Author: Al Safar Partners

The history of the employment contract dates back to ancient Rome, It marked the beginning of the relationship between employer and employee. At first instance, contracts made a fundamental distinction between employment for work and employment for services. The contract was unequal, in that the standing of the employer was held in higher regard than that of the employee .i.e. there was a concept that the guarantor of contracts shifted from God in 14th century and master-servant law survived as the basis for employment contracts until the end of the 19th century. Therefore, Laws governing employment contracts have undergone numerous changes since that time and are constantly evolving. However, with the passing of time the world’s civilized and law abiding countries recognized the importance of relationship between employer and employee and began following the legally binding documents which define the rights and duties of each party.

Employment relationship based on contract called an “Employment contract” which means a formally binding contract of Employer and employee wherein an employee promises to contribute his educational and technical expertise to accomplish employer’s expectations and in response, the Employer compensates the employee in the form of a remuneration. Employment contract is a binding instrument signed by both the parties which establishes certain rights and duties of each party to the contract. It has become an important tool not only for the Employer to protect business secrets and to gain maximum output by utilizing the employee’s qualification and skills within the limits of law but also for the employee to claim the rights and entitlements. The general rule is to have Employment contract in ‘black and white’ as it provides certainty as to the terms of the employment according to the prevailing laws. However, oral employment contracts are also valid with adequate proof of its terms which may be established by all admissible means of evidence.

The constitution of the United Arab Emirates grants the fundamental right as to maintenance of its independence and sovereignty and protection to the rights of the people. According to the article 34 of the constitution of the United Arab Emirates every citizen has liberty to choose his occupation, trade or profession within the limits of country’s law. No person may be subject to forced labour except in exceptional circumstances provided by law and in return for compensation.

The Labour and Employment Regulation issued by the Government of United Arab Emirates as Federal Law No. 8 of 1980, is covered in eleven chapters and three schedules which elaborate the relationship of the employer and employee. This law is a Federal legislation and applicable to all the emirates of the UAE. Article 2 of the Federal law no. 8 of 1980 states that the Arabic language will be used with regards to all records, contracts, files, data etc. The Arabic language is also to be used in the instructions and circulars issued by the employer to his employees. The Government of United Arab Emirates allows forming an employment contract in secondary language with intention to facilitate the expat community who are not familiar with Arabic language. However, if there are any discrepancies between the two versions of the contract; the contract in Arabic language will prevail. Apart from this another essential requirement for an employment contract is that it needs to be made in duplicate wherein one copy is to be held by the employee and the other copy is to be held by the employer. According to the Federal Law No 8, for 1980 Employment contracts are of two kinds. They may be either ‘limited’ or ‘unlimited’. A Limited employment contract is that where the term of employment specifically determined. Thus, the determined time period cannot exceed a period of 4 years but this period may be renewed for a shorter or similar period on expiration of the previous period.

Article 39 of the Federal Law No 8, for 1980 describes the unlimited or indefinite contract. The first case is when the contract is an oral contract i.e. when it is not concluded by writing. In such cases as discussed above the terms would become uncertain and difficult to establish unless there is any written evidence regarding the negotiations of the said contract.

The second case is when the contract is a written contract but the term of the contract is not determined. In such cases the contract would be applicable for an indefinite period until rescinded by either of the contractual party.

The third case is when it is made in writing and concluded for a limited term, and the parties continue to apply it after the expiry thereof without a written agreement between them. This is a case where a limited contract later becomes unlimited on expiry of the term of the previous contract. The general rule is that the same contract is automatically renewed with similar terms for a similar period of time but the UAE law does not permit that. If upon the expiry of the contractual terms the contract is not renewed and the employment is continued, the contract would be an unlimited contract and thus in case of any dispute regarding the employment the rules laid down in the labor law will be referred to unless the parties want to follow the terms of the original contract in which case those terms shall apply except for the time period.

