Limited Contract vs Unlimited Contract in UAE

Limited Contract vs Unlimited Contract in UAE (1)

Are you a CIPD student in UAE or you are thinking about working in the UAE? You will need to know about the types of employment contracts in the UAE. There are types of contracts in the United Arab Emirates provides under labor laws. In this post, we look at Limited Contract vs Unlimited Contract in UAE.

  • Limited-term Contract
  • Unlimited term Contract

The main difference between the two types of contracts is the ability of the employer to legally terminate and the payment at the end of the contract.

Limited-Term Contract

The limited-term contract is used in UAE mostly on project-based jobs. Under this contract, the job is limited to a set time frame that has been agreed upon by the employer and the employee.

Limited-term contracts normally terminate automatically at the end of the contract period. There is a breach of contract if they are terminated before the end of the period agreed.

The employee is entitled to a statutory payment of three months total salary if the employer terminates the contract. The employer is also entitled to be paid a fixed amount if the employee is the one who terminates the contract.

Unlimited Term Contract

An unlimited term contract is more flexible as either party can terminate the contract at any time. However, for the employer to terminate the contract he needs a valid reason for terminating the contract.

In theory, the unlimited contract can be terminated at any time but with good reason. Valid reasons for termination are not set out in the UAE labor laws. Proper reason can be something like poor performance or misconduct, however, a proper process has to be followed before termination.

In an Unlimited contract, there is no compensation if there is a valid reason for termination. In case of arbitrary dismissal without a valid reason, the employee is entitled to a discretionary amount.

End of Service Gratuity

Another difference between limited and unlimited contracts relates to end of service gratuity. Many employees are entitled to a gratuity payment at the end of their employment.

There are additional things to be taken into consideration when it comes to a limited-term contract. An employee will forfeit gratuity if he/she terminates the contract early.

On the other hand, under unlimited term contract employees are entitled to end of service gratuity subject to completion of one year of service. If an employee resigns before the completion of their term, their entitlement might be reduced.