Understanding Unlimited Contract Rules in the UAE

A Guide to Terminations and Resignations under Unlimited Contract Rules 2024

You’ve taken the plunge, moving to the vibrant UAE for your dream job. Fast forward a bit, and now you’re facing a crossroads—perhaps considering a job change or navigating an unexpected termination. Understanding the nuanced landscape of terminations and resignations under an unlimited contract in the UAE is pivotal. With the latest updates effective April 10, 2024, in mind, this guide aims to equip you with essential knowledge to navigate these waters smoothly.

Unlimited Contracts: Understanding the Framework

In the UAE, the employment canvas is predominantly painted with unlimited contracts, meaning the employment bond continues indefinitely until one party decides to terminate it. Recent amendments to the UAE Labour Law (Federal Law No. 14 of 2012) have introduced greater flexibility around fixed-term contracts, but unlimited contracts remain prevalent.

Key differences between unlimited and limited contracts in the UAE

FeatureUnlimited ContractLimited Contract
Duration and RenewalNo specified end date; can be renewed indefinitely.Fixed duration, typically 1-3 years; ends automatically unless renewed.
TerminationCan be terminated by either party for any legal reason with required notice period.Can only be terminated under specific circumstances with penalties for early termination.
End-of-Service GratuityCalculated based on basic salary and length of service; 21 days’ salary per year for the first 5 years, then 30 days’ salary per year thereafter.Similar calculation, but resigning before 5 years may result in reduced gratuity.
Notice PeriodRequired, usually 30 to 90 days.Not required for contract expiry; for early termination, conditions must be specified in the contract.
Renewal and ConversionCan be renewed or renegotiated by mutual consent without formal procedures.Can be renewed as limited or converted to unlimited, depending on mutual agreement between employer and employee.
Differences between unlimited and limited contracts in the UAE

The Termination Tapestry

Termination of an unlimited contract weaves through two primary pathways:

  • By Mutual Agreement: This harmonious route involves both employer and employee agreeing on separation terms, often including notice periods and severance packages.
  • Unilateral Termination Without Notice: This route necessitates valid justification, such as:
    • For Employers: Termination grounds include gross misconduct, habitual absenteeism, or violation of workplace policies.
    • For Employees: Legitimate reasons like unpaid wages, hazardous work conditions, or contract breaches by the employer justify immediate resignation. It’s prudent to alert the Ministry of Human Resources and Emiratization (MOHRE) in such scenarios.

End-of-Service Gratuity:

Employees who are terminated after completing one year of service are generally entitled to an end-of-service gratuity payment. This is calculated based on their basic salary and years of service. Here’s a breakdown of the gratuity calculation formula as of April 10, 2024:

  • For the first 5 years of service: The employee is entitled to 21 calendar days’ basic salary for each year of the first five years of work.
  • Beyond 5 years of service: The employee is entitled to 30 calendar days’ basic salary for each additional year, provided the total gratuity does not exceed two years’ pay.
End-of-Service Gratuity:
End-of-Service Gratuity:

Illustrative Example:

To illustrate this formula, let’s assume a basic monthly salary of AED 10,000. Here’s how the gratuity would be calculated for service years ranging from 2 to 20 years:

Years of ServiceGratuity CalculationGratuity Amount (AED)
2(10,000 / 30) * 21 * 214,000
3(10,000 / 30) * 21 * 321,000
4(10,000 / 30) * 21 * 428,000
5(10,000 / 30) * 21 * 535,000
6((10,000 / 30) * 21 * 5) + ((10,000 / 30) * 30 * 1)40,000
7((10,000 / 30) * 21 * 5) + ((10,000 / 30) * 30 * 2)45,000
8And so on, adding 10,000 for each additional year up to 20 years
End-of-Service Gratuity Gratuity Calculation unlimited Contract Rules 2024

Navigating Notice Periods

Except for mutual terminations, a notice period usually precedes the final goodbye. Here’s how it breaks down:

  • 1 Month Minimum: The standard notice period for most employees, with some contracts stipulating longer durations, binding both parties.

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Key Points to Ponder

  • End-of-Service Gratuity: After completing a year of service, employees typically qualify for a gratuity payment, calculated based on their basic salary and tenure. Stay attuned to any updates to this calculation by the UAE government.
  • Non-Compete Clauses: These clauses might limit your employment opportunities post-departure, especially concerning competitors. Their enforceability varies, so legal consultation is advisable.
  • Legal Counsel: When in doubt, or to clarify your rights and the termination process, seeking advice from a UAE labor lawyer is a wise move.
Navigating Notice Periods
Navigating Notice Periods

Embarking on or ending employment in the UAE, particularly under an unlimited contract, presents a unique set of challenges and considerations. As of April 10, 2024, staying informed about the latest legislative updates and understanding your rights and obligations is crucial. Whether you’re considering a new opportunity or facing an unexpected job loss, equipped with this knowledge, you can confidently navigate the complexities of the UAE labor market.

FAQs: Navigating Unlimited Contracts in the UAE

  1. Are unlimited contracts still offered in the UAE?
    • Yes, unlimited contracts are still prevalent in the UAE employment landscape.
  2. Can I resign from an unlimited contract?
    • Yes, employees can resign from an unlimited contract, adhering to the required notice period.
  3. What does an unlimited contract entail?
    • An unlimited contract has no specified end date, allowing for ongoing employment until either party decides to terminate with notice.
  4. How is gratuity calculated for unlimited contracts in the UAE?
    • Gratuity for unlimited contracts is based on the length of service: 21 days’ salary for each of the first five years, and 30 days’ salary for each year thereafter.
  5. How can I determine if my contract is unlimited?
    • Check your employment contract for a specified end date; the absence of one typically indicates an unlimited contract.
  6. Can you provide an example of an unlimited contract?
    • An employment agreement that continues indefinitely, requiring a notice period for termination by either party, exemplifies an unlimited contract.
  7. Will I incur costs if I resign from my job in the UAE?
    • No, you won’t incur costs for resigning, but you must serve the required notice period to avoid penalties.
  8. Is it permissible to resign after 1 year on an unlimited contract in the UAE?
    • Yes, you can resign after 1 year, provided you adhere to the notice period stipulated in your contract.
  9. Can I resign after 8 months under an unlimited contract?
    • Yes, resignation is allowed at any time under unlimited contracts with proper notice given to the employer.
  10. Which is preferable: a limited or unlimited contract?
    • Preference depends on individual circumstances; unlimited contracts offer more flexibility, while limited contracts provide specific start and end dates.
  11. What is the minimum salary requirement in the UAE?
    • The UAE does not have a universal minimum salary; it varies by sector, company, and job role.
  12. What are the latest rules for resignation under unlimited contracts in the UAE?
    • As of the latest update, employees must provide a notice period (typically 30 days) and fulfill any other conditions outlined in their employment contract. Always check for the most current regulations as labor laws evolve.

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