The labour contract in UAE is the cornerstone of employment in the United Arab Emirates. It is concerned with the rights and responsibilities of both employers and employees. Companies exploring the UAE industries must understand the intricacies of these contracts.
This article will provide a comprehensive overview of a labour contract in the UAE and the essential aspects of drawing a Dubai labour contract. As the UAE progresses towards becoming a more global economy, significant reforms have been made in the country's labour laws. These changes affect how labour contracts in the UAE are structured and implemented.
For employers, a labour contract is essential as it is not only for defining the terms of employment across the Emirates but also for establishing a legal framework for managing their workforce, ensuring compliance with local laws, and protecting their business interests.
Types of Labour Contracts in the UAE
In the UAE, several types of labour contracts are recognized, and for compliance assurance, employers must use the correct type of contract depending on the employment scenarios.
Limited (Fixed-Term) Contracts:
These are the labour contracts that have a specific start and end date. While the duration of limited contracts can vary between UAE States, but it must be between one to three years. Such agreements are commonly used for project-based work or when employers want to limit long-term commitments.
Unlimited (Flexible) Contracts:
These work contracts are highly flexible as there is no specified end date. However, hiring based on unlimited contracts requires employers to provide a comprehensive contract that correctly outlines the guidelines for either party's termination.
Flexible labour contracts in the UAE are suitable for long-term employment relationships.
Part-Time Contracts:
Employing workers for hours less than full-time can be done through part-time contracts. These contracts specify reduced working hours and proportional benefits for part-time workers.
Companies in the region use part-time contracts to hire atypical workers such as students, parents, or those seeking work-life balance.
Full-Time Contracts:
Standard employment agreements for total working hours are termed full-time contracts. These labour contracts are typically used to hire workers for 8 hours per day or 48 hours per week. It is the most common type of employment contract in the UAE.
Temporary Contracts:
Often confused with part-time contracts, temporary contracts are short-term agreements created for a specific task or period. These contracts have clear start and end dates similar to fixed-term contracts but usually have shorter durations.
Employers hiring seasonal workers, temporary replacements, or workers for short-term projects can use temporary contracts.
Special Employment Contracts:
Under the UAE labour laws, employers can use tailored agreements for specific industries or roles, known as special employment contracts. These contracts are often used to hire an employee with distinctive experience at a high post within the company. Usually, this contract is used by government officeholders for appointments. The remuneration and other contract terms are decided by the Ministry of Finance and approved by the Cabinet.
Job-Sharing Contracts:
It is an arrangement allowing two part-time employees to share the responsibilities of one full-time position. Job-sharing contracts outline how duties and hours are divided among employees. This type of contract is famous for roles that can benefit from diverse skill sets or flexible arrangements.
Limited vs. Unlimited Contracts
Choosing between limited and unlimited contracts is a common conundrum that UAE employers face.
Limited contracts are ideal where the employment period can be anticipated, providing clarity on the duration of the commitment. They are commonly preferred for project-based work or when testing new roles. On the contrary, unlimited contracts have no predefined end date, offering employees more flexibility and job stability. These contracts continue until either party terminates the agreement, following proper notice procedures.
While limited contracts can help employers hire skilled workers for a specific period, they need more long-term stability than full-time employees look for. Unlimited contracts offer job stability; however, if employers are not sure of the project timeline or the validity of the role, such a contract can lead to increased labour costs.
Another key difference is that limited contracts typically have more stringent termination rules than unlimited contracts, which offer more flexibility but may require more extended notice periods.
Part-Time vs. Full-Time Contracts
The primary distinction between part-time and full-time contracts in the UAE is based on working hours. Full-time contracts, standard across UAE industries, require employees to work 8 hours per day or 48 hours per week. Any additional hours are counted as overtime. These contracts offer full benefits as stipulated by UAE labour law. On the other hand, part-time contracts, relatively new in the UAE labour market, typically involve less than 8 hours of work per day or less than 48 hours per week. The benefits offered under part-time contracts are often prorated based on the hours worked.
The choice between part-time and full-time contracts affects not only the working hours but also the salary structure, leave entitlements, and other benefits.
What Constitutes a Labour Contract in the UAE?
A labour contract in UAE is legally referred to as an agreement between an employer and an employee that outlines the terms and conditions of employment. Labour contracts are mandatory for offering any employment. They are used to protect the rights of both parties and ensure clarity in the employment relationship.
A labour contract is a compliance requirement and a reference point for both employer and employee. Clearly defining roles, responsibilities, compensation, and other key aspects of the job minimizes the risk of disputes and acts as the primary document for resolving issues.
