Employment Contracts in the UAE
All Blogs
Published February, 2019
Employment laws in the United Arab Emirates (UAE) are generally known to be employee-friendly. The relationship between an employer and an employee in the UAE is governed by Federal Law No. 8 of 1980 relating to Labour Relations (UAE Labour Law). The UAE Ministry of Human Resources and Emiratisation (formerly Ministry of Labour and Social Affairs) has established a labour department in all the Emirates in the UAE in order to provide easy access for dispute resolution and other labour affairs (Labour Department). The UAE Labour Law does not apply to employees working in the public sector, domestic workers in households and in certain free zones in the UAE which have their own employment laws (for example, the Dubai International Financial Centre (DIFC) and Abu Dhabi Global Markets (ADGM)).
The UAE Labour Law has been amended from time to time to cater to the changing needs in the employment sector. The UAE Labour Law permits employers and employees to enter into two types of employment contracts, namely: (1) Limited Term Contracts; and (2) Unlimited Term Contracts. This article focuses on some of the key features of these two types of employment contracts.
1. Limited Term Contracts
Length of Contract
A limited term contract can be for a maximum period of two (2) years.
Expiry and Renewal
A limited-term contract is considered to be automatically renewed from its date of expiry for an additional term equivalent to the original term of the contract unless written notice (at least one (1) month prior to date of expiry)) has been issued by the employer or the employee informing the other party of its intention to not renew the contract.
Termination
A limited term contract can be terminated, prior to its date of expiry, in the following manners:
- Termination for convenience by the employer: An employer can terminate a limited term contract by paying the employee an early termination compensation. In this scenario, the early termination compensation should be equivalent to the lower of the employee’s remuneration (inclusive of basic salary and allowances) for: (i) a period of three (3) months; or (ii) the remaining term of the contract. Additionally, an employer can also terminate a limited term contract for a valid reason (for example, employee’s failure to perform despite repeated warnings) by giving appropriate notice (minimum one (1) month and maximum three (3) months) to the employee in accordance with the terms of the employment contract;
- Termination for convenience by the employee: An employee can terminate a limited term contract by paying the employer an early termination compensation. In this scenario, the early termination compensation should be equivalent to the half of the employee’s monthly remuneration (inclusive of basic salary and allowances) for: (i) a period of three (3) months; or (ii) the remaining term of the contract; or
- Termination by employer for gross misconduct: An employer can terminate a limited term contract without giving any notice or payment of any termination compensation (including end of service gratuity) if the circumstances set out in article 120 of the UAE Labour Law are applicable. Some of the circumstances set out in article 120 of the UAE Labour Law include: (i) if the employee commits a fault which results in substantial material loss to the employer; (ii) the employee disobeys instructions with regards to safety at work place; (iii) the employee reveals confidential information of the employer; or (iv) the employee is convicted for a crime against honour, honesty or public morals.
- Termination by employee for gross misconduct: An employee can terminate a limited term contract without giving any notice or payment of any termination compensation if the any of the circumstances set out in article 121 of the UAE Labour Law are applicable. The circumstances set out in article 121 are: (i) the employer has not fulfilled its obligations towards the employee (for example, failure to pay salaries); and (ii) the employee is assaulted by the employer or the employer’s legal representative.
End of Service Gratuity (EOSG)
The end of service gratuity payable to the employee upon termination of a limited term contract can vary based on a number of factors including: (i) whether the contract was terminated by the employer or the employee; and (ii) number of years of service. The minimum end of service gratuity payable in different circumstances is as follows:
- EOSG where contract is terminated by employer: When a limited term contract is terminated by the employer, the EOSG is payable only if the employee has completed one (1) year or more of continuous service and is calculated on the basis of 21 calendar days’ basic pay for each year of the first five (5) years of service and 30 calendar days’ basic pay for each additional year (after year five). However, no EOSG is payable if the contract has been terminated for gross misconduct by the employee under article 120.
- EOSG where contract is terminated by employee: When a limited term contract is terminated by the employee and the employee has not completed five (5) years of continuous service, then the employer is not required to pay any EOSG. However, if the employee has completed more than five (5) years of continuous service, then EOSG is payable on the same basis as that set out above in paragraph (a). The employee is entitled to their full EOSG when the contract is terminated under article 121 provided that the employee has completed one (1) year.
