The UAE is a thriving location for professionals seeking job opportunities, and expatriates need to understand the difference between limited and unlimited contracts in the UAE.
This article will explore the difference between limited and unlimited contract uae labour law regarding termination, end-of-service gratuity, and renewal. We will also discuss when to use a limited or unlimited contract and the recent changes in UAE labour law concerning employment contracts.
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Difference between limited and unlimited contract uae labour law.
The primary difference between a limited and unlimited contract is flexibility. A limited contract has a specified duration, while an unlimited contract is open-ended.
In a limited contract, the employer and employee must agree on a contract renewal to continue the employment relationship. In contrast, no renewal is necessary for an unlimited contract as it has no termination date.
Know What is Unlimited Contract in UAE.
An unlimited contract is a contract that does not have a fixed term, meaning there is no established termination date. The employer or the employee can terminate the contract for various reasons under the UAE Labor Law.
Employers must specify the start date, nature of work, remuneration, and workplace in an unlimited contract.
Learn what a limited contract is in UAE.
A limited contract has a specified duration, usually valid for two or three years, and it is also known as a fixed-term contract. Both parties must agree on a contract renewal to continue the employment relationship.
If the employee decides not to renew, they must submit a non-renewal letter to the employer.
Determining When to Use a Limited or Unlimited Contract.
Limited contracts are suitable when an employer requires an employee for a fixed term or a specific project with a predetermined duration.
Unlimited contracts are helpful when an employer wants an employee to be permanent in the company or the length of the project is not known in advance.
Difference Between Limited and Unlimited Agreement Regarding Termination.
Terminating a limited contract requires an agreement between the employer and the employee. If the employer terminates the contract, the employee is entitled to early termination compensation, three months’ remuneration, including salary and allowances.
If the employee terminates the contract early, they may face consequences and must pay the employer six weeks of salary.
On the other hand, an unlimited contract offers more flexibility regarding termination. If either party agrees to terminate the contract at any time, they must meet the notice period obligations and provide a valid work-related reason.
The end-of-service gratuity pay is different depending on the type of contract. For limited and unlimited contracts terminated by the employer, 21 days of basic pay is awarded for the first five years of service and 30 days for each additional year.
For limited contracts terminated by the employee, they are not entitled to gratuity pay if they have less than five years of service. For unlimited contracts terminated by the employee, the gratuity pay varies depending on the length of service.
Renewal of UAE Limited and Unlimited Contract.
Both parties must agree to renew a limited contract, which must not be automatically renewed. In contrast, an unlimited contract has no termination date, and no renewal is necessary.
Recent Changes in UAE Labor Law.
Based on the UAE Labor Law amendments, employers cannot offer unlimited contracts to potential employees. Private-sector employment contracts cannot be unlimited and must be fixed-term contracts. Employers have until December 31st, 2023, to transition employees from unlimited to limited contracts.
FAQs about the difference between limited and unlimited contract uae labour law.
In conclusion, understanding the difference between limited and unlimited contract uae labour law is essential for expatriates. The recent changes in UAE labour law require employers to transition employees from unlimited to limited contracts.
Employers and employees can make informed decisions regarding their employment relationships by knowing when to use a limited or unlimited contract, how to terminate them, and how to renew them.
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We recommend you read about UAE labour law termination and Contract Ending Dubai and learn about the Restricted period employment agreement. Also, learn about Hiring the Best Employment Agreement Lawyer UAE Dubai.
A legal consultant specializing in UAE labor law. He regularly publishes articles on the website and writes on various areas of UAE law, with a specific focus on labor law.