UAE labour laws are continuously amended to remain relevant and aligned with global labour policies.
The Federal Decree-Law No. 33 of 2021, which came into effect on February 2, 2022, brought significant changes to the UAE labour law. It replaced Federal Law No. 8 of 1980, modernizing the labour regulations, introducing more flexible working arrangements, and enhancing employee protections.
Key Elements of a Labour Contract
For a labour contract to be valid under the UAE laws, it must have some key elements. Here is the information that should be part of a comprehensive labour contract:
Employer and Employee Information
Foremost, any valid labour contract must have complete employer and employee information. It must include:
- Full legal names and addresses of both parties
- Employee's nationality and qualifications
- Employer's trade license details
Job Role and Responsibilities
Contracts must have detailed descriptions of the position an employer is hired for, clearly outlining the main duties and tasks expected of them. Additionally, any special requirements or skills needed for the role should be explicitly mentioned.
Salary and Benefits
The labour contract should include complete information regarding basic salary and any additional allowances. It should also outline the payment frequency and method along with any details of any performance-based bonuses or incentives.
Working Hours and Days Off
While companies can create their policies around working hours and days off (except the federally designated holidays), employees should be informed about their regular working hours and days in their employment contracts. Terms regarding overtime policies and rates, including weekly rest day(s) and public holiday entitlements, should be mentioned.
Currency Arrangements
As the UAE has many foreign employees, labour contracts must specify the currency in which salary will be paid to the employee. If a company uses any currency conversion for compensation, it should be mentioned in the agreement.
Probation Period Clauses
Termination and probation are crucial parts of the employment contract, which is why probation period clauses must be detailed in the agreement. The length of the probation period is an essential piece of information to include in contracts. Typically, UAE allows up to six months of probation, but it can vary depending on company policies. All terms for termination during probation should be outlined, as well as the confirmation process after successfully completing probation.
End-of-Service Gratuity
Gratuity is a one-time payment employers make to employees to recognize their service. It is a legal requirement under UAE labour laws. Employment contracts should include information about end-of-service gratuities, such as calculation methods and conditions for eligibility and payment.
Leave Benefits
A labour contract needs to be completed, including details regarding leave benefits. Employers must include the leave benefits offered to the employees, which should include:
- Annual leave entitlement
- Sick leave policy
- Maternity/paternity leave provisions
- Any other special leave arrangements
Non-Compete Clauses
For some roles, employers can put a non-compete clause in the agreement. If applied, labour contracts should outline the restrictions on working for competitors after employment ends. Also, the duration and geographical scope of non-compete agreements should be clearly outlined.
Legal Rights and Obligations
Whether it's a Dubai labour contract or any other UAE labour contract, understanding the rights and obligations benefits employers and employees. Here are the essential rights and obligations:
Employee Rights
Minimum Wage: While, unlike the West, there is no universal minimum wage regulation in the UAE, still the Ministry of Human Resources and Emiratisation (MoHRE) has established minimum salary guidelines for certain categories of employees. It serves as the standard for employers across sectors.
Annual Leave: Full-time employees in any sector in the UAE are entitled to 30 calendar days of paid annual leave after completing one year of service.
Overtime: For full-time roles, any hours worked outside the regular hours must be compensated at a premium rate, typically 125% of the average wage. Also, night shifts should pay 1.5 times the regular wage rate.
Health Insurance: Employers must provide health insurance coverage for their employees. While this rule is only mandatory for employers in Abu Dhabi and Dubai, but under the updated laws, all private sector employees and domestic workers in UAE must be paid health insurance from January 2025.
End-of-Service Benefits: As part of their end-of-service benefits, employees are entitled to gratuity pay based on their length of service.
Employer Obligations
Providing a safe work environment: Employers ensure workplace safety and provide necessary protective equipment. It also includes providing essential safety training to employees during their onboarding process.
Timely salary payments: All employees must be paid on time per the labour contract agreements. Employers must adhere to the Wage Protection System (WPS).
Respecting work hours: There should not be exploitation of local or foreign workers, and employers must adhere to the maximum work hours stipulated by law.
Non-discrimination: It is mandatory to ensure all employees are treated equally regardless of gender, race, language, or nationality.
Non-Compete Clauses and Confidentiality:
UAE labour contracts have scope for non-compete clauses. However, the terms of the non-compete and confidentiality clauses must be reasonable regarding duration, geographical scope, and nature of the restriction.
Employers can enforce the confidentiality clauses that employees must adhere to if their roles or responsibilities include handling the employer's trade secrets and proprietary information.
