisions mentioned under Article 121.
End of service gratuity where employer terminates the contract.
Where an employee has completed one year or more of continuous service, the end of service gratuity shall be calculated as follows:
- 21 calendar days’ basic pay for each year of the first 5years of service
- 30 calendar days’ basic pay for each additional year
Provided the total gratuity does not exceed 2 years’ pay
This rule is applicable to both limited and unlimited contracts. However, the employee shall not be eligible for the end of service gratuity where the employee is terminated on the grounds of violation of Article 120.
End of service gratuity where employee terminates the contract.
Where an employee resigns before the expiry of the fixed term of the limited contract, the employee shall not be eligible for the end of service gratuity, where the number of years of service is less than 5 years of service. If the number of years of service is more than 5 years, the rule as applicable for unlimited contracts shall be used to calculate the end of service gratuity.
Where an employee resigns under an unlimited contract, the end of service gratuity shall be calculated as follows-
- Period of service between one to three years:1/3 of the gratuity calculated as mentioned above.
- Period of service between three to five years: 2/3 of the gratuity calculated as mentioned above.
- Period of service above five years: full gratuity calculated as mentioned above.
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