Out-Law / Your Daily Need-To-Know

UAE extends grace period for transition to fixed-term contracts

Out-Law News | 02 Feb 2023 | 10:02 am |

Ruth Stephen tells HRNews about the UAE Labour Law that lifts the cap on the length of fixed-term employment contracts

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  • Transcript

    Employers in the UAE have been given an extended deadline of 31 December 2023 to ensure that their employees have been transitioned onto fixed-term employment contracts. The extension is welcome news for employers in the region as it gives them additional time to ensure their respective employees’ contracts are compliant with the new Labour Law.

    Gulf News reports on this and gives the background. Federal Decree-Law No. 33 of 2021 came into effect on 2 February 2022 and set a deadline of 1 February 2023 for all private sector businesses operating in the UAE - except those registered in the Dubai International Finance Centre and Abu Dhabi Global Market freezones - to convert all unlimited-term employment contracts of their workforce to fixed-term contracts. The Ministry of Human Resources and Emiratisation has now issued Ministerial Resolution No. 27 of 2023, which provides for an extension until 31 December 2023.

    Commenting on this for Out-Law, Dubai-based employment lawyer Luke Tapp welcomes the grace period. He says: “This is a positive development from the authorities and recognises the difficulty some employers were experiencing in converting their employees onto fixed term contracts,” He goes on … “Although the deadline has been extended to 31 December 2023, we still recommend that clients aim to convert employees onto fixed term contracts as soon as they are able to do so.”

    The Labour Law, which first came into force in February 2022, required employers to ensure that all private sector employees were given fixed-term contracts of up to three years. That law was updated last Autumn to remove the three-year cap following concerns that it could hinder efforts to attract and retain talent, as the Dubai team reported in Out-Law at the time. The removal of that three-year cap is a significant development so let’s consider how that is affecting contracts of employment and the options now available to employers in the region. Earlier Ruth Stephen joined me by video-link from Dubai to discuss it.

    Ruth Stephen: “One of the most significant changes under this new Labour Law is the requirement for all employees to be employed on a fixed term contract. Previously we could have unlimited contracts, and fixed term contracts, but unlimited contracts have been done away with. Initially under the law, there was a cap of a three-year term on the fixed term contract and there has been feedback and noises from the market, from employers and employees, that this cap of three years on the term maybe doesn't give the permanence and stability to the employment relationship which is required to attract and retain top talent in the market. Also, it's arguably at odds with the more long-term and stable work visas and employment sponsorships that have been introduced into the region which are excellent at getting skilled people into the country and making sure that businesses can thrive in the region. So, I think there are a few drivers for this change but certainly it should give a bit more stability and confidence, particularly for employees who are having to transition across from an unlimited to a fixed term employment contract now that the parties are free to agree the period of the term with no upper cap.”

    Joe Glavina: “I gather thousands of employers have already updated employment contracts to comply with the original three-year cap. Is that right?”

    Ruth Stephen: “Yes absolutely. So, we have this deadline to transition all existing employees across to this fixed term contract, remembering that new hires already have to be on a fixed term contract, and you're right, absolutely, lots of employees have already moved across and have signed up to a three year fixed term and that's fine, that that can remain the case, nothing needs to be changed and employers and some companies are happy to keep the three year fixed term, there's still the possibility for an auto renewal clause in the employment contract, that might be there already which gives extra stability and continuity. Equally, at the end of the term, or just before the end of the term, employers can agree with employees to renew the contract for the same term, a longer, or shorter period. So, there is that flexibility already there. For very senior, or key, employees, an option might be to update the employment contract and have a short side letter agreeing a longer term - maybe the three-year term is not suitable with reference to the employee’s seniority, and you would like to just increase that term maybe five, ten, years for example. So that's also an option. But because there is still the possibility to serve notice of termination under this fixed term contract it’s not too dissimilar to what we used to know under the old version of the unlimited term employment contract because there's no early termination compensation or anything like that under this fixed term contract, we can still serve notice provided it is for a valid reason. So, some employers are happy to keep it the position as it is with a three-year contract fixed term, whilst some are maybe thinking right, maybe for some select employees, we might just make some tweaks and an addendum, or a side letter. But yes, those are really the options and how we are advising our clients at the moment in light of this most recent change.”

    That Out-Law article quoting Luke Tapp welcoming the extension of the deadline for transition to fixed-term employment contracts is called ‘UAE deadline for transition to fixed-term employment contracts extended’. We have put a link to it in the transcript of this programme.


    - Link to Out-Law article: ‘UAE deadline for transition to fixed-term employment contracts extended’

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