Termination of limited-term employment contracts

Questions relating to employment have always been one of the most discussed topics. Even before the pandemic, queries about the employees' rights, notice period, resignation, and many other circumstances emerging out of the working relationship between employers and employees had taken an important place in legal advisors' work.

Many expats relocating to the UAE are meet with limited-term contracts. While plenty of similarities to unlimited term contracts regulate limited-term contracts, there are numerous misconceptions and misunderstandings when a party to a limited term contract plans to terminate such an agreement.

An employee can be hired under a limited-term contract for a period of a maximum of two years. A term above two years cannot be stipulated, and in case it has been, it will be reduced to 2 years only.

How can a limited-term contract be terminated while being compliant with the UAE Labor Law provisions and each particularly limited-term contract provision?

The first and sought-after way of terminating such a contract is through the mutual agreement of the parties. Even disagreements can be overcome through a settlement. Therefore, the parties to a limited-term contract are highly encouraged to reach an agreement.

When the mutual agreement cannot be reached, each party can end the employment contract, unilaterally.

Can you resign under a limited-term employment contract?

Absolutely! A person cannot be forced to work, and the right to resign cannot be forfeited.

Do I have to pay to be able to terminate a limited-term employment contract?

Regardless of its length, the employment term is a mutual condition of the parties stipulated in the contract. Therefore, both parties must adhere to it. Either the employer or the employee does not have the right to terminate before the completion of the employment term without a valid reason.

A valid reason to terminate a contract, can be, for example, non-payment of the wages.

However, if there is another reason for terminating a limited-term contract, such as another employer's offer, the employee will have to pay the early compensation termination.

The early compensation termination may not exceed half a month's pay for three months or for the remaining period of the contract, whichever is shorter unless the terms of the contract provide otherwise.

Do I have to serve the notice period if I am to exit from the employment contract?

The employee must serve the notice period and work throughout it, receiving as well the remuneration, regardless if he is still during the probation period or not.

Only the employer has the right to terminate the employee under a limited term contract, without notice, if the employee is still under probation. Anyhow, he will be liable to pay the early compensation termination.

If the probation period has elapsed, then the employer must comply with the notice period as provided in the contract. The maximum notice period as per the contract, or in case there is no such provision in the contract, is 3 months.

The UAE Labor Law provides for 2 cases when the employee is not obliged to serve the notice period:

1. Employer does not fulfill his obligations towards the employee as provided for in the contract or this Law

and/or

1. If the employer or his legal representative has committed an act of assault against the employee.

While the first scenario can be quite easily proved before the court, the second one requires more attention. Any claim made before the court must be supported by physical evidence.

Will I lose my end of service benefits if I want to resign before completing the employment term?

If an employee under a contract with limited-term contract resigns before the end of the contract period, he shall not be entitled to end of service gratuity unless the period of his continuous service exceeds five years.

We highly encourage you to seek a legal advisor's opinion before taking any step regarding the termination of a limited-term contract. Ideally, would be to check the UAE's requirements and regulation before signing such an agreement.

Patricia Antoci

Legal Editor