UAE worker who breaks terms of limited contract liable to compensate employer

I am in the fourth year of a limited contract with a big company and am about to end my contract this month. If I renew my contract but decide to resign any time this year, will I still get my gratuity pay for the previous four years? JR, Abu Dhabi

In the field that JR is working in, it is usual to be on a two-year fixed contract, which is renewed each time by mut­ual agreement. Either party can terminate at the end of the two-year period without prejudice. If, however, JR renews her contract for a further two-year period but wishes to resign before the end she will suffer penalties. An employee who breaks the terms of a fixed or limited contract is liable to pay a specified amount per Article 116 of UAE Labour Law, which states: “If the contract has been terminated on part of the employee … the employee becomes liable for compensating the employer against losses incurred by him in consequence of contract termination, provided that the amount of compensation may not exceed half a month’s pay for a period of three months or for the remaining period of contract, whichever is shorter, unless the terms of the contract provide otherwise.” Furthermore, the end of service gratuity is forfeited should an employee break a fixed contract having been employed for fewer than five years. Article 138 states: “If an employee under a contract with limited period leaves his work at his own option before the end of the contract period, he shall not be entitled to end of service gratuity unless the period of his continuous service exceeds five years.” Given the situation, JR would be better off not renewing a contract for a further two years, or should wait until she has completed a full five years to ensure she at least receives the gratuity payment, although a penalty would still apply.

Keren Bobker is an independent financial adviser with Holborn Assets in Dubai, with over 20 years’ experience. Contact her at Follow her on Twitter at @FinancialUAE.

The advice provided in our columns does not constitute legal advice and is provided for information only.

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