The United Arab Emirates (UAE) is undoubtedly a land of opportunity for job seekers in the Middle East. To ensure continued success, the UAE must have a legal framework that can adapt to the ever-changing work environment. The United Arab Emirates has revised its labor laws, replacing unlimited contract in UAE with fixed-term contracts under Federal Labor Law No. 1.
In this article, we will explain the difference between indefinite and fixed-term contracts under UAE labor law.
What Is Unlimited Contract In UAE?
A limited contract in UAE is a legally binding agreement between an employer and an employee for a specific period of time, with a fixed start and end date. The employee’s UAE residency visa typically determines the length of a contract, with a maximum term of four years.
Upon completion of the contract, the employment period automatically terminates, and the employer and employee may mutually agree to extend or terminate the contract.
New labour law for a limited contract in UAE, establishes the following important tips.
- It is important to note that fixed-term contracts cannot exceed four years in duration.
- The contract of this type includes clear start and end dates, the contract period supports only mutually agreed fixed salary changes, and a statement of remuneration and additional allowances is provided prior to signing.
- Fixed-term contracts include benefits such as health insurance, annual leave, and a retirement bonus.
- If there is a serious reason, the party can terminate the contract before the end of the term. However, the contract will automatically terminate at the end of the term. Both parties must comply with the notice period for unlimited contract in UAE.
- The specific employers limit and require mutual consent to change the location and content of the work.
- Employees can only change companies after the end of the contract period or by mutual agreement.
An Indefinite Contract
Has a fixed start date but no end date, making it more flexible for both employers and employees. An unlimited contract in UAE remains in effect until one or both parties terminate it or sign additional terms.
The main benefits are:
- Perpetual contracts in the UAE have no specified end date and will continue until terminated by one or both parties.
- Open-ended contracts provide job security, annual leave, overtime pay, sick leave, and entitlement to benefits upon termination of employment, such as payment of insurance premiums.
- They also offer flexibility to change jobs with timely notice and mutual agreement with the current employer, without waiting for the end of the contract. The employee’s residence visa is not tied to the contract.
Employers can modify employment terms and conditions, including compensation and benefits, after consulting with employees, as long as these changes comply with UAE labor laws.
Unlimited contracts in UAE are ideal for those seeking greater flexibility in their work arrangements.
What Is The Rule Of Unlimited Contract In UAE?
- The UAE Labor Law 2023 introduces significant changes to employment contracts, including permanent contracts. It is crucial to have a clear understanding of these contracts due to the constantly evolving labor regulations.
- To comprehend the details of these contracts, parties must have a clear understanding of the 2023 Annual Leave Regulations under UAE Labor Law. Also, the broader framework of unlimited contract in UAE.
This ensures compliance with the UAE’s dynamic employment landscape for both employers and employees and enables informed decision-making.
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What Is Limited And Unlimited Contract In UAE
- Long-term or permanent employees use permanent employment contract in the UAE, which do not have specified end dates. It is important to note that, unlike fixed-term contracts, permanent contracts do not have a specific end date. The legal conditions for termination determine the ongoing nature of the employment relationship.
- For indefinite contracts, the employment relationship continues until voluntary termination, just termination, or mutual agreement. Under UAE labor law, workers are given job security through open-ended contracts, provided they fulfill specific conditions.
Key Differences Between UAE Limited And Unlimited Contract
The UAE has two types of employment contracts: fixed-term and unlimited contracts in UAE. The following are the main differences between these types of contracts.
Importance Of Unlimited Contracts
- According to the UAE Labor Law 2023, permanent contracts are a requirement for employment in the UAE. In today’s constantly evolving job market, employees can find peace of mind in the stability that permanent contracts offer.
- It is important for both employers and employees to fully comprehend the intricacies of these contracts, as they come with both benefits and drawbacks. Unlimited contract in UAE offer job security, provided that certain conditions are met.
- Unlimited contract in UAE offer stability, leading to increased employee loyalty and engagement. Employers must understand the rules and obligations to avoid legal problems when terminating such contracts due to stricter regulations. It is important to thoroughly understand and strictly adhere to these deadlines.