The fourth case of an unlimited contract is that when it is concluded for a specific job or services with unlimited term, or which is recurrent by nature, and the contract continues after the completion of the agreed job. This case is very similar to the third case where the limited contract later becomes unlimited on expiry. The only difference is that in the third case the limited contract turns into unlimited on expiry of the term (time period) of the contract whereas in the present case it turns into unlimited on completion of the job for which the contract was initially entered into.

Furthermore, there are certain important details that need to be included in the employment contract such as the date of commencement of work. Important to state that the date of commencement of work would be date on which the employee joins the company/firm and the time period for which the contract is valid, whether it is limited or unlimited contract, designation of the employee, terms of the employment, nature of contract (if limited contract) remuneration, type and place of work.

Another important provision that needs to be included in an employment contract is probation period. Probation period is a period wherein the employer or the employee may terminate the employment contract with immediate effect without employee being liable to pay end of service gratuity or which is normally required at the end of the service of an employee. In fact, probation period considered as a test period where the work efficiency of the employee is tested by the employer before finalizing his employment. The term of probation period can be decided by the employer and is to be included in the contract but according to article 37 of the federal law no. 8 of 1980, this term cannot exceed a period of 6 months. On successfully completing the probation period the said period is deemed to be a part of his service period. Note that it is not permissible for the same employer to employ any person on probation more than once and once the probation period is completed the date of employment will be considered as employment with the employer. Further, the parties to the contract may with mutual consent commence the employment without probation as probation period is not compulsory.

Termination of the service of an employment contract after the probation period shall require an advance notice by either contractual party as per the regulations set forth regarding the termination of service in the federal law no. 8 of 1980. Apart from this the employment contract may be terminated in the following manner:

1. In case the parties thereto agree to the termination thereof, provided that the consent of the worker is taken in writing.

2. In case the specified term of the contract expire, unless the contract is explicitly or implicitly extended in accordance with the provisions hereof.

3. In case a party to an employment contract with unlimited term wishes to termination thereof, provided that such party abides by the provisions related to the notice and the acceptable grounds for the termination of the contract in a non – arbitrary manner.

Another important provision is Non-competition clause often is included in employment contracts to protect the interests of employers, may not always be enforceable because enforceability of this clause is subject to over-riding considerations of public policy.

Breach of the Limited or unlimited employment contract by the employee results into unpleasant consequences for the employee as no other employer is allowed to employ the same for a period which may prolong from six months to one year until employee proves himself innocent or with some exceptional circumstances. Thus, it is advisable for all employees to take time to go through thoroughly before signing any contract which is legally binding for a definite or indefinite period and stick to it.

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For legal advice regarding the subject, please call +971 4 4221944, or call 800-LAWYER (529937).

Literal meaning of severance or gratuity is a favor or gift, usually in the form of money, given in return for service. In other words a sum of money offered to certain service sector workers for a service they performed or anticipated. End of service gratuity is the amount paid by the employer to his worker for his hard work (Any exerted human effort – whether intellectual, technical or physical – in return for a wage, whether it is permanent or temporary) when the worker leaves the employment after successfully completing the stipulated years of service. Since almost 40 years, it has been one of the very important labor rights of the worker which employee is entitled to receive after serving employer for number of years.

The federal law no. 8 of 1980 of United Arab Emirates provides the provisions regarding the end of service gratuity. The present article discusses the said provisions including the calculation of the gratuity amount according to the salary of the worker and the number of years he has served a particular employer.

Law provides that an employee who completes one year or more in continuous services with the employer shall be entitled to gratuity at the end of the service. The gratuity shall be calculated on an annual basis if the employee has actually completed one year or more. The day of absence from work without pay shall not be included in calculating the total period of service. However, if the employee has completed one year then he will be entitled to gratuity for the fraction of the year proportional for the part of the year he spend in work provided that he has completed one year in continuous service.

Basic wage taken as a base for the calculation of gratuity is the salary last received by the employee before the termination of the employment contract. A basic wage means anything received by the employee as a wage excluding housing, transport, traveling allowances and overtime, family allowances entertaining allowances and any other bonus etc. This wage will be the basis for calculation of the gratuity for all the years during which the employee works for the employer calculated at the rate advised hereunder.

