What contract you should use for your employees?
Limited and Unlimited UAE Employment Contracts
One of the most common HR questions raised by our clients is related to UAE employment contracts, specifically the difference between a limited and an unlimited contract. We will share with you an overview of the main differences between a limited and an unlimited contract in accordance with the UAE Federal Law No. 8 of 1980, Labour Law.
What is a limited contract?
Under the Labour Law, Article 38;
- The duration of a limited contract may not exceed four years.
- The contract may be renewed by mutual agreement of the employer and employee
- Should the contract be renewed, the new term shall be deemed an extension of the original term and shall be added to the calculation of the total service period of the employee.
- Where the contract is not renewed it automatically cancels when it expires.
What is an unlimited contract?
Under the Labour Law, Article 39; an employment contract is considered an unlimited contract if it is concluded for an undetermined term. Simply put, an unlimited employment contract is one without a defined expiry date.
Termination of a limited contract
Where an employer terminates an employee for reasons other than that stated in Article 120 of the UAE Labour Law the employer is required to compensate the employee three months of gross salary, or for the remaining contract period; whichever is less. Should the employee wish to terminate the contract for reasons other than stated in Article 121 of the UAE Labour Law the employee is liable to pay 6 weeks of gross salary to the employer or for the remaining contract period; whichever is less.
Termination of an unlimited contract
The contract may be terminated by either the employer or employee on condition that the contractual notice period is given, usually defined as 30 days. The employer may terminate an unlimited contract without notice should the employee violate Article 120 of the UAE Labour Law. The employee may terminate the contract without notice if the employer fails to fill his obligations as stated in Article 121 of the UAE Labour Law.
To conclude, limited contracts can be useful for employers for project-based work with specific timelines. However, due to the inflexibility of limited contracts for termination purposes, unlimited contracts are more commonly used in the UAE as they are deemed to be more flexible and user friendly for both the employer and the employee.
*Please note the above information serves as a guide and not as legal fact. For further information and full coverage of UAE Labour Law visit – UAE Labour Law
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