Limited and Unlimited Contract in UAE

On your road to getting employability in the UAE, you will most often find yourself confronting one of two options- Limited and Unlimited Contract in UAE. Recognition of the differences in these contracts is crucial today to compete within the labor market. In this article, I will provide you with detailed descriptions of both phases of the simplified contract about the requirements of the UAE labor legislation, main advantages, and duties, as well as the possibility of its termination.

We will also discuss more recent features of employment relationships and new laws concerning unlimited contracts. This article can be useful for those who are going to join the employment life in this fascinating region or for those who want to refresh their knowledge on UAE employment contracts as it aims to clear up the basic and not-so-basic aspects of Limited and Unlimited Contract in UAE.

UAE Employment Contracts

In the UAE, it is not just a piece of paper formally binding the employer and the employee. They are part of the working relationship that you have with your employer and are therefore standard. These present the guidelines of your employment informing the rights, duties, and expectations of each party.

Importance of Limited and Unlimited Contract in UAE

Using the previous points, it is possible to conclude that employment contracts are not only significant but also crucial. They are the source of the legal character of the employment relationship. ‘Employment contracts define every aspect right from the mode of remunerations and other privileges, through the roles and responsibilities, to the period of your contractual employment’. Their purpose is to provide the greatest amount of coverage for both the employee and the employer so that no side is left unaware of the duties and privileges.

Thus, employers and employees should pay adequate attention to the contents of the contract before signing it in the UAE. Notably, the UAE Labour Law offers some level of employee protection regarding remuneration and other conditions of employment, including the ability to receive a minimum wage as well as specified working hours and leave entitlements, including annual leave, sick leave, maternity leave, and others. But imagine if you are in any form of dispute or problem concerning the contract. In that case, more legal advice should be taken or consult the authorities like MoHRE (Ministry of Human Resources and Emiratisation).

Types of Employment Contracts in UAE

In the UAE, you’ll come across two main types of employment contracts: a priori concepts into limited and unlimited. A limited contract is an employment contract, which defines the period of work in advance and it is for a shorter period namely for two years. This type of contract is mostly used in temporary or project-related work. When the contract period lapses, the employer has the option of renewing the contract or dismissing you from the company. The stated term can be a time in months or years, and if you want to nullify the solicitors’ agreement before the expiration of this period, then you may have to pay a fine.

However, while distinguishing between Limited and Unlimited Contract in UAE, you must know that an unlimited contract does not have a time specified for its duration; it can be ended by notice by either the contracting parties. That is to say, this kind of contract is more customary if the employment is going to be permanent or for a long while. The nature of the terms of this contract usually provides a 30-day notice for termination of the contract.

However, it may differ on the specifics of the contract that has been agreed between the employer and employees or even with the UAE labor laws. Also, an unlimited contract offers no sanction against its early termination, unlike the situation with a limited contract.

Both types of contracts have some advantages for the employees wherein they can enjoy rights which are annual leave, sick leave, end-of-service benefits, and many more. That being said, it is fundamental to understand that the type and the conditions may differ depending on the contract type.

Types of Employment Contracts in UAE

According to the UAE Federal Law No. 8 of 1980, which is the Labour Law, contractual employment in the country is of two types of contracts namely Limited and Unlimited Contract in UAE

Such contracts are inevitably established based on entitlements and legal rights as major factors of differentiation. Here is a laydown of both contracts: 

Limited Contracts

The limited-term contract is also known as a fixed-term contract, these types of contracts do have a specific starting and ending date. This contract is somehow associated with the period of the concerned person’s UAE residency visa; therefore, the maximum possible period is four years only.

Here the termination procedure is built with the direct employment period that is once the period is complete, the contract is canceled. After the period elapses the employer can decide to renew or terminate it depending on the agreement between the employer and the employee.

 The key features of this type of contract include:

• Duration: The employment agreement contains a clear starting and ending date of the agreement. The length of a fixed-term duration cannot be more than four years.
• Salary: There is, a fixed wage for the contract period and it is not negotiable unless and until discussed separately by both the employer and the employee. This is also highlighted in terms of remuneration and benefits that are due to be paid to the employee before agreeing.
• Benefits: Some of the rights that are usually associated with limited contracts include; medical cover, annual leaves, and end-of-service benefits.
• Termination: An automatic cancellation of the contract at the particular time of expiry of the contract. Still, it mentioned that the contract can be ended before the time is up in case there is some lawful cause. Also, each of the parties must provide the notice period according to the contract provided there.

The remodeling of the workplace and the nature of work must undergo the approval of both the employer and the employee.

Restricted only to a particular employer, an employee cannot change employers till the expiration of the contract period or with the consent of the employee and the employer. This sort of contract is generally used when businesses need to hire people for a certain project and the project’s duration is known ahead of time.

Unlimited Contracts

As the name suggests an unlimited-term contract is not limited by time or the specified time is not fixed. In other words, a specific starting date exists while the ending date does not, which is advantageous for the employer and the employee.