- Compliance with reporting deadlines is crucial to avoid disputes and legal consequences, as failing to do so can result in potential liabilities during the notice period.
For Employers
- Employers in the UAE must comply with labor laws and provide appropriate notice to employees when terminating a contract. Article 44 of the UAE Labor Law outlines the reasons why an employer can terminate a contract without notice.
For Employees
- Employees, like employers, must give notice of termination at least one to three months before their intended termination date. The employer is required to pay the employee their full contractual salary during the notice period.
- If an employee does not serve the required notice period before resigning, the company is obligated to pay early termination compensation, equal to half of three months’ salary, to the employee as stated in the contract. It is important to note that the compensation includes everything that the company would normally pay to an employee.
Key Features Of Unlimited Contracts
When it comes to employment contracts in the UAE, there are several important aspects and considerations to keep in mind. While labor laws may vary slightly from emirate to emirate, there are common elements that apply across the board. It is crucial to evaluate whether the job offer and position align with your long-term career goals.
Additionally, open-ended contracts provide job security, and it is important to ensure that the termination terms are clear. It is essential, to carefully consider compensation and benefits terms, such as salary increases, bonuses, and benefits, to ensure fair and appropriate compensation.
Contract Duration
It does not have a fixed term and can continue indefinitely until either party decides to terminate or agree to a new employment relationship. Open-ended contracts provide long-term job security and opportunities for professional development, making them suitable for employees seeking stability.
Renewal of the Contract
Open-ended contracts do not have a fixed term and therefore do not require automatic renewal. If both parties wish to continue the employment relationship, they may sign additional terms with new terms and conditions.
Termination Of Contract
The employee and the employer can terminate an indefinite contract by mutual agreement with at least one month’s notice, as per Article 177 of the Labor Code or as agreed in the employment contract. Also, is entitled to receive full salary and benefits during the notice period, and both parties must fulfill their contractual obligations.
Employees also have the right to resign without notice, as provided for in Article 121 of the UAE Labor Law. The employer must still provide the employee with her full 30-day salary, even if they fail to offer her an opportunity to comply with the notice period due to reasons beyond the terms stipulated in Article 120 of the UAE Labor Law.
Compensation
One of the parties terminates the employment relationship without just cause or prior notice. That is, terminate the employment relationship by mutual agreement and respecting the 30-day notice period.
The employee is entitled to compensation equal to three months’ salary in cases of unfair dismissal. A claim for damages in a case of unfair dismissal does not impact an employee’s entitlement to redundancy pay or severance pay.
Retirement Allowance
Employees on a fixed-term or permanent contract receive severance benefits calculated based on their years of service and final base salary. It is important to note that the base salary does not include any allowances, bonuses, or other benefits that may accrue depending on the position.
Employees who have not completed one year of service are not entitled to severance pay. This regulation applies to both fixed-term and indefinite-term contracts. An employee is entitled to a bonus after completing one year of continuous service, regardless of the type of contract. However, the calculation of the bonus amount differs when it comes to tips paid.
Implications for employers
Employers in the UAE should consider important factors before hiring employees on any contract type. The employment relationship must observe notice periods if either party wishes to end it. This is, for both fixed-term and open-term contracts.
Notice periods for fixed-term contracts are usually shorter than for permanent contracts. Employers must comply with notice period in UAE as per labor law to avoid sanctions and legal action. The employer can renew fixed-term contracts at their discretion, while either party can terminate indefinite contracts.
Employers must be aware of the expiration date of fixed-term contracts and take necessary action if needed. Also, indefinite-term contracts require employers to pay employees end-of-service gratuities. However, the calculations differ for each type of contract.
Conclusion
To achieve a fulfilling work-life balance, employees must prioritize their professional development and growth. Employment contracts should provide ample opportunities for long-term skills training, support, and development. Employees must know their labor rights and legal protections in the UAE.
To protect your rights as an employee and ensure a safe and fair working environment, it is crucial to be familiar with labor laws governing vacation, holidays, sick leave, and social security benefits. It is also important to seek legal advice and fully understand the terms and implications before signing an employment contract.
If you require guidance on entering into an employment contract in the UAE, please do not hesitate to contact us.
