UAE extends deadline for companies to change employment contracts to fixed term
7th February 2023
The deadline for employers to change their employment contracts away from the old unlimited contracts to fixed term contracts has been extended until 31st December 2023, giving employers more time to comply with the regulations.
As per the UAE’s updated Labour Law, Federal Decree Law No. 33 of 2021, all private sector employers, excluding those registered in Dubai International Finance Centre (DIFC) and Abu Dhabi Global Market (ADGM) free zones, are required to ensure their employees have fixed term employment contracts.
Key points about fixed term employment contracts in the UAE
Duration of fixed term employment contracts
The fixed term employment contract must clearly state the duration of the contract. Previously this was limited to three years; however, the three year cap was removed as per Federal Decree Law No. 14 of 2022. Now, employers and employees are free to agree between themselves, the duration of the fixed term contract.
Extending and renewing fixed term contracts
A fixed term contract can be renewed, subject to the agreement of both the employer and the employee. In the instance, the contract expires, but both the employer and employee continue the work relationship without formally implementing a new contract, the previous contract is considered to be extended with the same conditions and for the same period of time.
Any extensions or renewals of fixed term contracts are considered as an extension of the previous one. Thus, the original contract and any extensions or renewals, must all be added together to calculate the employee's continuous term of service - essential for calculating the employee's gratuity (end of service benefit, EOSB).
Probation period of fixed term contracts
The probation period must not exceed six months and is included in the continuous term of service.
The employer can terminate the employee during the probation period by notifying them in writing, at least 14 days prior to the end of the probation period.
In the instance an employee wants to leave to work for a different employer, they must provide one month's notice in writing. It is the responsibility of the new employer to compensate the original employer for the recruitment costs incurred. Alternatively, if the employee wants to terminate the contract to leave the country, they must notify the employer in writing, at least 14 days prior to the end of the probation period. If the employee subsequently returns and obtains a new work permit within three months, it is the responsibility of the new employer to compensate the original employer for the recruitment costs incurred.
In the instance either the employer or employee fails to comply with the termination conditions, they will be responsible for compensating the other with an amount equal to the worker's wages for the notice period or the remaining part of it.
If the employee leaves the country without complying with the termination conditions, they will not be granted a new work permit for 12 months.
Terminating fixed term contracts
Either the employer or employee can terminate the fixed term contract with a valid reason. Written notice of at least 30 days must be provided. The maximum notice period is 90 days. For avoidance of doubt, include the notice term in the contract. It can be agreed to reduce the notice period providing the employee's rights are preserved.
In the instance that either the employer or employee fails to comply with the notice period, they will be responsible for compensating the other with an amount equal to the employee's wage for the full notice period of the remaining part of it - this is called a 'notice period allowance'.
If the employer terminates the fixed term contract, the employee is entitled to one day of unpaid leave per week during the notice period, to look for a new job.
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Written by Jenny Hunt
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