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UAE’s New Labour Law: A Guide to Fixed Term Contracts

Home / Employment Law / UAE’s New Labour Law: A Guide to Fixed Term Contracts

Fixed-term contracts are commonly used in the United Arab Emirates (UAE) to employ local and foreign workers. As the name suggests, these contracts are for a specified period and have a definite end date. 

The UAE’s Ministry of Human Resources and Emiratisation (MOHRE) has recently introduced a new labour law to clarify and simplify fixed-term contract rules. Employment lawyers in Dubai have extensively discussed this new law’s implications for employers and employees. 

This article will supply a comprehensive guide to understanding the new regulations and their impact on fixed-term contracts in the UAE.

Fixed-Term Contract Overview

A fixed-term contract is an agreement between an employer and an employee that stipulates the duration of employment. The contract usually includes details such as the employee’s job title, responsibilities, salary, and other benefits. 

Fixed-term contracts are popular in the UAE because they provide flexibility for employers and employees, allowing them to manage their workforce effectively and plan for future needs.

The New Labour Law

The new labour law, officially called Federal Decree-Law No. 33 of 2021 took effect on February 2, 2022. It replaced the old Federal Law No. 8 of 1980, which governed labour relations in the UAE. The new law introduces several significant changes that impact fixed-term contracts, including the following developments.

1. Clear Distinction between Limited and Unlimited Contracts

Under the old law, there was ambiguity in the distinction between limited (fixed-term) contracts and unlimited contracts. The new law clearly defines limited contracts as those with a specified end date and unlimited contracts as those with no fixed end date.

2. Maximum Duration of Limited Contracts

The new law caps the maximum duration of limited contracts at two years. Previously, fixed-term contracts could be for up to four years. This change aims to encourage employers to offer more permanent positions to their employees, thereby providing greater job security.

3. Renewal of Limited Contracts

According to the new law, limited contracts can be renewed an unlimited number of times, assuming that the total duration of the contract, including all renewals, does not exceed two years. 

This rule applies to new and existing contracts, meaning that any fixed-term contracts that have already been renewed for a total duration exceeding two years must be converted to unlimited contracts.

4. Termination of Limited Contracts

The new law provides more clarity on the termination of limited contracts. If an employer wishes to terminate a limited contract before its expiry date, they must provide a written notice to the employee at least one month in advance, but not more than three months. The employer must also pay compensation to the employee, which is calculated based on the remaining duration of the contract.

Conversely, if an employee wishes to terminate a limited contract before its expiry date, they must provide a written notice to the employer at least one month in advance, but not more than three months. The employee may be liable to pay compensation to the employer, which may not exceed the equivalent of three months’ salary.

5. End of Service Gratuity

The new law introduces a significant change in the calculation of end-of-service gratuity for employees on fixed-term contracts. Under the old law, employees who completed their contract and were not offered a renewal were entitled to gratuity based on their full years of service. 

However, the new law stipulates that employees who complete their limited contract and are not offered a renewal are entitled to gratuity based on their entire service period, including any partial years.

Conclusion

The UAE’s new labour law changes fixed-term contracts significantly, providing more clarity and protection for employers and employees. Employment lawyers in Dubai have welcomed the new law, which they believe will improve the overall working conditions in the country.

Employers and employees should familiarise themselves with these new regulations to ensure their contracts comply with the law and avoid potential disputes.

Don’t miss out on the benefits of the new labour law! Contact Al Kabban & Associates, the leading employment lawyers in Dubai, to ensure your contracts are compliant and protect your rights as an employer or employee. Get in touch with us today!

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