What penalties will I face for breaking a fixed-term contract?

A penalty applies to anyone who leaves a company before the end of the contract

The employee has been asked to sign a disclaimer giving up the benefit. Getty Images
Powered by automated translation

I have been offered a new job with another company but it means I have to break my contract two months before the end of the actual time. As it is close to the end, do I still have to pay my current company 45 days of my salary and allowances?  ZA, Dubai

When someone is on a fixed term contract and wishes to leave employment before the agreed end date, it does not matter when this happens as the same penalty will apply. Article 116 of UAE Labour Law states, 'should the contract be rescinded by the worker… the worker shall be bound to compensate the employer for the loss incurred thereto by reason of the rescission of the contract, provided that the amount of compensation does not exceed the wage of half a month for the period of three months, or for the remaining period of the contract, whichever is shorter, unless otherwise stipulated in the contract.' In this case, the payment would be equivalent to fewer than 45 days' salary as it would be calculated as half a month for the remaining two months, so roughly equivalent to 30 days' salary. Whilst it is not specified in law, these days the term 'wages' is considered to mean both basic salary and any regular allowances. Any End of Service Gratuity due is forfeit if someone breaks a fixed term contract with fewer than five years of service. This is per Article 138 which says, 'should the worker bound by an employment contract with determined term leave his work by his own choice prior to the expiry of the contract, he shall not be entitled to an end of service gratuity unless the duration of the service period exceeds five years.'

It would be in ZA’s interest to see out the full term of his contract, especially as he has to give 30 days’ notice anyway. Provided he notifies the current employer that he will not be renewing the contract, if he works until the current contract is complete he will have no penalties to pay upon leaving employment.


Read more:


I have a Smart Saver credit card with Mashreq Bank and want to know how I can access the Marhaba Lounge at Dubai airport. Is any registration required and what is the procedure?  IJ, Dubai

Many credit cards have such benefits and in this case the relevant information can be found on the bank's website which advises that access is via the LoungeKey Programme. Details of eligible airport lounges can be found at https://www.loungekey.com. Card holders need to register to use the service, using a link provided by their bank so if IJ does not have this he will need to request it from his own bank. The FAQ section of the Lounge Key page provides further information regarding usage.

I have been working for a company for four years but I have not received any salary for three months so I do not want to renew my visa. On 9th November I gave them my notice and they have not paid me anything yet. No salary, no final settlement even though I have finished my notice period. What can I do to get my money and can the company get in trouble? Can I get a ban in this situation? RK, Abu Dhabi

RK’s employer is breaking the law in not paying salaries in a timely manner and not paying the end of service benefits that are due. He therefore needs to register a case at the Ministry of Human Resources and Emiratisation MHRE), or his local labour office, as a matter of urgency. The MHRE helpline number is 800 665. If an employer has failed to pay salaries there are various consequences.

The payment of salaries should be monitored by the Wages Protection System and this should flag up the late, or non, payment of salaries so that companies can be penalised. The system was introduced in 2009 and backed up by Ministerial Decree in 2016 which stated, ‘An employer shall be deemed as late in paying wages if the wage is not paid to the employee within 10 days of the due date; and an employer shall be deemed as refusing to pay wages if the wage is not paid to the employee within one month of the due date (unless a shorter term is provided for in the contract).’  Companies that do not comply will initially receive a warning, then they will not be granted any new visas, and the Ministry can even use the employer’s bank guarantee.

Whilst employment bans still exist, RK would not receive a ban for leaving employment at the end of a fixed term contract. Even if he was to part way through a contact he would still be free to leave without any kind of employment ban as he has not been paid by his employer for three months. If an employee is not paid for three consecutive months, they should not receive a ban, no matter the circumstances of their departure.

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

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