Complete Guide To UAE Employment Contracts (Limited, Unlimited and Part Time) Updated 2022

What are the 3 types of employment contracts in UAE?

For individuals who are employed in UAE, Under the UAE Labour Law No. 8 of 1980 there are 2 main types of contract that can be signed between them and their employers:

1. Limited Contract which is also called as Fixed Term contract
2. Unlimited Contract

In 2018, the UAE implemented the part-time contract system by virtue of a ministerial resolution.

What is a Limited Employment Contract in UAE?

A limited contract is signed between the employer(company) and employee which is bound to expire on the date of the expiry of contract and is for a fixed term of time, usually 2 years. This means, a company can employ their employees for a certain period and not renew the contract. Limited Contracts mention the start and end dates of the employment period. Unless the contract is renewed, it is automatically cancelled when it expires. The contract must also include a notice for termination.

These contracts are adopted where an employer needs to engage employees for specific projects or specific duration.

An employee who is employed on a Limited Contract has responsibility to the company till his contract is valid. After the contract expires, the employee need not work for the company.

Why do companies have Limited Contract?

For a company which has most of their projects to be completed within 2 years, there is no need to have more employees on their payroll. In such situations, companies hire employees for limited period. Limited Employment Contracts also help companies to gauge the performance of their employees over a longer term and if the employee is not up to their expectation, they need not renew the contract for that employee. Hence the burden of termination is not applicable.

What about employees?

Employees who have signed a labour contract should carefully read their employment contract to see whether contract type, whether it is a limited employment contract or an unlimited labour contract. The contract must specify : date of its conclusion, date of starting of employment, nature of the work, workplace, amount of remuneration, notice of employment and duration,This will help them to understand their rights.

What happens if you resign under Limited Contract?

There are possibilities that as an employee, you would want to resign from your position before the Limited Contract is expired.

If you resign under limited contract without completing your contract term, your employer may impose a ONE YEAR ban. In addition to this the as per UAE Labour Law provisions, the employee will have to pay half of 3 months’ early termination compensation including salary and allowances, or half of the remuneration for the residual period if the contract has fewer than three months to run to the employer.

What if the company / employer terminates a Limited Contract before the expiry?

If your company terminates your contract, the company will have to pay you minimum 3 months’ compensation including salary and allowances, (or the remainder of the term of the contract if the period remaining is less than three month .

Is there notice period in Limited Contract?

This will depend on the provisions of your employment contract. If it is mentioned that you will have to give a notice period, you will need to intimate your employer of the same.

Do you get gratuity or end of service benefits under Limited Contract?

Yes. You will receive gratuity under Limited ContractOpens in a new tab. if you have completed 1 year of service.

• 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.

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

How is the end of service gratuity calculated under a limited term contract, where the employee resigns?

An employee is not entitled to an end of service gratuity if he resigns with fewer than 5 years of service. If he has over 5 years of service, he is entitled to the same end of service gratuity as if he resigned on an unlimited contract .

Can You renew the Limited Contract?

Yes, A limited term contract may be renewed with the consent of both parties, or alternatively, at the end of the contract, the parties could agree to convert the agreement to an unlimited term contract.

Under which conditions an employer can dismiss an employee under Limited Contract?

According to Article 120 of the UAE Labour Law, the employer can dismiss an employee under a limited contract without any notice in the following circumstances:

• If the employee commits forgery of documentation or identity
• If the employee causes any substantial financial loss to the employer
• If the employee puts the safety of the business into risk by violating instructions
• If the employee does not perform their basic duties mentioned under the contract despite being given formal reminders and warnings in this regard
• If the employee divulges any secrets of the company
• If the employee assaults someone in the company
• If the employee is found intoxicated or drugged
• If the employee is found guilty by the court for violating public morals.

What are the important legal steps to be considered by the terminating party to while terminating the Limited term contract?

The terminating party whether it may be company or employee must consider the below points while terminating the limited term contract:

• Terminating party must notify the other about their intent of terminating the contract and serve the notice period (not exceeding three months) which was mutually decided by both employer and worker.
• Terminating party must honour the contractual obligations during the notice period
• Compensate the other party to the level that was previously agreed upon by both entities (must not exceed the equivalent of three months of gross wages including salary and other allowances)

As per Article 116 when an employee terminates a contract for reasons other than those specified in Article 121, the worker has to compensate the employer for any damage the latter sustains as a result. This amount of compensation will not exceed half a month’s wage for 3 months or for the remaining period of the contract, whichever is shorter, unless otherwise stipulated in the contract. Non-compliance of these steps, the terminating party will have to bear the legal consequences.

What is unlimited contract as per UAE Labour Law?

