Limited or Unlimited Contracts in UAE? Key Differences & Employee Rights
The UAE is a top destination for expatriates, with nearly 89% of its population being foreign nationals. Understanding employment contracts is crucial due to the UAE Labour Law No. 8 of 1980 (as amended) & the newer amendments in 2024 to 2025. The law requires employers to adhere strictly to contract regulations, which affect job security, benefits, and termination rights. This article breaks down the two main Limited or Unlimited Contracts in UAE & explains your rights and obligations as an employee or employer in the UAE.
Types of Employment Contracts in UAE
What is a Limited Contract?
A limited contract, also called a fixed-term contract, sets a specific start and end date, usually linked to your UAE residency visa duration of 2 to 4 years. It’s ideal for project-based or temporary work. Upon expiry, it automatically terminates unless both parties agree to renew it.
What is an Unlimited Contract?
Unlimited contracts have a defined start date but no end date, offering open-ended employment. These are common for permanent roles, providing more job security and flexibility for both employers and employees. The contract continues until terminated with proper notice or mutual agreement.
Difference between limited and unlimited contracts in UAE
Here’s a clear, concise comparison table summarizing the key differences between Limited and Unlimited Employment Contracts in the UAE:
| Aspect | Limited Contract | Unlimited Contract |
| Contract Duration | Fixed term, usually 2-4 years, linked to UAE residency visa | Open-ended, no fixed end date |
| Renewal | Must be renewed by mutual consent; adds to total service years | No renewal required; can be extended or modified by addendum |
| Termination Notice | Usually shorter or as specified in contract; automatic expiry at term end | Minimum 30 days’ notice legally required |
| Early Termination Compensation | Employer pays up to 3 months’ salary; employee pays half that if resigning early | Compensation equal to 30 days’ salary if terminated without valid reason or notice |
| Gratuity Calculation | 21 days’ basic pay/year for first 5 years; 30 days after | Same, but with reductions if resignation (2/3, 1/3, or full based on years served) |
| Job Security | Lower; contract may not be renewed | Higher; ongoing employment until legally terminated |
| Contract Transferability | Non-transferable without employer consent | Employee can transfer employers without labor ban |
| Visa Linkage | Visa tied to contract duration | Visa tied but more flexible with contract changes |
| Benefits | Health insurance, annual leave, end-of-service benefits | Similar benefits plus job security, overtime pay, sick leave |
| Legal Grounds for Dismissal Without Notice | Valid only for gross misconduct as per Articles 88 & 120 | Same as limited contract |
Contract Duration & Renewal
Limited contracts last from 2 up to 4 years and require mutual consent for renewal, either for the same or modified terms. Renewal adds to total service years, affecting gratuity calculations. Unlimited contracts do not require renewal but can be extended or modified via addenda as agreed. Both contracts have legally defined notice periods for termination or renewal, ensuring clear expectations.
Termination & Resignation Rules
Limited contracts generally end automatically but can be terminated early by either party with compensation. Employers must provide early termination compensation of up to three months’ salary, while employees owe half that if resigning early. Unlimited contracts require at least 30 days’ notice for termination, unless dismissed for gross misconduct under Articles 88 or 120. Employees may resign with notice or under specific lawful exceptions, such as employer breach, without penalty.
Compensation and Gratuity
End-of-service gratuity applies to both contract types but is calculated differently. For limited contracts, employees earn 21 days’ basic pay per year for the first five years and 30 days thereafter. Unlimited contracts apply reductions if employees resign: 2/3 gratuity for 1-3 years, 1/3 for 3-5 years, and full gratuity after 5 years.
Early termination invokes compensation based on remaining contract duration or salary equivalents. Employees must complete at least one year of continuous service to qualify.
Employment Rights and Obligations
Employees under limited contracts cannot transfer jobs without employer consent and may face a labor ban of six months for early resignation or contract breach. Unlimited contracts allow more flexibility, including job transfers without bans.
Employers are obligated to honor notice periods, pay gratuity and compensation, and cancel visas upon contract termination following UAE Labor Law. Both parties must uphold contractual and legal duties to avoid litigation risks.
Contract Elements Checklist
A valid limited contract must include: contract start and end dates, job nature, workplace, remuneration amount, and contract duration. Unlimited contracts similarly require start date, job description, workplace, and salary details but omit end date. Both should specify notice periods, probation terms, and benefits like health insurance and leave entitlements to comply with legal standards.
Use Cases and Practical Examples
Limited contracts suit seasonal or project-based roles. for example like temporary manufacturing staff during peak seasons. Unlimited contracts fit permanent positions offering stability and career growth, common in administrative or technical roles.
For example, a construction worker hired for a 3-year project would be on a limited contract, while a bank employee is likely on an unlimited contract.
Implications for Employees and Employers
Limited contracts offer less job security; employees risk non-renewal and penalties for early resignation. Employers have flexibility for project staffing but must provide compensation if terminating early.
Unlimited contracts offer employees greater protection against unjust dismissal and the right to transfer jobs, benefiting retention. Employers face stricter compliance, especially regarding notice periods and gratuity payments, to avoid legal action.
Additional Resources and Tools
For accurate gratuity calculations, employees and employers can use official online gratuity calculators tailored for UAE labor law. Downloadable contract checklists help ensure legal compliance. Consult official UAE government labor law portals for the latest amendments and detailed legal texts.
Conclusion
Understanding the distinctions between limited and unlimited contracts is vital for navigating employment in the UAE. Both Limited or Unlimited Contracts in UAE come with unique rights and obligations around duration, termination, and benefits. Staying informed about labor laws and contract details helps employees secure their rights and employers maintain compliance, ensuring a fair and productive work environment.
