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UAE Employment Contracts

10-05-2020

The Federal Law No. 8 of 1980 (the ‘’Labour Law’’) is the main source of law for employment-related matters in the UAE. The Labour Law applies to employees working within the UAE, with the exception of employees with employers operating in the DIFC, whose employment is governed by the employment law of the DIFC (DIFC Law No.3 of 2012, the DIFC Employment Law). 

I. Governing Law
 
In the UAE, all aspects of labour relations between employers and employees are primarily governed by Federal Law No. (8) of 1980 (“UAE Labour Law”) and its amendments. Further to the UAE Labour Law, labor contracts in the UAE are also governed by additional ministerial resolutions including and without limitation to Ministerial Resolution No. (764) of 2015 On Ministry of Labour-approved Standard Employment Contracts (“Ministerial Resolution No. 764”) and Ministerial Resolution No. (765) of 2015 Regarding the Terms and Controls for Terminating the Employment Relationship (“Ministerial Resolution No. 765”). 

II. Employment Contracts
 
Pursuant to Article 36 of the UAE Labor Law, all employment contracts shall determine in particular, “the date of conclusion thereof, the date of commencement of work, the type, location and duration thereof […] a determined time period, as well as the amount of the wage.” 

With respect to the different formats of contracts, It is of importance to note that per Article 38 of the UAE Labour Law, there are two (2) primary types of employment contracts: Limited Employment Contracts and Unlimited Employment Contracts. 
 
Firstly, Limited Employment Contracts are for a specified duration with distinctive characteristics such as specific commencement and completion date. Per the Ministerial Resolution No.765, the service term of limited terms for mainland companies should not exceed two (2) years. The employment period would be automatically terminated at the end of the contract period and could be renewed with mutual consent of the employee and employer.
 
In the case of termination, the terminating party shall provide a written notice to the other party with a minimum notice period of thirty (30) days and a maximum period of three (3) months subject to their labor contract. Additionally, the terminating party shall continue to perform its contractual obligations during the specified notice period and shall compensate the other party. In the case that the terminating party was the employer, the employer shall compensate the employee with maximum three (3) months of gross salary. If the terminating party was the employee, the employee may be obliged to provide the employer with maximum forty-five (45) days of gross salary.

Secondly, Unlimited Employment Contracts are distinctive to Limited Employment Contracts, such that Unlimited Contracts have a specified commencement date but do not include a completion date. In the case of termination, unlimited contracts would be terminated at any time through mutual agreement by either party subject to the provision of a minimum of thirty (30) day notice period and a maximum of three (3) months. During the notice period, all contractual duties and obligations are required to be honored. 
 
 It is of importance to note that if the employer terminates an unlimited contract without the required notice period for a cause outside of the scope of the conditions and reasons outlined in Article 120 of the UAE Labor Law, the employee would be entitled for compensation. 
In the case that an employee under an existing contract (unlimited or limited), breaches any of the clauses or conditions that fall within  Article 120 of UAE Labour Law, the employer may terminate the employee without giving due prior notice and need not be obliged to pay the employee either their gratuity or a return air ticket to their respective home country. The only compensation that the employer would be is obliged to fulfil is any pending salary or in-cash any pending annual leaves as and where applicable. 

Moreover, in case of breach of the above-mentioned Article 120, an employer may request for an employment ban from the relevant local authorities if a breach is related to any clauses/conditions that fall within or under the scope of Article 120. 

“ARTICLE (120)

The employer may dismiss the employee without notice in the following cases: 

•    If the employee adopts a false identity or nationality or if he submits forged documents or certificates. 
•    If the employee is appointed under a probationary period and dismissal occurred during or at the end of said period. 
•    If he commits an error causing substantial material loss to the employer provided that the latter advises the labour department of the incident within 48 hours from having knowledge of the same. 
•    If the employee violates instructions concerning safety of the place of business provided that such instructions are displayed in writing at conspicuous places and in case of an illiterate employee the latter be informed verbally of the same. 
•    If he fails to perform his basic duties under the contract of employment and persists in violating them despite formal investigation with him in this respect and warning him of dismissal if the same is repeated. 
•    If he divulges any secrets of the establishment where he is employed. 
•    If he is awarded final judgement by the competent court in respect of an offence prejudicing honor, honesty or public morals. 
•    If during working hours he is found drunk or under the influence of drug. 
•    If in the course of his work he commits an assault on the employer, the manager or any of his colleagues. 
•    If he absents himself without lawful excuse for more than twenty intermittent days or for more than seven successive day during one year.”


III. Probation Period | New Employees
 
Pursuant to Article 37 of the UAE Labour Law, the period of probation is discretionary and shall not exceed six (6) months in either type of contract. During the probation period, the employer may terminate the services of the worker without prior notice or end of service gratuity and/or any other compensation. Upon completion of the probation period, the duration shall be part of the employee’s overall service period. 
 
IV. Employment Offer Letter(s) | New Employees 
 
Pursuant to Article 1 of Ministerial Resolution 764, “[…] an employment offer that conforms with the Standard Employment Contract is presented to and duly signed by the worker in the country of recruitment […].” Further, pursuant to the Resolution, there are “enclosed employment contract templates […] adopted for use as a Standard Employment Contract […] for the purpose of employment in the UAE cannot be granted until an employment offer that conforms with the Standard Employment Contract is presented […].”

V. Addition of Non-compete Clause and Extension of Probation Period
 
Employers in the UAE are free to establish some stipulations, clauses, terms and/or conditions in the internal employment contracts that they deem convenient, provided that they are not contrary to the rules, regulations and laws of the country. 

Article 127 of the UAE Labour Law permits the inclusion of a clause prohibiting an employee from sharing of trade secrets and confidential information as a mechanism to safeguard business interests, thus, also possibly preventing an employer from working with a competing business. 
 
“Article 127: 
 
Where the work assigned to a worker allows him to become acquainted with the employer’s client, or to become familiar with the secrets of his business, the employer may require him to refrain, after the termination of his contract, from competing with him or participating in any enterprise competing with his own. Such an agreement shall be valid only on condition that the worker is at least 21 years of age at the time of its conclusion that the agreement is limited, as regards the time, the place and the nature of the business, to the extent necessary to safeguard the employer’s lawful interest.”
 
However, it is of importance to note that although it is permissible to include the above-mentioned clause, Articles 909 and 910 of Federal Law No. 11 of 1992 (“UAE Civil Procedures Code”) outline the legal grounds for the validity and applicability of such clauses stipulating that employers cannot restrict employee’s scope of work as they deem fit. 

How TLG can Help? 
TLG’s Corporate & Commercial Division would be pleased to provide you with assistance and support in reviewing, modifying, drafting and re-drafting your company’s employment contracts pursuant to the laws, rules and regulations of the UAE and in particular regarding the inclusion of particular clauses that may add additional protection to your company. 

For more information, contact us at inquiries@tlg.ae