According to UAE new labour law 2022, all employment contracts are terminated at the end of the duration, or there are unlimited contracts. In February 2022 new labor law was declared by the UAE government under the Federal Decree-Law No. (14) Allowing both parties to work as long as they want with a maximum fixed-term employment contract of three years.
UAE New Labour Law 2022 Explanation
Ben Brown, who is a Partner at Addleshaw Goddard, explained that this law aims to fulfill the mandatory requirement for private sector employees working on fixed-term contracts not more than three years. He highlighted the nature of the employers and employees toward a fixed-term employment contract. It confuses the employment relationship and makes it more difficult to attract talent for UAE business development. The New Labor Law brings many important changes that we are about to discuss below, along with the Current Law.
Fixed Term Contract Period of Three Years
Current Labour Law
If we talk about the current law, there are only two types of contracts:
- The first one is an unlimited-term contract, which continues in full hard work and dedication until terminated from one side.
- The second one is a term-based contract, which expires at the end of the agreement from both sides or unless renewed by the parties.
UAE New Labor Law 2022
As we have previously discussed, it’s mandatory for all employees to enter into a fixed-term employment contract of three years.
When the contract expires, it can be either renewed or extended for the same or shorter periods multiple times. In case, the contract is not renewed or extended, but the parties are still working together, the contract will be still in effect and considered renewed on the basis of the same terms and conditions as before. If the employee continues to provide the services after the contract expiry, it will be renewed automatically.
The employees working on an unlimited-term contract should not worry as the terms and conditions of the New Labor Law will be applied automatically from the effective date. It is suggested that employers convert all the current unlimited-term contracts into fixed-term contracts within one year from the start date.
If either party wants to terminate a contract, a legitimate reason is needed. Especially when employees work under unlimited-term contracts.
See the “Contract Termination” minimum notice duration below:
- 30 days notice duration if the employee service period is less than 5 years.
- 60 days notice duration if the employee service period is more than 5 years.
- 90 days notice duration if the employee service period is more than 10 years.
Current Labour Law
The employee can be only terminated legitimately without any notice under Articles 88 and 120. Keep in mind, if terminated under Article 120, end-of-service gratuity entitlement will be lost. In the case of fixed-term contracts, gratuity is given by mutual agreement.
New Labor Law
Despite being fixed-term contracts, as per new legislation, they can be terminated on the basis of a “legitimate reason”, provided within the minimum notice duration under the contract of employment. It’s a minimum of 30 days and a maximum of 90 days. The word “legitimate reason” will not be enough, as the Labour Courts will analyze the whole situation for fairgrounds of dismissal.
If the employee doesn’t work or the employer doesn’t wish the employee should work until the notice period, the party that made the terminating decision of the contract will be responsible for paying the compensation equal to the employee’s salary for the notice period. On the other hand, If the contract is terminated by the employer, one day of unpaid leave per week is given to the employee to find a new job.
They have now allowed the termination with notice for other reasons related to the performance of the employee or behavior. We know how COVID-19 has affected and redundancy is now very common and recognized as a valid reason for terminating an employee. The same goes if the employer is insolvent, bankrupt, or can’t pay salaries under economic loss.
Furthermore, termination is permitted if the company closes and the contract cannot be renewed by the employer. Most importantly, if an employee is terminated without any formalities, they will be still eligible for their end-of-service gratuity (which was not allowed under the current law).
Although these dismissals are carried out in the existing legislation as most employees:
- Abuses their role in a project for profit or personal earnings.
- Starts working with another employer without following any rules.
There are some valid circumstances in which an employee can leave without any formalities or notice. The following are included as new ground rules:
- The safety or health of the employee is compromised as there is serious danger in the workplace. However, the employer was aware of such risk and took no action or initiates any safety protocols.
- When the employee is assigned a task to perform, it’s completely different from the job description given in the employment contract.
The government of UAE has given a deadline of February 2023 to operate with fixed-term employment contracts according to the new UAE Labour Law.