ERMINATION OF UNLIMITED EMPLOYMENT CONTRACT: THE MYTH AND THE TRUTH

by Ayen Biar - a.biar@tamimi.com

The employment relationship between employers and employees in the UAE is governed by the
provisions of Law No. 8 for the year 1981, otherwise nown as the Employment Law.
The employment relationship between employers and employees in the UAE is governed by the provisions of Law No. 8 for the year 1981,
otherwise nown as the Employment Law. This relationship is !s!ally reg!lated by way of a "ontra"t of employment that sets o!t the rights
and obligations of ea"h party in light of the provisions of the Employment Law.
The Employment Law provides two types of "ontra"ts # the limited "ontra"t that is set for a spe"ifi" period $whi"h sho!ld not e%"eed fo!r
years& and the !nlimited "ontra"t or an open ended "ontra"t $always not less than one year&. Altho!gh the two "ontra"ts are different in their
d!ration, as a general r!le ea"h employment "ontra"t m!st be in writing, spe"ifying the date of its "ommen"ement, the rem!neration and the
nat!re and pla"e of wor.
Altho!gh both types of "ontra"ts have similar feat!res, they differ when it "omes to the re'!irements of terminating or ending the
employment relationship.
The general r!le !nder the Employment Law is that any employment "ontra"t may be terminated by both parties provided that the employee
a""epts s!"h termination in writing.
(ther than in the event of m!t!al termination, the limited employment "ontra"t, a""ording to the provisions of the Employment Law, may be
terminated by the employer only !pon its e%piry. Early termination of the limited "ontra"t is allowed only and e%"l!sively at the o""!rren"e of
any of the sit!ations spe"ified in arti"le 1)* of the Employment Law. +f the "ontra"t is terminated by the employer for reasons other than
those set by the Employment Law, the employer will be said to have terminated the employee arbitrarily and will be liable to pay the
employee "ompensation e'!ivalent to either three months, salary or the resid!al period of the "ontra"t, whi"hever is shorter.
+t wo!ld, therefore, be "orre"t to say that the Employment Law has set "lear provisions for the termination of the limited "ontra"t by whi"h the
employer is bo!nd.
-owever, "onf!sion always arises when it "omes to the termination of an !nlimited "ontra"t # espe"ially amongst employers. There are
n!mero!s employment myths often relied !pon either to the disadvantage of the employer or the employee. (ne of these myths is that an
employer is free to terminate an !nlimited employment "ontra"t, after giving the pres"ribed noti"e, witho!t any reason whatsoever. This myth
a"t!ally stems from the wrong interpretation of Arti"le 11. of the Employment Law. Arti"le 11. whi"h reads as follows/
01# 1oth the Employer and the Employee may terminate a 2ontra"t of Employment of !nlimited period for a valid reason at any time following
its "on"l!sion by giving the other party noti"e in less than 3* days before the termination.
)# +n "ase of Employee woring on a daily basis the period of noti"e shall be as follows/
a& one wee if the Employee has been employed for more than si% months b!t less than one year4
b& two wees, if the Employee has been employed for not less than one year4
"& one month if the Employee has been employed for not less than five years.5
A "aref!l reading of the Arti"le above will reveal that an employer,s right to terminate an !nlimited "ontra"t is not free b!t rather "onditional
on the e%isten"e of a 0valid reason5 for s!"h termination. This re'!irement has been stressed in se"tion 3 of Arti"le 113 that the !nlimited
"ontra"t may be terminated m!t!ally by either party only/ 0if the provisions of the law regarding the period of noti"e and valid gro!nds for
termination are observed5.
The in'!iry will then be on what is "onsidered to be a valid reason for terminating an !nlimited "ontra"t, what is the "riteria for spe"ifying or
determining s!"h valid reason and who has the a!thority to determine whether a reason for termination is valid or not6
7e have already established that a "ontra"t of employment $whether limited or !nlimited& may be terminated by employers with immediate
effe"t for reasons provided in arti"le 1)* of the Employment Law. (ther than these sit!ations, the Employment Law provides that a valid
reason for terminating an !nlimited "onta"t sho!ld be any reason that is 0wor related5. Arti"le 1)) of the Employment Law provides the
following/
0A worer,s servi"e shall be deemed to have been arbitrarily terminated by his employer, if the reason for the termination is irrelevant to the
wor, and more parti"!larly, if the reason is that the worer has s!bmitted a serio!s "omplaint to the "ompetent a!thorities or has instit!ted
legal pro"eedings against the employer that have proven to be valid5.