Unlimited contract means the contract has a commencement date but no end date. The contract can be terminated by mutual agreement with the consent of both the parties by giving the necessary notice period one to three months or as mentioned in the employment agreement.The both the parties involved must honour their obligations throughout the notice period. The employee’s wages during the notice period shall paid in full for the entire notice period served.

If the employer or employee terminates the contract without complying with legally mandated procedure the wronged party may initiate legal action and compensation.

Rules of Unlimited Labour Contract:

1. An unlimited contract has a start date, but no end date.
2. Employee or the employer may end or terminate the employment contract by giving a notice period of 30 days. It is also possible to extend the notice period if both parties mutually agree to extend the notice period.
3. The employer must pay the salaries or wages of the employee up to the notice period.
4. If for any reason, the notice period was not served, the party which did not adhere to this condition must compensate the other party for the 30 day wages/salary.
5. If an employee has violated any conditions under Article 120 of the UAE Labour Law, then the employer could terminate the employee with immediate effect.
6. The employee also could terminate the contract as per Article 121 of UAE Labour Law, if the employer fails the obligations.
7. There must however be proper justification from employer’s side for terminating employee; for arbitrary dismissals and terminations, the employer will be liable to pay 3 months’ compensation to the employee.

Article 120 – UAE Labour Law – The employer may dismiss the employee without notice in the following cases:

1. If the employee adopts a false identity or nationality or if he submits forged documents or certificates.
2. If the employee is appointed under a probationary period and dismissal occurred during or at the end of said period.
3. If he commits an error causing substantial material loss to the employer provided that the latter advises the labour department of the incident within 48 hours from having knowledge of the same.
4. If the employee violates instructions concerning safety of the place of business provided that such instructions are displayed in writing at conspicuous places and in case of an illiterate employee the latter be informed verbally of the same.
5. If he fails to perform his basic duties under the contract of employment and persists in violating them despite formal investigation with him in this respect and warning him of dismissal if the same is repeated.
6. If he divulges any secrets of the establishment where he is employed.
7. If he is awarded final judgement by the competent court in respect of an offence prejudicing honour, honesty or public morals.
8. If during working hours he is found drunk or under the influence of drug.
9. If in the course of his work he commits an assault on the employer, the manager or any of his colleagues.
10. If he absents himself without lawful excuse for more that twenty intermittent.

The employee will be entitled to compensation if the termination of the contract had been for an unjustified cause. The court may award the employee damages, against the employer, provided that the damages so awarded does not exceed three months wages of the employee and the calculation to be based on the last wage paid to the employee.

The gratuity is applicable to all the employees whether you are under Company’s sponsorship or Father’s or Husband’s sponsorship. Still if you are working for an employer, you are certainly entitled for gratuity under Unlimited Employment Contract.

What is Part time contract in UAE?

The new system, introduced in 2018, aims to enhance the flexibility of the labour market and meet the needs of the employers from the existing labour market and thus reduce dependence on labour being imported from outside the country.

Ministry of Human Resources and Emiratisation has recently implemented new rule which will allow the companies to employ skilled workers (holders of university degrees or higher and those who have completed two or three years diploma in any technical or scientific field) from inside the country or from abroad under multi employer contract which is also called as part time contract. The resolution states that a part-time contract may not be converted into a regular contract until after the end of the part-time employment contract, so that each party may freely contract with the model it accepts.

The new system, introduced in 2018, aims to enhance the flexibility of the labour market and meet the needs of the employers from the existing labour market and thus reduce dependence on labour being imported from outside the country.

Under the multi employer contract, the ministry enables you to work for more than one employer after the establishment issues for your part-time work permit, without the approval of the original or other secondary employers. However they must receive the permit from the MOHRE and the rules of this contract is subject to the same rules and penalties applicable to the normal employment contract

The original employer shall be liable for the employee’s annual leave and end-of-service gratuity as well as any other financial obligations in proportion with the actual work hours and the wage received by the employee.

There are no provisions related to a maximum limit of hourly remuneration to be paid by an employer to an employee in the Part-Time Employment Law. The employer and employee need to abide by the terms and conditions mentioned in the part-time employment contract signed between them which has been duly registered with the MOHRE.

In the event your original employer denies paying you remuneration for the actual number of hours/days you were employed with the original employer, you may approach the MOHRE and file a complaint against your original employer.

Additionally, the original/primary employer may not require the worker to work more than the hours agreed upon or prevent him from working in a similar facility under the non-competition clause or for disclosure of the secrets of the facility.

The additional employer has to pay the same fees charged for temporary work permits as administered by MoHRE.

FAQ-Frequently Asked Questions on UAE Employment Contracts: