There are mainly two types of employment contracts in the Labour system of United Arab Emirates, namely Unlimited Contracts and Limited Contracts. In this article, we will be evaluating the key differences in both the contracts in accordance with the UAE Federal Law No. 8 of 1980.
Both the Unlimited and limited Contracts have a commencement date however, only the latter has an expiry date and the former does not. In both the contracts, the work nature, contract nature (limited/ unlimited), work place, notice period, and remuneration has to be specified in detail.
As a matter of practice, unlimited contracts are more frequently used due to the friendly and open nature of the contract. They are commonly used for permanent work and not for time bound projects.
On the other hand, the limited contracts are more in use when the employee is appointed for specific projects and when the duration of the projects in known in prior. These contracts are therefore linked to the duration of the employee’s visa.
The unlimited contract can be terminated by providing the respective notice period stated in the contact by either of the parties, which is has to be not less than 30 days and not more than 3 months. The limited contract however gets terminated on its own if the contract gets expired and is not renewed even after expiry.
If the employee wants to terminate the limited contract early, he will be liable to pay the employer his 45 days salary including allowances. Likewise, if the employer wants to terminate the contact early, they have to pay the employee his three months’ salary including allowances.
One of the common ways in which the employer can terminate either of the contracts is when the employee is found guilty of committing one of the exhaustive gross misconducts as stated in Article 88 and Article 120 of the UAE Labour law. These include adopting false identity, dismissal of contract during probationary period, causing materialistic loss to the employer, violating the safety instructions displayed in the worksite, poor performance, revealing confidential information, having criminal records , assaulting the employer, found drunk or under the influence of drugs at work place or when he absents himself from work for more than 20 days without the permission of the employer.
It has to be noted that under Article 138 of the UAE Labour law, a worker who leaves work without completing his limited contract shall not be entitled to severance pay benefits unless his service exceeds five years. However as per Article 137 of UAE Labour law, unlimited contract holders are entitled to severance pay benefits as long as the employee completes one year with the company.
It is also worth noting that if the employee leaves the work without providing compensation to the employer, he shall loose his labour rights and shall be also given a ban which prevents the employee from working in any other company for a period of one year. This limits scope of work of the employee to one of the free zones or any Government owned business as they are exempted from the UAE Labour Ban.
To summarize, these days both the employees and employers prefer unlimited contracts over limited contracts as they are more friendly, open and flexible. Limited contract on the contrary offer no freedom and is very risky in terms of penalties.