There are some major differences between the two types of labour contract. Do you know the difference? Image Credit: GN Archive

Note this article is not to be used as legal fact as the law can change.

In the UAE, there are two types of labour contract: Limited and Unlimited. It’s important to know which contract you have as the legal rights and entitlements between the two are different. As of July 2014, contracts are electronic. Regardless, you must still be aware of what information is contained within.

Limited, or “Fixed-Term”, contract

- A Limited contract has a start date and an end date;

- It can’t exceed a period of 4 years, although it can be renewed if both the employer and employee agree to it;

- Unless the contract is renewed, it is automatically cancelled when it expires;

- In the event of an employee with a Limited contract being terminated by the employer – for reasons other than that stated in Article 120 of the UAE Labour Law – then the employer is liable to pay compensation to the employee. The compensation should be based on either 3 month’s wages or for the remaining contract period; whichever is less;

Article 120 of the UAE Labour Law states:

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 days or for more than seven successive day during one year

- If, however, the employee resigns of his or her own free will – for reasons other than those stated in Article 121 of the UAE Labour Law - then they will be liable to compensate the employer. The employee will have to pay either 45 days salary or the remaining period of the contract; whichever is less.

Article 121 of the UAE Labour Law states:

The employee may leave the service without notice in the following cases:

1. If the employer does not fulfil his obligations towards the employee as provided for in the contract or in this Law.

2. If the employer or his legal regal representative has committed an act of assault against the employee.

Unlimited contract

- An Unlimited contract has a start date, but no end date;

- The contract may be terminated by either the employer or the employee so long as 30 days’ notice is given. It is possible to extend this notice by mutual agreement;

- The employee’s wages during the notice period will be paid in full for the entire notice period served;

- If, for one reason or another, no notice period was given, whoever should have given the 30 day notice must compensate the other with the payment of 30 days wages;

- If the employee violates any of the points stated in Article 120 of the UAE Labour Law, the employer may terminate the employee’s contract without issuing notice;

- 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;

- The employee will be entitled to compensation of three months’ wages if they are terminated without justification. Compensation for damages, if any, awarded to the employee for unreasonable dismissal will not affect the employee’s entitlement to end of service gratuity and payments in lieu of notice.

Source UAE Labour Law