Latest Amendments: New Labour Law for Limited Contracts in the UAE

Understanding the new labour law for limited contract in UAE is a must if you want to have a compliant business. Before hiring new employees, it is necessary to learn about the employment rules regarding contracts.

In this article, you are going to learn more about the new labour law for limited contract in UAE. Moreover, you will understand all the implications for employers and how you can navigate the impact of this new rule as a business.

Key Changes Explained: Understanding the Amendments in Detail

Regardless if you plan to hire temporary workers or permanent workers, you must provide them with a valid contract. According to the previous UAE labour law, there were two types of contracts. Thus there were the limited term and unlimited term contracts.

However, with the new labour law issued in February 2022, there were new provisions regarding contracts. That led to the new labour law for limited contract in UAE.

The following are the key changes these new regulations include:

• All the unlimited-term contracts have to be converted to limited-term contracts. The deadline for converting unlimited-term contracts to limited-term contracts was 31st December 2023.
• Employers who want to issue a new contract for a new hire must offer limited-term contracts only.
• The limited-term contracts may have a validity of two to three years.

Implications for Employers: Navigating the Impact of the New Labour Law

Starting a business in the UAE as a foreigner comes with a varied set of challenges. As an employer, you have to be aware of all the local employment regulations so you can stay in compliance.

Nonetheless, the UAE is popular for being a place that is constantly changing and updating its regulations to adapt to the evolving market. Therefore, you should have a team of experts in your HR department who can always check the new revisions and rules regarding employment.

Since limited or fixed-term contracts are now the rule it is important to understand what they are and how they can impact your business. So, what is limited contract in UAE? Also known as a fixed-term contract this written employment agreement terminates automatically or it can be renewed at the end date established.

The following are the implications of this new rule for employers:

• The new labour law for limited contract in UAE is a key benefit for employers. This is because it offers potential security for the business. For instance, if you hire an employee who does not give his best performance under an unlimited term contract it will be harder to dismiss him. However, with a limited-term contract, the employee with poor performance will live once it expires.
• A fixed-term contract can be a great tool for attracting new employees particularly those that come from abroad.
• It offers an opportunity to hire employees at constant intervals and update contracts based on the role and developments.
• It provides the opportunity to engage employees for a particular project or a task of a specific duration.

Employee Perspectives: Assessing the Effects on Limited Contract Workers

The new labour law for limited contract in UAE also affects employees. Given that the contract has a starting and ending date specified, the employee can know for how long they will be working for the company.

Since the contract is time-limited it is important to make the distinction between a fixed-term one and a temporary one. In a temporary contract, the goal of employment does not pretend to be permanent, but just for a short term. Whereas in a fixed-term contract, the employee can be rehired by the company and thus become a permanent employee.

Just like it happens with employers, this type of contract has its risks and rewards for employees too. The following are some of the effects it has on employees:

• For some employees, this type of contract may offer more flexibility. This is because they have an end date and thus, they are able to have more control over their schedule. So, they can make the decisions that they will take regarding their careers with enough time.
• In a limited-term contract, the employee has no long-term commitment. For instance, the employee may deliver their best performance during the work term and decide to try something new after the contract ends to explore different roles. Thus, it is a good type of work arrangement for those who want to look for a job that best suits their skills and interests.
• One of the risks of this type of contract is that employees may decide to terminate the employment relationship but they may lose their end-of-service gratuity, or in some cases, may face penalties.

Keep in mind that if you do not comply with what the contract establishes, your employee may file a complaint regarding labour issues and your company could get affected.

Termination and Renewal Procedures: Guidelines Under the New Regulations

Deciphering written employment agreements like contracts can be complex. One of the most difficult aspects of contracts in the UAE is understanding the termination procedures.

Since the contract has an end date once said date is approaching, both parties have to determine what they will do. Thus, there are only two options: renew it or terminate it.

If both parties decide to renew the contract it is easier. This is because they just have to reach the agreement and sign the new contract. However, when it comes to termination, there are different rules to follow.

So, what is the benefits of limited contract in UAE? The main advantage is that there are several rules for termination that have the goal to protect both the employer and the employee.

The following are the cases in which limited-term contracts can be terminated:

• Both parties submit a written agreement before its termination.
• The employment contract can be terminated once the end date specified in the contract approaches and neither the employer nor the employee decides to renew it or extend it.
• Either party may wish to terminate the employment contract as long as they follow the provisions in the law and comply with the notice period established in the contract.
• Some other cases where the contract may be terminated are in the case of the employer’s death, the employee’s death, a final judgment, if the establishment closes permanently or if the employer goes bankrupt.

Rights and Protections for Employees: Analysis of Benefits and Entitlements

According to the UAE labour law employees have the following rights and protections regarding their contracts:

• If the employer wants to terminate the employment contract they have to comply with the notice period established in the contract. Therefore the employee has to be notified at least 30 days in advance and no more than 90 days.
• The employee has the right to receive their full wage during the notice period and until the expiration of such period.
• If the employer does not comply with the notice period they should pay compensation to the employee. Thus this compensation is the notice period allowance.
• Another great benefit employees have in the case of employment termination by the employer is that they have the right to be absent for one working day each week during the notice period. This is with the aim to start the search for another job. However, the employee has to notify the employer the date that they will not show up at work with at least three days in advance.
• In some cases, the employee can resign without notice while retaining their rights. Some of these cases may be when there is a breach of the employer’s obligations towards the employee. Or when it was determined that the employer assaulted the employee, for instance.