2. Unlimited Term Contracts
Length of Contract
An unlimited-term contract of employment, as the name suggests, is not for a fixed period of time and entails an ongoing obligation of employment between the employer and employee until terminated by either party. If a contract of employment does not include a duration and date of expiry, then it is considered to be an unlimited-term contract regardless of the intention of the parties at the time of entering into the contract.
Termination
An unlimited term contract can be terminated in the following manners:
- Termination by the employer: An employer can terminate an unlimited term contract for a valid reason (for example, employee’s failure to perform despite repeated warnings) by giving appropriate notice (minimum one (1) month and maximum three (3) months) to the employee in accordance with the terms of the employment contract. In such a scenario, the employer is only required to pay the employee his end of service gratuity. If an employer terminates an unlimited term contract without a valid reason then the employer may be liable to pay the employee, in addition to the end of service gratuity, compensation equivalent to three (3) months remuneration for convenience.
- Termination by the employee: An employee has the right to terminate an unlimited term contract for convenience by giving appropriate notice (minimum one (1) month and maximum three (3) months) to the employer in accordance with the terms of the employment contract. Even if the employment contract is terminated by the employee, the employer is still required to pay the end of service gratuity to the employee.
- Termination by employer for gross misconduct: An employer can terminate an unlimited term contract without giving any notice or payment of any termination compensation (including end of service gratuity) if the circumstances set out in article 120 of UAE Labour Law are applicable. Some of the circumstances set out in article 120 of the UAE Labour Law include: (i) if the employee commits a fault which results in substantial material loss to the employer; (ii) the employee disobeys instructions with regards to safety at work place; (iii) the employee reveals confidential information of the employer; or (iv) the employee is convicted for a crime against honour, honesty or public morals.
- Termination by employee for gross misconduct: An employee can terminate a limited term contract without giving any notice or payment of any termination compensation if the any of the circumstances set out in article 121 of the UAE Labour Law are applicable. The circumstances set out in article 121 are: (i) the employer has not fulfilled its obligations towards the employee (for example, failure to pay salaries); and (ii) the employee is assaulted by the employer or the employer’s legal representative.
End of Service Gratuity
The end of service gratuity payable to the employee upon termination of an unlimited term contract can vary based on a number of factors including: (i) whether the contract was terminated by the employer or the employee; and (ii) number of years of service. The minimum end of service gratuity payable in different circumstances is as follows:
- EOSG where contract is terminated by employer: When an unlimited term contract is terminated by the employer, the EOSG is payable only if the employee has completed one (1) year or more of continuous service and is calculated on the basis of 21 calendar days’ basic pay for each year of the first five (5) years of service and 30 calendar days’ basic pay for each additional year (after year five). However, no EOSG is payable if the contract has been terminated for gross misconduct by the employee under Article 120.
- EOSG where contract is terminated by employee: When an unlimited term contract is terminated by the employee and the employee has completed at least one (1) year of continuous service then the EOSG is first calculated on the same basis as set out in paragraph (a) above and thereafter the EOSG payable determined as follows:
- (i) if the employee has not completed more than three (3) years of continuous service, then the EOSG payable is equal to 1/3 of the total EOSG amount;
- (ii) if the employee has completed more than three (3) years but not completed five (5) years of continuous service then the EOSG payable is equal to 2/3 of the total EOSG amount; or
- (iii) if the employee has completed more than five (5) years of continuous service then the entire amount has to be paid without any reduction.
The aforementioned crucial issues must be taken into consideration prior to entering into a contract of employment. Time and again there have been disputes in relation to the duration of employment to calculate EOSG and the factors that can warrant immediate termination of employment without notice or compensation. It is imperative to obtain thorough legal advice before accepting or terminating your employment in the UAE. For more details or comprehensive legal advice on this matter, please contact the personnel marked below.
Authors:
Ziad Choueiri, Partner (zchoueiri@ach-legal.com)
Devvrat Periwal, Principal Associate (deperiwal@ach-legal.com)
Disclaimer:
The legal alert contained above is for informational purposes only and not for the purposes of providing any form of legal advice. You are requested to contact your legal counsel to obtain advice in respect of any particular issue or problem. Use of and access to this legal alert does not create any attorney-client relationship between Anjarwalla Collins & Haidermota, Legal Consultants and the user or browser.
