Provisions of Limited and Unlimited Labour Contracts in the UAE Labour Law

Unlimited Contract

1. Notice period for unlimited contracts

The minimum period of notice for terminating a labour contract is 30 calendar days (Art.117). Alternatively, the employee may resign without notice as set out under Article 121 of the law (in case the employer fails to honour his obligation towards the worker or the employer or the employer's legal representative has committed an act of assault against the employee).

2. End of service gratuity calculated under an unlimited term contract

(a) Where the employer terminates the contract, the employee is entitled to the benefits stated in Art.132:

An employee who has completed one year or more of continuous service is entitled to the end of service gratuity calculated as follows:

• 21 calendar days’ basic pay for each year of the first five years of service.
• 30 calendar days’ basic pay for each additional year, provided that the entire total remuneration does not exceed two years pay.

Further, an employee is not entitled to the end of service gratuity where he has been terminated summarily for gross misconduct pursuant to the provisions of the UAE Labour Law.

(b) Where the employee resigns from an unlimited term contract pursuant to Art.137, he/she will be entitled to an end of service gratuity on the following sliding scale:

• Period of service of between one and three years: 2/3 reduction;
• Period of service of between three and five years: 1/3 reduction
• If the period of service is over five years: there is no reduction.

3. Resignation under an unlimited contract

According to Art.117, both parties (the employer and employee) in an unlimited contract are free to terminate the contract in a mutual agreement with a minimum of 30 days’ notice period. The employer may keep more than 30 days, up to a maximum of 3 months as the notice period. If the employee is not serving the notice period, he/she has to compensate the employer for that period (Art.120 and 121 shall be considered).

If the employer is terminating the employee, he shall have a valid reason either under Art.120 or any other reason of poor performance as specified in the employment contract. If there is no valid reason, the termination would be considered as arbitrary and the employer will be liable to pay 3 month’s salary as compensation. Further, if the employee quits during the probation, he/she still has to serve a notice period of 30 days. The employer may impose a ban on the employee.

4. Labour Ban

It is worth noting the following on labour bans:

1. Under an unlimited contract, the employer may impose a labour ban if the contract was terminated without a mutual agreement between the parties.

2. Under a limited contract, a 1-year ban is often imposed if an employee resigns before the completion of the contract period.

Limited Contract

1. Notice period for limited contracts

There is no notice period for limited contracts because the contract specifies the term.

(a) If the employer revokes the limited contract for any reason other than Art.120, the employer shall compensate the employee with three month’s salary or for the remaining period, whichever is shorter (Art.115).

(b) If the employee revokes the limited contract for any reason other than Art.121, the employee shall be required to compensate an amount which shall not exceed ½ month wage for three months or for the remaining period, whichever is shorter. (Art.116)

2. End of service gratuity under a limited term contract

The end of service gratuity is calculated under a limited term contract as follows:

(a) Where the employee terminates the contract on his absolute discretion before expiry or before 5 years of continuous service, the employee is not entitled to any benefits (Art.138).

(b) Where the employer terminates the contract on his absolute discretion before expiry, for any reason other than Art.120 and Art.132, an employee who has completed one year or more of continuous service is entitled to the end of service gratuity calculated as follows:

• 21 calendar days’ basic pay for each year of the first five years of service.
• 30 calendar days’ basic pay for each additional year, provided that the entire total remuneration does not exceed two years’ pay.

(c) Where the employee resigns after 5 years of service he is entitled to the same end of service gratuity as if he resigned on an unlimited contract (Art.138).

Written by:

Rajasree Ravivarma | Hussain Lootah & Associates