The severance pay shall be calculated as described in labour law such as 21 days remuneration for each year of the first 5 years of service and 30 days remuneration for each additional year of service provided that total amount of severance pay shall not exceed 2 years remuneration. Without prejudice to the laws provided in relation to the granting of pension or retirement benefits to employees. Severance pay shall be calculated on the basis of the remuneration last due to the worker for those who are paid on daily, weekly and monthly basis and on the average basis of the daily remuneration for those who are paid at piece rates basis.

After finding out the monthly wage of the worker, the wage per day can be found out by dividing the monthly wage amount by the number of working days of the month. Once we find the wage per day the next step would then be calculating the wage per 21 days and the wage per 30 days.

The above calculations shall hold good for workers of having limited employment Contracts. The exception to the rule is that gratuity is not granted in case the worker breaches the employment contracts by leaving work prior to expiry of the contract. Where the Employment Contract is of an unlimited nature, the gratuity amount is less if the worker leaves the employment on his own choice. Where the period of service of the worker varies from at least one completed year and at the most three completed years then the worker is entitled to one – third of the end of service gratuity. Where the worker has served for a period of three years at least and five years at most, he shall be entitled to two thirds of the said gratuity and to the full gratuity where the continuous period of service exceeds five years.

1. Where the Employer terminates the service of the worker on one of the below mentioned grounds:

a. In case the worker assumes false identity or nationality, or submits false certificates or documents.

b. In case the worker is under probation, and the dismissal occurs during or at the end of the probation period.

c. In case the worker commits an error resulting in colossal material losses to the employer, provided that the Labor Department is notified of the incident within 48 hours of the knowledge of the occurrence thereof.

d. In case the worker violates the instructions related to the safety at work or in the work place, provided that such instructions be written and posted in a prominent location, and that he is notified thereof should he be illiterate.

e. In case the worker fails to perform his main duties in accordance with the employment contract, and further also fails to remedy such failure despite a written investigation on the matter and a warning that he will be dismissed in case of recidivism.

f. In case the worker divulges any of the secret of the establishment where he works.

g. In case the worker is convicted in a final manner by the competent court in a crime of honor, honesty or public ethics.

h. In case the worker is found in a state of drunkenness or under the influence of a narcotic during work hours.

i. In case the worker assaults the employer, responsible manager or co – worker during work hours.

j. In case the worker is absent without valid cause for more than twenty non – consecutive days in one year, or for more than seven consecutive days.

2. Where a worker leaves the employment without notice in case of unlimited/ undetermined employment contracts except in following cases:

a. In case the employer breaches his obligations towards the worker, as set forth in the contract or the law.

b. In case the employer or the legal representative thereof assaults the worker.

Apart from this deduction from the ESG is also allowed where there is an amount of the worker due towards the employer i.e., loan etc.

An employee may be deprived of his/her gratuity if he/ she has been dismissed for one of the reason stated in article 120 Or if left job without notice in clauses other than mentioned in article 121 of UAE labour law and if he terminates the limited contract before the completion of the contract.

The parties may agree for payment of gratuity at a certain time to the employee for the years during which the employee served the employer and to start with new employment contract for the future. However, this agreement should be clearly stated, acknowledged and agreed between the employee and employer whereby gratuity will be paid for the preceding period.

The employee’s wage and other legal benefits including the end of service gratuity is considered a superior debt and the employee shall have a lien over any movable or immovable property owned by the employer.

United Arab Emirates is rapidly progressing towards global standards therefore it is important to ensure that governing laws are adequate to handle the business environment and employment relations. There is a famous law maxim that “the law is never static; it is always changing, being interpreted or redefined, as regulators and judges strive, with varying degrees of success, to ensure that the law constantly reflects changes in society itself”.

The amendments of laws in certain areas such as end of service benefits, calculation of gratuity, will certainly ease the way of settlement and lessen the jeopardy of litigation. In order to do this, there should be a consideration of the law and its sources as well as conversation of how these changes of laws can reflect the needs of society and to what extent.

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For legal advice regarding the subject, please call +971 4 4221944, or call 800-LAWYER (529937).