In this kind of contract, the clauses and the agreements will continue to run throughout the parties’ tenure of the contract, or until one of the parties agrees to cancel the said contract or both parties agree to an amendment to the existing contract wherein a new set of terms and conditions will be incorporated.

The key features of an unlimited-term contract in the UAE include the following:

• Duration: It has no set time limit meaning that is an open-ended intervention. These recitals form the terms and conditions of the contract to be performed by one or both of the parties until the contract is brought to an end.
• Benefits: The features of the unlimited contract include things like tenure, or long-term employment, entitlement to annual leave, overtime, sick days, and gratuities including end-of-service bonuses.
• Changes to employment terms: The only disadvantage is that an employee is not tied to the contract as his residence visa is not tied to it; he can move from one company to another at any time with proper notice to his employer and with mutual consent. The employer also can alter the conditions of work including remuneration and other employee entitlements after consulting with the employee. However, such changes can only be conducted in compliance with the provisions laid down in the UAE Labor Law.

They should therefore prefer this kind of contract if they are the type who prefers an arrangement for the work that is a little looser.

Limited vs. Unlimited Contract in UAE

Comparison in Terms of Job Security Job security is an aspect that remains a primary concern in organizations to this date.

Fixed-term contracts are very useful for expatriate workers because they provide some predictability to the job, during the rest of the contract period. However, some consequences can be associated with such action: you can be compelled to go back and complete the agreed number of hours on the contract or compensate the employer for early termination.

On the other hand, unlimited contracts offer more flexibility in the arrangements that affect both clients as well as service providers. It is open-ended and termination can therefore be done at any time given that proper notice has to be given. The notice period under this scenario may vary depending on the employer’s discretion and the period of service.

Ensuing Benefits and Obligations of Limited and Unlimited Contract in UAE

Limited and Unlimited Contract in UAE are both types of contracts each of which is characterized by certain advantages and disadvantages. For instance, limited contracts may include provisions of the overtime pay allowance together with other requirements stated under UAE labor laws.

The payment for the end-of-service gratuity is different between the two. For limited contracts, the gratuity is computed at the rate of 21 days of basic pay for each completed year of the first five years and 30 days of basic salary for each further completed year. In this context, the gratuity pay is computed at such rates as may be permitted by the law and where the contract is unlimited, the gratuity pay is arrived at on a service rendered basis where, however, the gratuity pay is lower where the service rendered is less.

What is the new law for unlimited contracts in the UAE?

A new labor regulation in the United Arab Emirates mandates that all employees have limited-term contracts. Compared to the former system, which supported both Limited and Unlimited Contract in UAE this is a shift. These contracts used to have a 3-year maximum, however, that has been lifted to provide greater flexibility. Employers can change their current unlimited contracts to limited ones by December 31, 2023.  Additionally, there are modifications to work visas and a new required unemployment insurance program. Employers are nevertheless required by the Wage Protection System (WPS) to make salary payments on schedule.

Conclusion

The main variables that may differ when comparing Limited and Unlimited Contract in UAE can be explained when considering the aspects of contract timeframe, termination, compensation, and end-of-service gratuity.

The employment relationship in the UAE is governed by the UAE Labor Law which contains various rules and regulations that should be followed. In detail, the blog relates the differences between limited and unlimited contracts in UAE while providing the readers with broad info concerning the contractual terms of the emirate.

Each type of employment contract has certain strengths and weaknesses that affect the process of vacancy staffing in the constantly transforming environment of the United Arab Emirates.

If you have a query on Limited and Unlimited Contract in UAE? Contact us at Bizdaddy

Frequently Asked Questions (FAQs) for Limited and Unlimited Contract in UAE

Q: Can contracts that just involve limited working engagements be changed to unlimited working engagements?

Yes, the limited contract can be converted to an unlimited or the unlimited contract to a limited. However, the conversion can only occur with the consent of both the employer and the employee as provided by the UAE Labour Law and the same must be done according to the laid-down procedures.

Q: The difference between limited and unlimited contracts according to law in the UAE.

Limited player contracts can be intended for a limited period with a particular duration of notice while unlimited contracts are contracts that have no limited period.

Q: Is it possible for an employee to bring the limited contract to an end before the stipulated time expires?

Yes, the employees are allowed to repudiate a limited contract before the set period; however, he or she may be penalized or may not be paid his or her end-of-service gratuity. But, in certain circumstances, the employer can also rescind a limited contract before the expiration of the time frame mentioned in the UAE Labour Law.

Q: From the case law, can an employer dismiss an employee on a limited contract without just cause?

Employees cannot be dismissed on an unlimited contract which means that the employer has to have a just cause for doing so. The UAE Labour Law recognizes that employees in this type of contract have some measures of protection. Nevertheless, there are circumstances in which the employer can repudiate the contract either due to the default on the part of the employee or misconduct.