Terminating an unlimited term contract under Article 117

Federal Law number 8 of 1980 (as amended), colloquially known as the UAE Labour Law, regulates all employment contracts in the UAE, with the exception of certain ‘offshore’ jurisdictions such as the Dubai International Financial Centre or Abu Dhabi Global Market. It is therefore a fundamental piece of legislation, the understanding of which is essential to both employees and employers alike.

The UAE Labour Law distinguishes between two types of employment contracts; limited term and unlimited term. In their basic forms, the contracts are as the name suggests; limited term contracts specify a fixed term and an end date, and unlimited term contracts are open ended and therefore seen as more flexible. Different articles relate to the termination of the two separate contract types, and for the purposes of this commentary, we will review one of these articles - article 117 - one of the two main ways in which an employer may lawfully terminate an employee’s unlimited term contact.

Article 117 stipulates that there must be ‘valid grounds’ by which either an employer or employee can terminate an unlimited contract. These ‘valid grounds’ are not defined, although the UAE Labour Law does specify that they must be work related when seeking to be relied upon by the employer, and from previous judgments, the Labour Courts have been willing to accept poor performance or misconduct as a ‘valid reason’. Where an employee is terminated for a valid reason, they are entitled to their full end of service gratuity and other entitlements under the law.

Where a company fails to comply with the UAE Labour Law provisions regarding termination, they may be found to have arbitrarily dismissed the employee, and subject to a penalty of between 1-3 months compensation based on an employee’s full final salary. The penalty is at the court’s discretion, usually having regard to the specifics of each case; eg. length of employment, seniority etc.

Under the terms of article 117, a minimum mandatory notice period of thirty days is also prescribed, during which an employee is entitled to their full pay and benefits, and are still bound by the terms of their employment contract. Failure to abide by the notice period, by the employer or employee, opens up the possibility for a payment in lieu of notice. Whether the employer wishes the employee to remain an active part of the business during the notice period, or decides that gardening leave is more appropriate, is a matter of company policy. The requirements of an employee on notice should be set out clearly so as to avoid dispute, and should ensure that handover, and any other company requirements, happen during the notice period and specifically while the employee is still contracted with the company.

The legal obligations on an employer do not end once article 117 has been satisfied, but having a coherent and well-drafted company policy that expands upon what ‘valid grounds’ are, provides for company work standards and details procedure on termination, can ensure that the termination process is as straightforward as possible. The best outcome in any termination is one whereby both the employer and employee know the process, and are committed to it.

Where an employer is looking to rely on article 117 to terminate an employee, it is extremely important that the correct procedure is followed and the necessary paperwork is in place.

For further information on article 117 or any other employment advice

Christopher Chipperton caschipperton@davidsoncolaw.com +971 4 343 8897