Resign Or Be Terminated – That Is The Question. And Who Wins?

Resign Or Be Terminated – That Is The Question. And Who Wins?

UAE – When an employer gives you an ultimatum “resign or be terminated” what do you do? Or what should you do? A person’s dignity is worth the world to them and nothing to others. You may consider the resignation as an option to save your face before your colleagues or before prospective employers. But do not fool yourself. Information like this cannot be hidden. Eventually they will know. So you have to be smart and not emotional.

What you should do?

Depends if your contract is limited or unlimited but in any event do not resign if proposed by the employer unless there is/are valid reason/s.

NOTE: Dismissal by the employer whether Limited or Unlimited is justified and allowed on the basis of any one of the specific grounds under Articles 88 and 120 of the UAE Labour Law and the Employee is not entitled to end of service gratuity where he has been terminated summarily for gross misconduct pursuant to the provisions of the UAE Labour Law. Employee can resign under limited or unlimited without notice under Article 121 of the law.

LIMITED CONTRACT : Is signed between the employer and employee which will expire on the date of the expiry of contract and is for a fixed term of time of 2 years. It will automatically terminate at the end of term unless terminated earlier by either party, or renewed by both parties. You will be entitled to receive gratuity under Limited Contract ONLY if you have completed 1 year of service.

If employee resigns before expiry of the term: 

  • An employee may validly resign prior to the expiry of the contract under the provisions of Article 121 of the law.
  • Under Limited Contract  normally there is no notice provision (unless expressively mentioned) that means the employer or employee is NOT required to give one month’s notice or pay for the same. If you resign before completing your contract term besides 1 year Ban, under UAE Labour Law provisions, the employee will have to pay half of 3 months’early termination compensation to the employer.
  • Gratuity: An employee is not entitled to gratuity if he resigns with less than 5 years of service. If he has over 5 years of service, he is entitled to the same end of service gratuity as if he resigned on an unlimited contract.

If employer terminates before expiry of the term:

  • Check the period remaining for the expiry of your contract whether it is on the date of expiry of the contract (means no renewal) or more than 3 months left or less than 3 months left.
  • The employer is liable to pay the remainder of the term of the contract if the period remaining is less than three months OR a minimum three  months’ or half of the remuneration (for the residual period if the contract has less than three months to expire). The remuneration includes last salary and allowances.
  • Gratuity: Minimum one year or more of continuous service is required to claim end of service gratuity and is calculated as follows:-21 calendar days’ basic pay for each year of the first five years of service.-30 calendar days’ basic pay for each additional year.

    Provided the total of the gratuity does not exceed the wages of two years.

UNLIMITED CONTRACT: It has no expiry period and is open-ended and may be terminated by the employee (NOTE the employee must complete or offer to complete 30 days or longer (if mentioned in the contract) notice period unless confirmed in writing by the employer that he should not complete the period) and by the employer under the following reason:

  1. For a ‘valid’ reason on notice of 30 calendar days or more if mentioned in the contract) has to be given; NOTE: Valid reason means valid reason with required protocol or warnings to be followed. Dismissal will be valid under Articles 88 and 120 of the UAE Labour Law or if the employee is a poor performer (and there is documentary evidencing the same for poor performance or misconduct).  If not the same amounts to Arbitrary Dismissal. An employee’s employment will be deemed to have been arbitrarily terminated if the reason for the termination was “not relevant to the work”.  The maximum compensation that can be awarded to an employee under a claim for arbitrary dismissal is three months’ remuneration -
  • Employee’s full pay i.e. (basic salary plus any monthly allowances), calculated based on the last pay received by the employee before dismissal
  • plus regular or guaranteed bonus or commission payments received.

2. Summarily (without notice and end of service gratuity) for one of the 11 exhaustive gross misconduct reasons set out in Articles 88 and 120 of the UAE Labour Law.

GRATUITY under Unlimited contract:

If Employer terminates:

An employee who has completed one year or more of continuous service is entitled to end of service gratuity to be calculated as follows:

-21 calendar days’ basic pay for each year of the first five years of service.

-30 calendar days’ basic pay for each additional year.

Provided that the entire total gratuity does not exceed two years pay.

NOTE: that an employee is not entitled to gratuity where he has been terminated summarily for gross misconduct pursuant to the provisions of the UAE Labour Law.

If Employee resigns: He will be entitled to gratuity sliding scale:

  • Period of service of between one to three years: 2/3 reduction;
  • Period of service of between three to five years: 1/3 reduction.
  • If the period of service if over five years there is no reduction.

So under the circumstances it is wise and prudent not to resign whether your contract is limited or unlimited unless the grounds are “valid”.

NOTE: Credit card holders can claim Credit Shield from your bank which you have being paying for unforeseen event such as protection against unemployment, disability etc. and this will be possible only if your were terminated and not if you submit your resignation. And do take your work experience letter.

Nikhat S Khan

Nikhat is a senior legal consultant and currently heading the Commercial and Corporate Department of Hilal & Associates Advocates & Legal Consultant Dubai UAE. She has an experience of over 12 years in UAE and holds two degrees, Bachelors of Commerce and Bachelor of Law. She specializes in legal matters including regulations, Anti-Corruption and AML compliance governing business practice and plays a major role in advising clients on strategy, implementation and execution of commercial contracts, legal issues, dispute resolution and good corporate governance.



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