There are two types of employment contracts in Kuwait: definite and indefinite term employment contracts.
Bilaal MusbahAssociate,Corporate Commercial
In Kuwait, employment relationships are governed by the Labor Law in the Private Sector No.6 of 2010 (the “Labour Law”). There are two types of employment contracts in Kuwait: definite and indefinite term employment contracts. Understanding the differences between these two types of employment contracts is important for employees and employers alike. This article serves as a primer on the topic and will hopefully provide readers with an adequate background on employment contracts in Kuwait prior to entering the same.
Both definite and indefinite term employment contracts are codified in the Kuwaiti Labour Law. While both categories of employment contracts serve the purpose of codifying an employment relationship, there are significant differences between them—differences of which employees and employers should be well-apprised.
The glaring difference between definite and indefinite term employment contract is the duration of time that these contracts cover; definite term contracts have a specified end date, while indefinite term contract continues until it is terminated by either the employer or employee—as explained in further detail below. Article 30 of the Labor Law provides that a definite term contract cannot exceed 5 years and must not be for less than one year. An indefinite term contract does not have a specified period and the parties will continue to implement the contract until it is terminated by either party giving the other at least three months’ notice period.
Termination differs when dealing with the two types of contracts. When a party to a definite term contract unlawfully terminates the contract prior to its completion, the terminating party must compensate the other party for damages for an amount that does not exceed the remuneration of the employee for the remaining balance of the contract. For example, should an employee on a definite term contract of two years choose to terminate the contract seven months in, then the employee may be liable to compensate their employer for an amount up to seventeen months’ remuneration—an unenviable position for an employee to find themselves. A judge of law would quantify the damages according to the trade customs, the nature of the work, the duration of the contract, and, in general, all considerations that may influence the quantification of such damages. In practice, judges tend to give up to three months’ compensation in the event of early termination of a definite term contract.
Termination in an indefinite term contract gives either party, employee, or employer, to terminate the contract anytime, by giving the other party a three months’ notice period.
Some contracts contain language that is confusing, i.e., they define the term but at the same time provide the parties the right to terminate the contract anytime by three months’ notice period. It is worthy to note that whenever the contract includes a three months’ notice period, it is automatically construed as an indefinite term.
Definite term contracts are typically used for the purpose of temporary or seasonal roles, e.g., a specific project with an envisioned start and end date. This contrasts with an indefinite term employment contract, which remains valid until terminated by either the employee or employer.
Notice periods also differ greatly when dealing with the two types of contracts. First off, definite term employment contracts do not contain a notice period, meaning that if a party to the contract does not wish to renew the contract, then they must provide the other party with a notice of non-renewal before the end of the term of contract. If the employer would like to renew the contract, then they must submit a renewal of term contract to the employee. However, a definite term contract is automatically renewed if the parties continue to maintain performance of the contract after its expiry and the contract shall be deemed as renewed for a similar period with the same conditions, unless the parties agree otherwise.
On the other hand, the notice period for indefinite term contracts is three months for employees paid monthly, and one month notice for employees paid on another basis, i.e., hourly, daily, weekly, etc. Parties cannot agree upon a decreased notice period from that entrenched in the Labor Law because the notice period is regarded as protection for the employee in the unbalanced employee-employer relationship.
When a definite term employment contract expires, an employee’s end of service entitlement becomes due, i.e., a privilege.
Another difference between the two types of employment contracts is the calculation of the End of Service Indemnity upon termination of the employment contract. When a definite term employment contract expires, an employee’s end of service entitlement becomes due, i.e., a privilege.
End of service indemnity differs when dealing with indefinite term employment contracts. First, the employee is owed their full end of service indemnity upon their contract being terminated by their employer. However, if the employee resigns with proper notice, then their end of service indemnity entitlement varies depending on their years of continuous service. If an employee’s years of service amounts to less than three years, then they are not entitled to any end of service indemnity. An employee will be eligible for 50% of their end of service entitlement if they have between 3 to 5 years of continuous service, 66% if they have between 5 and 10 years of service, and 100% of the entitlement if they have 10 years of continuous service.
In conclusion, it is important to understand the various differences between definite-term and indefinite-term employment contracts in Kuwait. While definite-term contracts offer an employee a clear start and end date to the employment relationship, they do not provide job security beyond the end of the contract term. Indefinite-term employment contracts provide an employee with added job security so long as the employee continues to perform their duties satisfactorily. Appreciating the benefits and limitations of each type of employment contract can help employees make informed decisions about their employment situation and can help employers to create fair and effective employment agreements.
For further information, please contact Ola Saab or Bilaal Musbah.
Published in March 2023
