The UAE government recently issued Federal Decree-Law No. (14) of 2022, which amended the new law that came into force in February 2022.
Ben Brown, UAE Partner – Employment, Addleshaw Goddard explained that the new UAE Labour Law initially introduced a mandatory requirement that all employees in the private sector be employed on fixed-term contracts of no more than three years’ duration.
He pointed out that UAE employers and employees were concerned that the limited nature of a fixed-term employment contract indicated a lack of permanence in the employment relationship, arguably making it more difficult for UAE businesses to attract and retain talent.
“This ran contrary to the increased stability in the UAE labour market brought about by the introduction of long-term residence and work visa options,” said Brown.
“The UAE Government has acted decisively to address the concerns of both employers and employees by removing the cap of three years on fixed-term employment contracts and allowing the parties to agree to whatever length of term they wish.”
The expert explains that as things stand, therefore, the position under the UAE Labour Law is as follows: (i) the parties to an employment contract may agree a term of, for example, 5 years; and (ii) the parties to an employment contract may terminate the contract prior to its expiry by giving written notice of between 30-90 days (as agreed in the contract). In practice, this arrangement more closely reflects an unlimited term employment contract than a true fixed-term employment contract.
He says many employers will have already issued three year fixed-term employment contracts to their employees in order to comply with the new UAE Labour Law. Those employers will have two principal options: (i) leave the existing employment contracts in place and then, on expiry, renew the contract for the same or longer term (or not renew at all); or (ii) increase the term of the existing employment contract by way of written contract variation signed by the employee.
“We expect most large employers will proceed with option (i) to save the administrative burden of making further contractual amendments,” said Brown.
“Those employers with smaller workforces may be more inclined to proceed with option (ii). However, regardless of the size of their workforce, we anticipate that most employers will consider increasing the terms of very senior or influential employees whose departure would likely cause material disruption to the business.”
The deadline for ensuring that all employees are transitioned onto fixed-term employment contracts which comply with the new UAE Labour Law remains February 2023.