Managing work permit cancellation and employment termination under UAE Labour Law is a critical compliance issue that many employers overlook. Misunderstanding the distinction between a work permit and an employment contract can expose companies to financial penalties, enforcement risks, and legal disputes.
Federal Decree-Law No. 33 of 2021 (the UAE Labour Law) governs employment relationships in the UAE, yet a common misconception persists: assuming that cancelling a work permit automatically ends the employment contract. This blog explains why this is incorrect and how employers can ensure full compliance.
What is a Work Permit under UAE Labour Law?
A work permit is an administrative authorisation issued by the Ministry of Human Resources and Emiratisation (MoHRE), allowing a person to legally work in the UAE.
It is distinct from the employment contract, which is the legal agreement that governs salary, benefits, and job responsibilities. Cancelling a work permit does not automatically terminate the employment contract, and failure to properly terminate the contract can create serious legal exposure.
Why Distinguishing Work Permit and Employment Contract Matters
Employers often assume that non-renewal or cancellation of a work permit ends the employment relationship. However, under Article 42 of the UAE Labour Law, termination of the employment contract must follow legal procedures. Until the contract is lawfully terminated, employer obligations continue, even if the work permit has been cancelled.
This distinction is critical to avoid enforcement action and potential salary liabilities.
Enforcement Risks under Article 54
MoHRE has significant powers under Article 54 of the UAE Labour Law, including:
Issuing binding decisions for disputes under Dh50,000
Requiring continued salary payments for up to two months during disputes
Enforcing decisions like a writ of execution
If an employer cancels a work permit but fails to terminate the employment contract properly, they may face immediate financial exposure.
The Fourteen-Day Settlement Rule
Article 53 of the UAE Labour Law requires all end-of-service payments and employee entitlements to be paid within 14 days of contract termination. Delaying settlements pending visa or permit processing can trigger:
Labour disputes
Enforcement actions under Article 54
Unnecessary financial and legal exposure
Employers must align contract termination with settlement obligations to stay compliant.
Penalties for Fictitious or Unauthorised Employment
Employers maintaining active work permits without actual employment risk Article 60 penalties, which include:
Fines from Dh100,000 to Dh1,000,000 per worker
Total fines capped at Dh10 million
Mandatory return of government incentives obtained through unauthorised employment
This reinforces the need for accurate record-keeping and lawful termination processes.
Limitation Period for Employment Claims
Any claim under the UAE Labour Law must be filed within two years from the end of the employment relationship. Misalignment between work permit cancellation and lawful contract termination can create latent legal risks, leaving employers vulnerable to unexpected claims
Conclusion
The gap between work permit cancellation and employment contract termination is a material compliance risk under UAE Labour Law. Employers must:
Treat permit cancellation and contract termination as separate legal processes
Ensure salary continuation obligations are met during disputes
Avoid fictitious employment penalties
Comply with the 14-day settlement rule
