Labour Contract UAE: How to Draft a Fair and Compliant Labour Contract in the UAE

A labour or employment contract outlines the terms and conditions of employment between an employer and an employee. The primary goal of a labour contract is to ensure clarity and mutual understanding regarding the employment relationship. A well-drafted labour contract is essential for both employers and employees as it minimises the risk of future disputes.

In this article, we will discuss key elements of a labour contract and common pitfalls to avoid while drafting a labour contract.

Understanding Labour Contracts in the UAE

Labour Contracts are governed by Federal Decree Law No. 33 of 2021 regulating Labour Relations (UAE Labour Law) which came into force in February 2022 and repealed the old labour law i.e. Federal Law No. 8/1980 (“Old Law”). The UAE Labour Law is applicable to private companies in mainland UAE and free zones (except DIFC and ADGM).

Types of Labour Contracts in the UAE

Labour contracts are of two types: Limited Labour Contracts and Unlimited Labour Contracts

Limited Labour contracts have a specified start date and an end date whereas unlimited contracts have a start date but no defined end date. 

Under the Old Law, employment contracts could be of an unlimited term or fixed/limited term. However, it is now mandatory for all employers to hire employees on a fixed-term employment contract.

6 Key Elements of a Labour Contract UAE

Essential clauses to Include in a labour contract are:

1. Job title and Description

This clause outlines the job title and the corresponding duties and obligations associated with the position. It defines the role and responsibilities the employee is expected to undertake within the organisation. 

2. Salary and Benefits

Salary clause in a labour contract outline the compensation structure for employees. Salary clauses are crucial for defining the financial terms of employment and ensuring that both parties have a clear understanding of compensation.

3. Working Hours and Conditions

The working hours clause in a labour contract specifies the expected hours an employee is required to work. The UAE Labour Law provides that the maximum normal working hours for workers shall be eight hours per day or forty-eight hours per week. 

An employer may instruct the worker to work overtime over the normal working hours provided that they do not exceed two hours per day (unless the work is necessary to prevent the occurrence of a serious loss or accident). However, in all cases, total working hours must not exceed 144 every three weeks.

4. Duration of the Contract (if Limited)

Under the UAE Labor Law, it is mandatory for all employers to enter into fixed-term contracts with their employees. In other words, the duration of the employment has to be predetermined.

Such fixed-term labour contracts can be renewed after the expiry of the initial term. In case of renewal, the new term shall be considered an extension of the original term and shall be added to it while calculating the worker’s continuous term of service. 

5. Termination Conditions

The UAE Labor Law states that either party to the labour contract may terminate the contract for any legitimate reason. A party wishing to terminate a labour contract must adhere to the notice period stipulated in the contract, which should not be less than thirty days and not more than ninety days. This notice period is crucial as it allows the employer time to find a suitable replacement and the employee to seek new employment. 

Employees are entitled to full salary during the notice period and are expected to continue their duties during this period unless mutually agreed otherwise. The Law further states that the party who fails to abide by the notice period shall pay compensation to the other party which shall be equal to the employee’s salary for the full notice period or the remaining duration of the notice period. Such compensation is called notice period allowance.

6. Leave Entitlements

The UAE Labor Law provides for the following leave entitlements:

• Annual leave of thirty days after completion of six months of service and two days every month if the term of service is between six months and one year.
• Sick leave of up to ninety days per year, after the probation period. The first fifteen days of the leave will be fully paid, the following thirty days with half pay and the subsequent period would be without pay.
• Maternity leave of sixty days for female workers; first forty-five days with full wage and following fifteen days with half wage.
• Bereavement leave of five days, in case of death of the husband or wife and three days in case of death of the mother, father, son, brother, sister, grandson, grandfather or grandmother, starting from the date of death.
• Parental leave for a period of five working days for the worker (either the father or mother) who has a newlyborn child in order to take care of the child. The leaves can be availed (for a continuous or intermittent period) within six months from the date of the child’s birth.
• Study leave for a period of ten days for an employee to sit for exams provided that the employee is enrolled or regularly studying at an educational institution approved in UAE and the service term of employment is not less than two years.

