It’s never been more important to understand whether your contract is limited (fixed‑term) or unlimited (indefinite). Especially since Federal Decree-Law No. 33 of 2021 abolished unlimited contracts and made fixed‑terms the norm, clarity is essential.
What Are Limited Contracts and Unlimited Contracts?
Limited Term Contracts
The contract is said to be a Limited or Fixed Term contract, where it specifies a fixed duration of employment. It is usually 2 years or 3 years. Employment contracts can be for less than 2 years as agreed between the employer and the employee.
It is worth noting that the validity period of the employment visa is tied to the duration of the employment contract entered into between the parties. All limited-period employment contracts automatically renew with the same terms and conditions unless its cancelled expressly or by implication. Furthermore, such renewal is considered a continuous period to calculate end-of-service benefits.
Unlimited Contracts
The employment contracts are said to be an Unlimited Contract if it does not specify the end date of it i.e., duration of employment continues until terminated. However, under the Federal Decree-Law No. 33 of 2021 (UAE Labour Law), such a type of contract cannot anymore be entered into between the parties. According to the UAE Labour Law all employment contracts in the UAE must now be for a definite period.
Why the Change? New UAE Labour Law Context
The change to a limited period contract under UAE Labour Law aims to provide greater flexibility to employers as well as employees. The following are the advantages of such limited-period contracts;
- Encourages structured employment relationships with defined terms.
- Reduces ambiguity around termination rights and gratuity.
- Harmonizes the employment contracts across mainland and free zone jurisdictions.
Limited Vs Unlimited Contracts: Side‑by‑Side Comparison
Limited‑term contracts offer clarity around duration but come with early‑termination costs and require active renewals.
Unlimited contracts, while more flexible for ongoing roles, legally require notice periods to exit and are now effectively legacy, since new indefinite contracts are no longer being issued, existing ones must convert to limited by the end of 2023.
Both contract types carry end-of-service gratuity obligations, with slightly different calculations. Termination conditions, especially for misconduct or notice failure, also vary.
Here’s the side by side comparison of limited contracts and unlimited contracts:
Notice Periods & Termination Rules
An employment contract can include a notice period obligating that either the employer or employee must give a certain days’ notice to end the contract. Parties are free to agree upon any period as notice period but in no case shall it be less than 30 days or more than 90 days. In case the employment contract is silent on the notice period, then the default notice period of 30 days shall be applicable.
Here is the notice period compensation in various scenarios:
Termination During Probation
Furthermore, during the probation period (up to 6 months) the employer may terminate the contract by giving 14 days’ written notice while the employee must give 1 month’s written notice to resign.
End-of‑Service Gratuity & Compensation
Under the UAE Labour law there is no compensation payable in the event of early termination of the employment contract. However, an employee who has completed at least one year in continuous service shall be entitled to end-of-service benefits/gratuity according to the basic wage as per the following:
- A wage of (21) twenty-one days for each year of the first five years of service;
- A wage of (30) thirty days for each year exceeding such period.
It is to be noted that the end-of-service benefits calculated as above are capped at a total of two years’ salary.
For instance, if an employee earns a basic salary of AED 10,000 per month and completes 6 years of continuous service under a limited-term contract, he will be entitled to end-of-service gratuity as follows:
First 5 years:
21 days x AED 10,000 ÷ 30 = AED 7,000 per year
AED 7,000 x 5 years = AED 35,000
6th year:
30 days x AED 10,000 ÷ 30 = AED 10,000
Total Gratuity = AED 35,000 + AED 10,000 = AED 45,000
The gratuity does not exceed the cap of 2 years’ basic salary (AED 240,000), so the full amount is payable.
Visa Implications & Renewal
The employee’s visa is directly linked to the contract duration. Once the contract expires, the visa automatically ends, and the employer is required to initiate the visa application process. This makes it important for employees to plan their next steps in advance.
However, there is a 30-day grace period after termination or the end of the contract to apply for a fresh visa or exit the country.
Free Zone vs Mainland Considerations
Federal Decree-Law No. 33 of 2021 applies to both mainland and free zone employers except DIFC and ADGM. DIFC and ADGM have their own separate employment laws and enforcement mechanisms.
Frequently Asked Questions (FAQs ) About Limited Contracts and Unlimited Contracts
Get Expert Legal Advice on Limited vs Unlimited Term Contracts in the UAE with SK Legal
Choosing between a limited (fixed‑term) and unlimited (indefinite) contract can have significant implications for your visa, job security, and legal rights.
At SK Legal, our experienced team provides clear, actionable guidance tailored to your situation, whether you’re an employer or employee navigating UAE Labour Law.
Our services include:
- Comprehensive Legal Consultancy: Receive personalised legal advice on all types of employment contracts—including fixed-term, indefinite, and free zone agreements.
- Efficient Policy Review and Implementation: We help businesses draft and update compliant contracts, HR policies, and procedures to reduce risk under the latest regulations (Federal Decree-Law No. 33 of 2021).
- Specialised Legal Support: From contract termination issues to visa implications, our lawyers are ready to assist with all aspects of DIFC Employment Law and MoHRE-related matters.
For tailored legal help and to ensure your contracts are airtight and compliant, contact us at [email protected].