8rom the above, it is "lear that the right of termination of an !nlimited "ontra"t !nder the Employment Law is not an !nfettered right and is
s!b9e"t to the re'!irement that an employer demonstrates the e%isten"e of a valid reason for s!"h termination.
The legislator was mindf!l of the fa"t that b!sinesses differ in both their nat!re and their re'!irements and that listing what are "onsidered to
be :wor related reasons, may not be e%ha!stive in the long r!n d!e to the "hanging nat!re of b!sinesses and their re'!irements. 8or this
reason, a ministerial order was iss!ed to provide employers with g!idelines of what are "onsidered to be wor related "ontraventions and
how to deal with them i.e. ;inisterial (rder no. )8<1 of the =ear 1981 regarding ;odel >is"iplinary 2ode $0>is"iplinary 2ode5&.
The >is"iplinary 2ode deals mainly with "ontraventions "ommitted by employees d!ring woring ho!rs and dis"iplinary penalties that
employers may impose !pon their employees. The dis"iplinary penalties vary depending on the fre'!en"y and<or severity of the
"ontravention and in some instan"es may lead to termination. The s"hed!le atta"hed to the >is"iplinary 2ode gives general g!idelines to
employers on the ind of penalties that they may impose on employees and more importantly, the steps that may be taen by employers in
re"ording s!"h "ontraventions and a"tions taen.
The >is"iplinary 2ode is not e%ha!stive b!t rather indi"ative of what are "onsidered to be wor related "ontraventions. Arti"le $1& of the
>is"iplinary 2ode provides that/ 0Employers shall be g!ided by the atta"hed model dis"iplinary "ode in preparing reg!lations that shall be
applied to the worers woring in the employer,s !ndertaing5.
The >is"iplinary 2ode a"t!ally "ompletes and "omplements the provisions of Arti"le 1*) of the Employment Law that deal with penalties
whi"h employers or their representatives may impose on employees and provides the a!thority and referen"e of imposing s!"h penalties.
+n pra"ti"e, several "ompanies have adopted the >is"iplinary 2ode and have drawn !p h!man reso!r"es poli"ies that set o!t re'!irements
and pro"ed!res in dealing with employee "ontraventions. 7e have also seen some employers in"l!de 9ob targets or re'!irements for their
employees in employment "ontra"ts, in"l!ding the methods of assessing the employees, performan"e and the a"tion that will be taen in
"ase an employee fails to a"hieve s!"h 9ob target or re'!irement. A good e%ample of s!"h re'!irement is when the employees, performan"e
is lined to the a"hievement of "ertain finan"ial or performan"e targets as set by the employer whereby fail!re to a"hieve s!"h targets may
allow the employer to terminate the employment "ontra"t.
8ail!re by the employee to meet s!"h re'!irements may lead to the termination of their employment. Liewise, fail!re to follow steps for
re"ording employee,s "ontraventions and a"tion taen may render the employer liable for "ompensation for !nfair termination.
+t follows that for the employer,s a"tion to be liable the employment "ontra"t wo!ld have to be terminated for reasons that are either non wor
related or whi"h fail to hono!r the legal re'!irements for terminating the "ontra"t, s!"h as not iss!ing formal warnings, salary ded!"tions,
sending noti"e and so forth.
?elian"e on these g!idelines and statement of a valid reason for termination does not a!tomati"ally absolve or relieve employers from
liability or in'!iry into the validity of the "a!se of termination. The statement of a valid reason for termination only shifts the b!rden of proof
from the employer to the employee in a way that will mae it the latter,s d!ty to prove that the termination was not 9!stified and is not wor
related.
8!rthermore, "o!rts have powers to f!rther e%amine the reasons provided by the employer in order to determine whether the reason is
relevant to the wor or not. 2o!rts !s!ally !se their dis"retion in !nderstanding the merits and "ir"!mstan"e of the termination # !s!ally by
the fa"ts presented by the parties in light of the Employment Law and any other reg!lations or g!idelines set by employers. The "o!rt has
the final say in "ase of disp!te.
+n "on"l!sion it is tr!e to say that the employers, right to terminate an !nlimited employment "ontra"t is s!b9e"t to the adheren"e to valid
reasons for termination. +t is therefore "r!"ial to read the provisions of the Employment Law as a whole and not to rely on one provision in
isolation of another.
# @ee more at/ http/<<www.tamimi."om<en<magaAine<law#!pdate<se"tion#B<april#C<termination#of#!nlimited#employment#
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