As 2023 rolls by, the UAE employment scene experiences a massive shift! Undoubtedly, employees and employers need to stay updated with the rules and requirements of the scene to remain relevant. And although the employment contract UAE is crucial, understanding can be complex, especially for first-timers. But don’t worry; we are here to simplify it for you! Keep reading as we uncover UAE employment contracts in simple terms. Let’s get started!
Here, we highlight the fundamentals of an employment contract UAE, such as employment terms, compensation, and other vital factors. Also, we provide simple and actionable insights necessary to navigate the job market in the UAE.
What is an Employment Contract? An employee contract, in the United Arab Emirates, is a legal agreement that binds an employer and an employee. The agreement consists of the necessary work terms such as designation, remuneration, commencement date, and requirements of the workplace relationship. Every business model in the UAE runs on an employment contract. Now, let’s cover the different types we have.
Types of Employment Contracts in the UAE
We have two major types of employment contracts by UAE labor legislation No.8 of 1980: Limited and Unlimited. Both types have several peculiarities, and it is essential to grasp them starting out. Let’s delve in!
A limited or fixed-term contract is a legal agreement between an employer and employee that specifies the duration of the employment. The limited contracts are typically for project-specific or temporary roles. Often, their predetermined end date is at most three years after the date of employment. This option is standard among fixed-term roles, project, or temporary roles.
Unlike a limited contract, an unlimited contract lacks an expiry date. This contract is apt for permanent roles and long-term projects. Unlimited contracts are common among employees fishing out long-term work with a company. However, this contract doesn’t apply to private-sector workers. As of 2023, all private sector, except DIFC and ADGM, employees are on fixed-term contracts.
Perhaps your contract is terminated; some terms and conditions are attached. Also, it differs depending on the end that snips the thread. That said, let’s take a look at both ends.
What Happens When An Employer Terminates a Contract in the UAE?
Whenever an employer decides to terminate a contract, they must follow UAE Labor law and give employees proper notice. Also, this notice must come 1-3 months before the supposed termination. However, from Article 44 of the UAE labor law, some grounds exist that employers can terminate a contract without notice.
Note: When an employer terminates a contract, the employee is entitled to an unpaid leave of one day every week during the notice period to find a new job.
What Happens When An Employee Terminates a Contract in UAE?
Like the employer, the employee must submit a notice 1-3 months before the supposed termination date. Also, employees are entitled to full wages per the contract during the notice period (after the notice has been submitted).
However, if the employee leaves without serving the notice period, they are liable to pay an early termination compensation. The compensation is worth half of three months’ compensation per the contract. Note that the compensation includes all that the employee is paid typically.
UAE Employment Contract Renewal & Expiration
For limited contracts, there is an expiry date. But as of 2023, employees and employers are free to alter the date how they see fit. That said, what are the rules surrounding the phenomenon in the UAE working space? Let’s find out:
When an employment contract expires, the employer has two main options:
- Leave the existing contract in its place, then renew it for a longer or similar term when it expires.
- Lengthen the span of the existing employment contract via a written contract variation document that the employer and employee sign.
Also, the employer can decide not to renew, and when the contract expires, they no longer work together. However, employers are free to extend and renew the employment contract UAE multiple times as they see fit.
Notice Period in UAE
When an employee or employer wants to terminate the contract, they must submit a written notice. This notice is typically submitted 30-90 days before the termination occurs. This period is called the notice period; in the UAE, it spans 30 to 90 days.
If the employer doesn’t want the employee to serve the notice period, the employee is entitled to compensation worth the full pay of the notice period. Similarly, if the employee wants to avoid serving the notice period, they must pay half of three months’ compensation per the contract.
Probation Period in UAE
Employees in UAE are subject to a compulsory probationary period at the start of their contract. The probation period in UAE varies with the company. However, it typically runs between 3-6 months.
The idea behind the probation period is to inspect the employee’s approach to work before assigning a permanent designation. During this period, the worker undergoes performance screening and evaluation. That aside, according to Article 9 of the UAE labor law, there are rules guarding the probation period. Let’s get to them:
- The maximum probationary period is six months from the commencement of the contract. If it exceeds six months, it is considered unlawful.
- The employer can only terminate an employee’s employment during probation after writing a notice 14 days before.
- If the employee wants to resign and work for another company during probation, they must write a month before.
- No paid sick leaves are allowed during the probationary period.
- Employees in the probationary period aren’t entitled to gratuity.
- Extending the probationary period is illegal if the employee held up their end regarding the company’s performance standards.
