Employment Contract Termination: No More Penalty for Early Resignation Under New UAE Law"

The new Federal Decree-Law No. 33 of 2021 (the UAE Labour Law) fundamentally changed the rules for terminating fixed-term contracts (the replacement for limited contracts), particularly eliminating the statutory financial penalties for early termination.

🚫 New UAE Law: Termination of Employment Contract (2025 Update)

The new UAE Labour Law (Federal Decree-Law No. 33 of 2021) has replaced the concept of "unjust dismissal" compensation and the automatic financial penalty for resigning early from a limited contract. The system now focuses entirely on the Notice Period.

1. Contract Type: Fixed-Term is the Standard (Article 8)

Old Law (Articles 115, 116)	Current Law (Article 8)
Limited Contracts and Unlimited Contracts were the two types.	All new contracts must be Fixed-Term (maximum 3 years, renewable).
Termination required penalties for non-compliance.	Termination is achieved by serving the mandatory Notice Period (30-90 days).

2. Employer Termination (Replaced Old Article 115)

The concept of a maximum 3-month statutory compensation for "unjust dismissal" under Article 115 is gone.

Old Law Rule (Article 115)	Current Law Rule (Article 43 & 47)
Compensation: If dismissed without reason (and not Article 120), the worker received up to 3 months' total salary (or the remaining contract period, whichever is shorter).	Compensation: Compensation for unfair or arbitrary dismissal is NO LONGER capped at 3 months. The amount is determined by the court, taking into account the employee's nature of work, duration of service, and the damage incurred, but the law no longer specifies the 3-month cap.
Notice: Limited Contracts had no mandatory notice period for employer termination.	Notice: The employer must provide the worker with a minimum of 30 days' notice for early termination, up to 90 days if stipulated in the contract.

3. Employee Resignation (Replaced Old Article 116)

The requirement for the employee to compensate the employer with 45 days' pay (or half of the last 3 months' remuneration) for resigning early from a limited contract is ABOLISHED.

Old Law Rule (Article 116)	Current Law Rule (Article 43 & 45)
Penalty: Employee paid a compensation penalty of up to 45 days' remuneration for early resignation.	Penalty: NO STATUTORY PENALTY. The employee's obligation is solely to give the employer the contractually agreed-upon written notice (min 30 days, max 90 days).
Compensation Basis: Compensation was calculated on Total Remuneration (including allowances).	Final Dues: Compensation is generally calculated based on Total Remuneration, but the focus is on payment in lieu of notice (if notice is not served), not a penalty fee.

4. Compensation for Personal Circumstances

Old Law Rule (Question 10)	Current Law Rule (Article 43)
Resignation for personal matters (new job/family issues) required compensation to the employer.	Resignation for personal matters (new job/family issues) ONLY requires the serving of the notice period. Compensation to the employer for contract breakage is eliminated, provided the notice is served.

Conclusion

The new law shifts the focus from financial penalties to contractual commitment via the notice period. If an employee or employer terminates the contract and serves the full notice period correctly, there is no compensation due to the other party (except for end-of-service gratuity and final salary). If they fail to serve notice, the compensating party pays the remuneration (Total Salary) for the remaining notice period.