Under the new labour law for limited contract in UAE, employers must now issue fixed‑term agreements. Are you unsure whether to opt for a limited contract UAE or an open‑ended employment agreement? Understanding the difference between limited and unlimited contract in UAE is essential for both employers and employees.
In this article, we explore limited and unlimited employment contracts in the UAE, highlight key distinctions, and reveal how the updated labour framework shapes your options.
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Table of Contents
What is a limited and unlimited contract?
Before you can decide which contract suits your situation, you need to understand what each type actually means in practice. Think of it like choosing between a short-term lease and an open-ended rental agreement—each has different rules, rights, and risks.
Limited contract (Fixed-term – limited contract UAE)
A limited contract has a start date, an end date, and a clear purpose—often tied to a specific project or short-term assignment. It’s straightforward: once the term ends, the contract ends too, unless both parties choose to renew it.
But here’s the catch: ending it early—especially if you’re the employer—comes with financial consequences. UAE law requires the employer to compensate the employee with three months’ salary or the remainder of the contract, whichever is less. Employees who resign early may also need to pay compensation.
Unlimited contract
In contrast, an unlimited contract offers more flexibility. There’s no set end date. Instead, the relationship continues until one party decides to end it—with proper notice (usually 30 to 90 days). These contracts are ideal for permanent roles or long-term collaboration.
While there’s still gratuity involved, employees who resign early may receive a reduced amount—depending on how long they’ve worked.
New labour law for limited contract in UAE
So why all this talk about limited contracts now?
Because the UAE’s Federal Decree-Law No. 33 of 2021 changed everything. As of February 2022, and with full implementation by December 2023, unlimited contracts have been phased out in the private sector. That’s right—going forward, all private-sector contracts must be limited contracts (up to two years, renewable).
This shift aims to bring greater clarity, fairness, and alignment with international standards. But it also means that even if you thought you had an unlimited contract, chances are you’re now working under a fixed-term one.
What is the difference between Limited and unlimited contract in UAE
To make it even easier, here’s a quick side-by-side look at how the two contract types differ. This comparison is your shortcut to knowing your rights:
| Feature | Limited Contract (UAE) | Unlimited Contract (Legacy) |
|---|---|---|
| Duration | Fixed term (max 2 years) | No fixed end date |
| Renewal | Must be renewed in writing | No need for renewal |
| Termination by Employer | Compensation: 3 months or remainder (whichever less) | Requires notice period |
| Termination by Employee | Compensation to employer | Requires notice only |
| End-of-Service Gratuity | Standard unless employee resigns early | Reduced if resigning before 5 years |
| Flexibility | Good for short-term/project roles | Better long-term job security (but now phased out) |
Practical Tips
Not sure which type of contract is right for you—or how to interpret the one you already signed? Here are some smart tips:
- Project-based work? A limited contract makes sense.
- Hiring for permanent roles? You’ll still use a limited contract, but structure it to match long-term needs.
- Ending a contract early? Know your obligations—especially with compensation rules.
- Check your renewal clause. If your contract expired but you stayed on, it might have renewed by default.
And most importantly—when in doubt, ask a professional. UAE labour law is evolving, and you want to be sure you’re protected.
FAQ
Whether you’re starting a new role or renewing your current agreement, knowing the difference between limited and unlimited contract in UAE is more important than ever. With the new labour law for limited contract in UAE, the entire landscape has shifted.
Make sure your contract is up-to-date—and that your rights are crystal clear. If you need help reviewing your agreement or planning a smooth transition, we’re here to help.
Start with a professional consultation, contact us via the WhatsApp button below to connect with our employment lawyer in Dubai.
Read more about Employment and Labour Lawyer in Dubai.
A legal consultant specializing in UAE labor law. He regularly publishes articles on the website and writes on various areas of UAE law, with a specific focus on labor law.