UAE End-of-Service Gratuity Calculation
According to UAE law, every worker is entitled to a gratuity (end-of-the-service benefits) if they worked a minimum of a year. Regardless of your stand in the working scene, knowing how gratuity works is resourceful. There are several factors to consider. For instance, who snips the thread that ultimately ends the service, the employee or employer leads to a different gratuity calculation.
So, how is this benefit calculated?
Using your base salary, you receive a 21-day wage for each year over the first five years of employment and 30 days for each additional year after the first five years. Also, unpaid leave days are subtracted from the final sum.
What if the employer ends the contract
If an employee’s contract is terminated, the gratuity calculation goes like this:
- If they served more than one year but less than five, their gratuity payment is 21 days’ salary for each year they served.
- If they serve over five years, the gratuity is 30 days’ worth of salary for every additional year as long as it doesn’t exceed two years’ salary.
What if the employee ends the contract
If an employee resigns, the gratuity calculation follows this manner:
- If you resign before completing one year of service, you aren’t eligible for gratuity pay.
- If you served between one to three years, you are entitled to one-third of 21 days’ salary for every year you have worked.
- Employees that serve between three to five years are entitled to two-thirds of the 21 days salary for each year they worked.
- If your work time exceeds five years, you are entitled to 21 days’ worth of salary for
Employment Contract UAE Checklist
In UAE, two employment contract UAE types are available, and there is a checklist for each. Here, we cover the checklists of limited and unlimited employment contracts:
Checklist for Limited Contract
A limited employment contract in the UAE must include the following information according to the UAE labor law:
- Expiring date
- Commencement date
- Nature of the work
- Compensation’s dollar amount.
- Time frame
Checklist for Unlimited Contract
By the UAE labor law, an unlimited employment contract must include the following information:
- Expiry date
- Commencement date
- Type of work being done
- Compensation amount
The non-compete restriction clause in employment contracts is under Article 10 of UAE Labour Law. The non-compete clause stems from protecting the employer’s standing. Details of a non-compete clause are pretty straightforward. It restricts an employee from serving a similar company upon ejection. While the legality of these restrictions is still being debated, it is prevalent globally, and UAE is no exception.
“The non-compete clause can be defined as a restrictive term imposed on the employee on his agreement to refrain from entering into a business or engaging with any action which is directly in competition with that of the employer, for a specific period, geographical limit and a specified sphere of activities upon the termination of the employment contract.”
The non-compete clause is valid in employment contract UAE only if it meets these requirements:
- The employee must be at least 21 years old.
- The clause specified the period of restraint, geographical restraints, and the business they are restraining their employee from
- The clause specifications should be limited to the extent needed to protect the employer’s legitimate interests.
Note: The breach of the clause comes with dire consequences.
Types of Work Arrangements in UAE
While full-time work arrangement is well-known, other work arrangements are widely accepted in the UAE:
- Part-time: With this contract, employees can work for one or more employers for specific hours or days.
- Temporary work: The employee works on a particular assignment, and the employment contract ends upon completion.
- Remote work: All parts of the work are done outside the workplace.
- Flexible work: With flexible work, employees are offered the opportunity to choose their working hours.
- Job Sharing: This work arrangement is when two or more people share a full-time workload. This model often features alternating days and splitting working hours.
Employment Contract Tips
On the UAE employment scene, here are tips that put you in a better standing for more juicy offers:
- Do your research: Find the market rate for the position you are vying for and the benefits. This knowledge offers you a better chance at negotiation.
- Always Have a Backup: Be prepared to walk out. Don’t settle. If the company doesn’t meet your set demands, walk away. Have other jobs lined up or be willing to start a business.
- Pick Your Compromise: An employment contract UAE involves more than just the salary. Often, businesses have other benefits. Be more willing to lay off on some offers for a better deal.
- Negotiate!: A common tactic is to put your price way higher, so if they negotiate lower, you still get the better end of the deal. Reach for the sun; if that doesn’t work, you might just land on the moon.
- Be Confident: You are good at what you do, so let your persona and vibe say that!
What is the difference between a limited and unlimited contract?
The limited contract has a fixed expiry date and lasts about three years. On the other hand, the unlimited contract doesn’t have a fixed end date.
How Long should a probationary period last?
In UAE, the probationary period lasts from 3-6 months. Anything beyond six months for no valid reason is illegal. Also, the probationary period is mandatory.
Is a labor contract the same as an employment contract?
At its core, yes. However, in the UAE, there is a twist. According to the law, the federal labor contract is written in Arabic and English and contains all the essential bits of your employment. The labor contract comes in three copies for the employer, employee, and Ministry of Labor.