Common Pitfalls to Avoid

Overly Restrictive Clauses

It is common practice for employers to include post-contractual restrictive covenants in labour contracts, such as non-compete and non-solicitation clauses, in order to ensure that an employee does not work for a competitor or competes with the employer. 

From employers’ perspective, such clauses are a tool to protect their business interests, confidential information and trade secrets. However, such clauses should not be overly restrictive as their enforceability can be challenged.

As per UAE Labour Law, the maximum period that can be specified in a labour contract for such a restriction is two years from the date of expiry of the labour contract.  However, it should be noted that even if a non-compete clause is in accordance with the parameters specified in the UAE Labour Law  (i.e., in terms of time, place, and type of work), UAE Courts can still refuse to enforce the non-compete clause if it believes that the same is not necessary to protect the legitimate business interests of the employer. 

Therefore, even if the non-compete clause is in accordance with the provisions of UAE Labour Law, the employer will still have to demonstrate that the said clause is necessary in order to protect its legitimate business interests. 

The UAE Labour Law further provides that a claim filed by the employer for the worker’s violation of a non-compete clause shall not be heard if one year has passed from the date of discovering the violation. 

Ambiguous Language Leading to Misunderstandings

To prevent ambiguity in labour contracts, it is crucial to prioritise clarity and precision during the drafting process. Clear language helps minimise misunderstandings and reduces the risk of potential legal disputes. For example, defining key terms and using the same terms throughout the contract can eliminate the problem of multiple interpretations. 

Failure to Update Contracts in Line with Legal Changes

Failure to update employment contracts in line with legal changes can lead to significant legal and financial repercussions for organisations. Labour contracts must comply with relevant legal requirements, such as leave entitlement, termination requirements, working hours etc.

It is important for employers to routinely review and update employment contracts. Outdated contracts can not only result in legal liability but can also create difficulties for employers in enforcing terms related to termination, notice periods, and other employment conditions.

Step-by-Step Guide to Drafting a Labour Contract

There are 5 Steps to draft a Labour Contract:

1. Initial Consultation with a Legal Expert

Always consult a legal expert for drafting of a labour contract to ensure that the contract is in compliance with UAE Labour Law. A legal expert can identify potential legal issues and provide guidance on parties’ rights and obligations. 

2. Drafting the Initial Contract

Drafting a contract requires a methodical approach to ensure that it is clear, thorough, and legally enforceable. Drafting the initial contract includes several key steps, such as identifying the parties, setting forth the terms and conditions, addressing potential risks and liabilities, etc. 

3. Making Necessary Revisions

After creating the initial draft, it is important to conduct a thorough review of the labour contract to ensure clarity, completeness, and legal compliance. The language used should be clear and unambiguous. This process may require several revisions to enhance the quality of the document.

4. Negotiating and Signing the Contract

Negotiating contract terms and conditions with employees is a crucial step. If the initial terms do not meet the employee’s expectations, the employer can offer alternatives such as flexible work hours or additional perks. A well-negotiated contract helps in building trust between the employer and the employee.

5. Implementing the Contract and Onboarding the Employee

Once the contract is signed by both parties, it is essential to implement the terms outlined in the agreement. This includes officially onboarding the employee, which involves familiarising them with their role, responsibilities, and the workplace environment.

During onboarding, employers should ensure that the new employee understands their job duties, the company culture, and any relevant policies or procedures. This may include training on specific tasks, introductions to team members, and providing access to necessary resources or tools.

Additionally, maintain open lines of communication to address any questions or concerns the employee may have as they transition into their new role. This proactive approach helps in aligning expectations and fosters a positive working relationship from the outset, ultimately contributing to employee satisfaction and retention.

Conclusion

A carefully crafted labour contract offers legal protection for both employers and employees. This binding document serves as a reference point in the event of disputes, clearly outlining the rights and responsibilities of each party. 

A well-drafted contract minimises the potential for conflicts and misunderstandings, ultimately promoting a more harmonious workplace environment.