Legal update: Labour law changes
impacting limited term contracts
and termination compensation

What you need to know and put into practice

October 2017

The Ministry of Labour's (MOL) new regulations now have a maximum of two years duration for limited term contracts (previously four years). In addition termination compensation has also significantly changed. It is recommended for all businesses to follow and implement these new regulations.

The Ministry of Labour (MOL) have tightened up regulations in the interest of promoting transparency and labour mobility within the UAE. Typically Ministry of Labour regulations only apply to those employed under a Ministry of Labour contract.

Are the UAE Freezones affected?

The Dubai Creative Cluster's (DCC) rules specifically state all resolutions passed by the Ministry of Labour will also apply to them. Other Free Zones may too elect to implement these regulations in the future.

Likewise, it is probable the Labour Courts may also choose to apply these provisions in the resolution of cases, involving employees of Free Zone companies.

Practial implementation advised

While the new regulations do not formally amend the UAE Labour Law, it is advisable for business to practice caution and follow these regulations. Particularly when dealing with Limited Term contracts and early termination compensation, as the changes here are significant.

Key points of The Labour Law

Some key points for employers and employees to be aware of include:

Employers are required to issue new employees with a prescribed form offer letter before the employer can seek approval from the MOL for the appointment. An employment contract reflecting the terms of the offer letter must then follow, once the letter is signed and filed with the MOL. Important to note, the terms of the employment contract must be consistent with the offer letter unless the changes are to the advantage of the employee and have been approved.

Employers have the option of offering employees one of three separate prescribed contracts:

  • a contract for an unlimited term,
  • an initial limited term of two years, and
  • a renewal of a limited term contract.

These standard form contracts are detailed and include additional annexes setting out both the employer and employee's rights and obligations under the law.

Changes have been made to limited term contracts. Previously new employees could be offered a limited term contract for a maximum term of four years. The regulations now have a maximum of two years duration (although it may be renewed for further periods). The Ministry of Labour has also issued two prescribed forms of limited term contracts; one, which will cover the initial term, and one for any renewal periods.

Early termination of the renewed contract will be treated differently from the initial term contract. Early termination compensation would be payable under the initial term contract as calculated under the UAE Labour Law. A renewed limited term contract may be terminated early by either party by the provision of between one to three months' notice (such notice period to be agreed between the parties).

Employment contracts also allow for flexible remuneration structures. Now employers can choose to structure their employees' remuneration as hourly, daily or monthly. There is also contract provision that makes allowances for commission and bonuses as well as other optional allowances including accommodation, transport, travel tickets, cost of living, phone, luggage transportation, and schooling.

There are significant changes in labour mobility for unskilled and semi-skilled workers. Previously these workers could face a labour ban if they left their employment within 2 years. Now these workers are able to obtain a new work permit as long as they have completed six months service and complied with their obligations under their employment contract and the applicable labour laws. Skilled workers continue to be able to change jobs without any requirement to complete a minimum period of service.






Key Contacts

Our team have a wealth of experience from leading international law firms and a number of in-house environments. More than just experts in their practice areas, our people are dedicated, engaged professionals who take the time to understand our clients' businesses.

Nathan Banks
Founder & Managing Partner
+971 50 189 3276


With Us

Connect on LinkedIn

We deliver our services with a focus on quality and achieving impressive results


Stay up to date with our insights