Limited Vs Unlimited UAE Employment Contract
What is Limited Versus Unlimited UAE Employment Contract?
Click here to read all about UAE Unlimited Term Employment Contract
Click here to read all about UAE Limited Employment Contract
Limited Term Contract
|1.||A fixed-term contract linked to the duration of the UAE residency visa, typically two or three years depending on the employer’s location.|
|2.||Automatically terminates at the end of the term, unless terminated earlier by either party or renewed by mutual agreement.|
|3.||Suitable for engaging employees for specific projects with known durations.|
|4.||Termination is governed by the contract’s expiration date or earlier termination by either party.|
|5.||Renewal can be done with the consent of both parties or by converting the contract to an unlimited term contract.|
|6.||Early termination by the employer may require “early termination compensation” of a minimum of three months’ remuneration.|
|7.||Employee’s early termination may result in paying the employer “early termination compensation” of half of three months’ remuneration or for the residual period.|
|8.||Notice period, if provided in the contract, must be given in addition to any early termination compensation.|
|9.||End of service gratuity calculation based on years of service, with a minimum of 21 calendar days’ basic pay for each year.|
|10.||Minimum contract requirements include the dates of conclusion and work start, nature of work, workplace, remuneration amount, and duration.|
Unlimited Term Contract
|1.||An open-ended employment contract without a fixed termination date.|
|2.||Termination can be done by the employer for valid reasons with notice or summarily for gross misconduct.|
|3.||Commonly used for permanent employees not engaged in project-based work.|
|4.||Employee can resign by providing the contractual notice period or resign without notice as per Article 121.|
|5.||End of service gratuity calculation similar to limited term contracts, based on years of service.|
|6.||Sliding scale reduction in end of service gratuity for resignations based on the period of service.|
|7.||Minimum contract requirements include the dates of conclusion and work start, nature of work, workplace, and remuneration amount.|
Note: The information provided is based on the general understanding of limited and unlimited term contracts in the United Arab Emirates and may vary based on specific circumstances and legal regulations.
|Unlimited Contract||Limited Contract|
|No set end date, open-ended employment||Fixed-term contract with a specified start and end date|
|Recommended for permanent employment||Suitable for specific projects or known durations|
|Termination by employer:||Termination by employer:|
|– With 30 days’ notice or agreed extended notice period||– With no notice provision, contract expires on end date|
|– Summary dismissal for gross misconduct|
|Termination by employee:||Termination by employee:|
|– With 30 days’ notice or agreed extended notice period||– With payment of early termination compensation|
|– Resignation without notice in specific circumstances|
|Compensation for unjustified termination:||Compensation for unjustified termination:|
|– Three months’ wages||– Three months’ wages or wages for remaining contract period|
|End of service gratuity calculation:||End of service gratuity calculation:|
|– 21 calendar days’ basic pay for first 5 years,||– 21 calendar days’ basic pay for first 5 years,|
|30 calendar days’ basic pay for additional years||30 calendar days’ basic pay for additional years|
|– No entitlement for termination due to gross misconduct||– No entitlement for termination due to gross misconduct|
|– Transferable to other companies with certain conditions||– Non-transferable within the contract, unless converted|
|– Freezone and government-owned businesses exempted||to an unlimited contract or under specific circumstances|
Please note that this table provides a general overview, and it’s important to refer to the specific provisions of the UAE Labour Law and consult with legal professionals for accurate and up-to-date information regarding employment contracts in the UAE.
Key Points on Differences Between Limited & Unlimited Contracts-UAE Employment Contract
- A limited contract has a specific beginning and end, while an unlimited contract only specifies the beginning.
- The flexibility of the contract depends on whether you are an employee or employer and your desired employment relationship.
- Limited contracts offer more security but less flexibility, while unlimited contracts are more flexible but provide less security.
- In limited contracts, if an employee is terminated before the contract’s expiration, they are entitled to notice period, end-of-service benefits (21 days of basic salary for each year of service), and three months of arbitrary dismissal compensation.
- Arbitrary dismissal compensation is usually applicable as thresholds for termination with a good cause are rarely met.
- If an employee resigns from a limited contract, there is no arbitrary dismissal compensation, but they may forfeit their end-of-service benefits.
- Resigning from a limited contract before its expiration waives the employee’s end-of-service benefits.
- The length of the employment relationship affects the amount of arbitrary dismissal compensation awarded by courts.
- In unlimited contracts, there is no penalty for employees to resign, and the notice period remains the same.
- End-of-service benefits in unlimited contracts are not linked to the contract’s term and are based on the employee’s total service period.
- Unlimited contracts offer more flexibility but provide no arbitrary dismissal compensation.
Key Takeaway: UAE Employment Contract
The key points to understand about limited and unlimited contracts are that limited contracts have a specific duration and provide more security to both employees and employers, while unlimited contracts offer flexibility but less security. In limited contracts, termination may entitle employees to notice period, end-of-service benefits, and arbitrary dismissal compensation. Resignation from a limited contract may result in the loss of end-of-service benefits. Unlimited contracts do not impose penalties for resignation, and end-of-service benefits are not tied to the contract’s duration. Overall, the choice between limited and unlimited contracts depends on individual preferences and circumstances
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What is better, unlimited or limited contract in the UAE?
What are the benefits of a limited contract in the UAE?
- Clearly defined start and end dates.
- Often linked to the duration of the employee's UAE residency visa.
- Suitable for specific projects or known durations.
- Automatic cancellation if not renewed.
- Eligibility for compensation if terminated without valid reasons.
Is an unlimited contract valid in the UAE?
How do you know if a contract is limited or unlimited?
Can I resign after 1 year in an unlimited contract?
Do I need to pay if I resign in a limited contract?
Can I resign after 1 year in a UAE limited contract?
Can I terminate a limited contract?
Is a limited contract good?
How many years is an unlimited contract?
Do I need to pay if I resign in the UAE?
What are the benefits of an unlimited contract?
- Flexibility and long-term stability, as there is no fixed end date.
- Ease of transferability to other companies, provided certain conditions are met.
- Eligibility to work in free zone companies or government-owned businesses.
- Payment in full during the notice period when resigning.
- Entitlement to end of service gratuity and other benefits after completing a certain period of continuous service.
Please note that the answers provided are general in nature and may vary depending on specific circumstances and the provisions of the UAE Labour Law. It is always advisable to refer to the law and seek professional advice for accurate and up-to-date information regarding employment contracts in the UAE.Federal Decree Law No. 33 of 2021 on the Regulation of Labour Relations in the Private Sector, the ‘UAE Labour Law’