Employer Compliance Requirements: Ensuring Adherence to the New Regulations

As an employer, you need to ensure you comply with the labour law for limited contract in UAE. Some of the key considerations you can take to ensure compliance are the following:

• Ensure to have legal specialists in your HR team who know how to draft compliant employment contracts.
• Make sure every detail about employment is included in the contract. Thus include the notice period and any other detail that is crucial for compliance.
• Provide a safe workplace where the employees’ safety and health are not in danger. This is to minimize the risk of having employees resign without notice.

Legal Insights and Considerations: Understanding the Legal Framework

When it comes to the new labour law for limited contract in UAE, it is important to understand the legal framework that surrounds it.

As such keep in mind the following:

• Resignation during probation period: Either party may terminate the employment relationship during the probation period. However it is necessary to comply with the 14-day notice period.
• Resignation during the employment term: Either party can terminate the employment relationship at any moment. However, they should comply with the notice period established in the contract.
• Gratuity pay: Employees may receive their end-of-service benefit as long as they have more than one year of service. Thus the amount paid will be based on the years the employee has worked for the company.
• Resignation without notice: If any of the parties decide to terminate the contract without notice they should pay the notice period allowance to the other party.

It is worth noting that a valid employment contract is a requirement for obtaining a work permit and applying for a UAE residence visa for your employee.

Challenges and Opportunities: Adapting to the Evolving Regulatory Landscape

As with any other employment aspect in the UAE, it has its set of challenges and opportunities. It is important to comply with the evolving regulatory landscape to ensure ongoing operations.

Some of the challenges you may encounter are the following:

• Not having a team that is well-versed in this type of contract: What is limited contract in UAE? What is the most suitable duration?
• Depending on the industry where you work it might be harder to find people that want to work for a limited time.
• In some cases, you may end up having to recruit more staff than you will need given the direction of the fixed-term contracts.

On the other hand, you may take advantage of the following opportunities:

• Get total control on employment such as knowing how and when it will end.
• It is a cost-effective option as you can hire employees for a determined term while having a limited budget.
• You can test employees and decide if they are a good permanent fit for your company.

Whether you establish your company in Dubai Mainland or any other Emirate, you need to always keep up-to-date with the local regulatory landscape.

FAQs related to the latest amendments to the labour law for limited contracts in the UAE

Even when you know all the basics regarding the new labour law for limited contract in UAE, you may still have some doubts. For this reason, you have to look for the answers that other employers or employees like you may have.

For instance, learning what is the benefits of limited contract in UAE may make you consider the best approach for hiring professionals for your workforce.

What are the main changes introduced in the new labour law for limited contracts?

The new labour law for limited contract in UAE introduced the following main changes:

• Employers cannot issue unlimited-term contracts anymore starting from January 1st 2024.
• All employment contracts that are unlimited must be converted to limited-term contracts. Thus the end date for performing this conversion was 31st December 2023.
• There is no longer a three-year cap on contracts. Therefore employees can issue a limited contract with other fine terms but there is currently no cap for that. As such the employer has to decide the fixed term which is usually two to three years.

How do the amendments affect the rights and obligations of employers and employees?

In accordance with the new law employers and employees have the following rights and obligations:

• Both parties have to follow the rules regarding the notice period. If any of them decides not to, then they should pay compensation to the other party.
• If any of the parties decides to terminate the employment contract they must provide a valid reason. Additionally, they have to comply with the notice period which should be more than 30 days and no longer than 90 days.
• Employers have the obligation to pay the employee within 14 days following the expiration of the contract.
• If the employee has worked for more than a year for the company they have the right to receive the end-of-service benefit.

Are there any specific requirements for terminating limited contracts under the new regulations?

According to the labour law for limited contract in UAE, the specific requirements for terminating a limited contract are the following:

• There has to be a valid reason for employment termination.
• The termination has to comply with the employment contract termination cases established in Article 42 of the UAE labour law.
• The employment contract continues to be valid during the notice period.

What are the implications of the new labour law amendments for end-of-service benefits and gratuity?

The end-of-service benefit for a full-time worker is specified in the new labour law for limited contract in UAE as follows:

• Even if the employee resigns they are entitled to the gratuity pay as long as they have worked for more than a year for the employer.
• The calculations for the end-of-service benefit are according to the basic wage and the number of working days.

Do the amendments introduce any new compliance requirements for employers?

With the new amendments, employers have to comply with the following:

• Notice period
• Termination causes
• End-of-service benefits
• Probationary period

How do the changes impact the renewal process for limited contracts?

The provisions in the new UAE labour law state that the contract might be renewed or extended for a shorter or similar duration.

Additionally, it states that if the employer does not renew or extend the fixed term contract 11 it expires and both parties continue with their obligations then the contract can be considered renewed. Thus the renewable terms and conditions will be the same as those of the original contract.

Are there any legal considerations or potential challenges associated with the new regulations?

As with any other aspect related to employment, employers have to be aware of all the legal considerations and potential challenges. For instance, it is necessary to do the following:

• Ensure contracts are fully compliant with labour law.
• Get advice from an expert lawyer before deciding to terminate an employee’s contract.
• Follow the provisions regarding the notice period and gratuity pay.

Setting up your company in the UAE involves having comprehensive knowledge about employment regulations, including the new labour law for limited contract in UAE. If you need help expanding your business, we can provide comprehensive support that matches your needs.

Contact us now to let us help you establish your business in the UAE as smoothly as possible thanks to our wide range of services tailored to your requirements.