Tim Elliott
Welcome to another edition of Lawgical, the regular weekly podcast from the Dubai-based law firm, HPL Yamalova & Plewka. Lawgical is the Gulf region’s first and still the only legal podcast. I’m Tim Elliott, and I’m here once again on floor 18 at Reef Tower to talk to the firm’s managing partner, Ludmila Yamalova. Hello again!
Ludmila Yamalova
Hello again to you as well, Tim. Great chatting with you as always.
Tim Elliott
Now, who will this edition of Lawgical be relevant to? Here’s who:
- Anyone looking for work in the UAE,
- Anyone considering a job in the UAE,
- And anyone already employed here in the UAE.
We’re going to be talking about limited and unlimited employment contracts today, Ludmila. First of all, what’s the difference between the two?
Ludmila Yamalova
Well, it’s actually quite simple.
- A limited contract is a contract that has a defined beginning and end date.
- An unlimited contract only specifies the start date but no defined end.
In real life, a limited contract might state, “This contract is for two years,” or it could specify, “This contract begins on Day 1 and ends on Day 365.” The key is that it specifies both a start and an end date.
An unlimited contract, on the other hand, either explicitly states it’s unlimited or simply provides a start date without specifying an end date.
Interestingly, we sometimes see discrepancies where a contract is titled “unlimited,” but includes an end date within the terms. In such cases, the end date takes precedence, and the contract is legally treated as limited.
Tim Elliott
That’s where the plot thickens. Would it be fair to say that an unlimited contract is more user-friendly or flexible? Which of the two is better, and why might one be better than the other?
Ludmila Yamalova
That’s not an easy question to answer in simple terms because it truly depends on the circumstances.
- If you’re an employee, you might prioritize flexibility.
- If you’re an employer, you may want the security of a limited term.
The separation terms differ significantly between the two. In general:
- Unlimited contracts are more flexible for both parties, but they offer less security.
- Limited contracts provide more security but less flexibility.
It depends on your goals—whether you want the option to resign easily or prefer the stability of a fixed-term arrangement.
Tim Elliott
Let’s consider the distinctions between the two in more detail. Suppose I’m employed under a limited contract and I’m terminated. What does that mean for the notice period, gratuity, end-of-service benefits, and any other entitlements under UAE law?
Ludmila Yamalova
If you’re terminated under a limited contract before the contract expires, here’s what you’re entitled to:
- Notice Period:
- A minimum of one month or longer if specified in the contract.
- Gratuity/End-of-Service:
- 21 days of basic salary for each year of service.
- Arbitrary Dismissal Compensation:
- Three months’ full salary as compensation, unless the employer proves dismissal was justified.
If the termination occurs close to the end of the contract, the law specifies that compensation is the shorter of either the remaining term of the contract or three months’ salary.
Tim Elliott
Let’s flip the scenario. What happens if I resign while under a limited contract? Are there penalties?
Ludmila Yamalova
If you resign under a limited contract before it expires:
- Gratuity/End-of-Service:
- You waive your right to any end-of-service benefits.
- Penalties:
- You may be required to compensate the employer up to 45 days of your salary.
- However, the employer must prove damages in court to enforce this penalty.
Tim Elliott
Let’s talk about unlimited contracts. What happens if I’m terminated under an unlimited contract?
Ludmila Yamalova
Under an unlimited contract, the terms are more flexible:
- Notice Period:
- A minimum of one month or as specified in the contract.
- Gratuity/End-of-Service:
- 21 days of basic salary for each year of service.
- Arbitrary Dismissal Compensation:
- Compensation is up to three months’ salary, but not guaranteed. The court determines the amount based on the circumstances.
Tim Elliott
And what if I resign under an unlimited contract?
Ludmila Yamalova
If you resign under an unlimited contract:
- Gratuity/End-of-Service:
- You’re entitled to your full end-of-service benefits, even if you resign.
- Penalties:
- There are no penalties for resigning, as there’s no fixed term to breach.
Tim Elliott
What about employees with over five years of service?
Ludmila Yamalova
Once you’ve worked for five continuous years, whether under a limited or unlimited contract, the termination and resignation rules align. For example:
- If you resign after five years under a limited contract, you still retain your end-of-service benefits.
- If you’re terminated after five years, you’re entitled to arbitrary dismissal compensation.
Tim Elliott
Ludmila Yamalova, as ever, your knowledge is much appreciated.
Ludmila Yamalova
Thank you, Tim. Always a pleasure chatting with you.
Tim Elliott
That’s another edition of Lawgical. For answers to your legal questions, visit LYLawyers.com. You can also find us on Facebook, LinkedIn, Twitter, and Instagram. For a legal consultation, head to our website and hit “Contact.” See you next time!
