Working beyond UAE contract expiry is continued service

If an employee has a one-year limited contract but continues to work under the same conditions beyond its expiry, is the contract thereafter considered unlimited? I am particularity concerned with conditions for termination of employment. It seems early termination of limited contracts may incur penalties not incurred by unlimited contracts when providing 30 days' notice. JM, Dubai

It is unusual to see a one-year limited contract as most are linked to the duration of the residency visa, so are mainly for two or three years, depending on the location of the employer. At the end of the initial period of the contract, it can be renewed for a further fixed period or at the agreement of both the employee and employer. If a new fixed-term contract is not provided to the employee, it is generally considered that employment will continue on unlimited terms but the employee would be wise to clarify in each case. This will be deemed continuous service.

Any employee who breaks the terms of a limited contract will be liable for a penalty that is separate to the standard notice period. Article 116 of UAE Labour Law states: “if the contract has been terminated on part of the employee ... the employee becomes liable for compensating the employer against losses incurred by him in consequence of contract termination, provided that the amount of compensation, may not exceed half a month’s pay for a period of three months or for the remaining period of contract whichever is shorter, unless the terms of the contract provide otherwise.” In addition the end of service gratuity is not payable to anyone on a fixed contract who resigns with fewer than five years of continuous service, per Article 138 of the law.

Keren Bobker is an independent financial adviser with Holborn Assets in Dubai, with over 20 years’ experience. Contact her at [e-mail]. Follow her on Twitter at @FinancialUAE.

The advice provided in our columns does not constitute legal advice and is provided for information only.

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