It is mandatory for an expatriate employee to sign a labour contract in the format stipulated by the Ministry of Labour prior to commencing employment. This contract will govern the relationship between the employer and employee and a copy of the contract is to be submitted to the Ministry. This article discusses the different types of expatriate employment contract available under UAE law and their impact on employees and employers.
Types of Contract
Generally, an expatriate employee contract will either be for a limited period or for an unlimited period. A limited contract is where the employment term is fixed for a specified duration, not exceeding four years, though it may be renewed by mutual agreement for a similar or shorter period, on one or more occasions. Any renewals will be considered as an extension of the original period and will be included in calculating the employee's total length of service.
A contract shall be considered under the law as an unlimited contract, if it is not made in writing, is concluded for an unlimited period, is concluded for a limited period and both parties continue to perform their roles and responsibilities under the contract after expiry of its original term without a written agreement, or is concluded for the execution of specific work with no fixed duration and due to its nature, the contract continues after completion of the agreed work.
Advantages and Disadvantages
Many would argue that in a country like the UAE, where large-scale projects are plentiful, a limited contract offers stability for both employer and employee. It ensures that the employee is available to the employer for the duration of the project, thereby contributing to its overall success. Accordingly, such contracts are generally preferred by companies engaged in the execution of projects, for example in the construction sector.
On the other hand however, the limited contract can be seen as being rigid in nature in that it forces an employee to stay in employment even where they may wish to leave. It is contended that an unlimited contract offers better flexibility for the employer-employee relationship as both are free to terminate should they wish within the confines of the contract and UAE law.
Termination of a Limited Contract
If a limited contract is terminated by an employee, they may be required to compensate the employer, for any prejudice the latter may sustain as a result of their resignation. The compensation, however, cannot exceed half of the employee's remuneration for 3 months or the residual period of the contract, whichever is shorter (unless the contract provides otherwise).
If however the employee's premature termination of the agreement is without a valid reason, they may not be permitted (even with the employer's consent) to take up employment with another company for one year from the date of resignation. Accordingly, the Ministry may impose a labour ban on the employee for one year. In addition, the employee will not be entitled to severance pay unless his continuous period of service exceeds 5 years.
Where there is a limited contract and an employer terminates, they shall be required to compensate the employee and compensation shall not exceed the employee's remuneration for 3 months or the residual period of the contract, whichever is shorter (unless the contract provides otherwise).
Termination of an Unlimited Contract
Either party may terminate an unlimited contract for a valid reason at any time following its conclusion, by providing 30 days notice to the other party.
The contract shall continue to be valid throughout the notice period and the employee is obliged to work and entitled to full pay during the notice period. The parties are not permitted to dispense with the requirement of notice or reduce its period though they may mutually agree to increase it.
If either of the parties fails to provide ample notice, the terminating party will be required to pay compensation in lieu of notice – in an amount equal to the employee's remuneration for the entire period of notice or the time by which it was reduced.
An employee who notifies an employer of their intention to terminate an unlimited contract and leaves before the expiry of their notice period shall not be permitted (even with the employer's consent), to work for another company for one year from the date on which they leave their previous employer.
An employee's termination can be seen as arbitrary by the employer if the reason for termination is, irrelevant to the work, pursuant to a serious complaint submitted by the employee to the authorities or, pursuant to the commencement of legal proceedings by the employee against the employer that has proven to be valid.
Where an employee is arbitrarily dismissed, the court can order the employer to pay compensation. This compensation shall be assessed upon the nature of the job, the amount of prejudice the employee has sustained and the duration of service etc. The compensation however, shall not exceed 3 months remuneration.
Impact of Termination
For both parties, an important point to note prior to entering into any employment contract is the impact caused by its termination. In the event an employee decides to terminate a limited contract, before the period stipulated, they may face a labour ban and as a result they may not be allowed to enter the UAE on an employment visa until one year has passed.
On the contrary, in accordance with recent changes introduced by the Ministry of Labour, an employee with an unlimited contract who has completed two years of continuous service is able to change job without the employer's permission.
It is important that expatriate employees understand the difference between limited and unlimited contracts before executing a contract and it is important that the relationship between employee and employer is transparent in order to avoid any of the pitfalls outlined above. The right contract for the right job and circumstances should be mutually beneficial to employer and employee and both parties should understand their rights and responsibilities under the contract, especially with regards to termination and the implications this can have on both parties under UAE law.