In the United Arab Emirates (UAE), employment contracts form the foundation of every professional relationship. They define rights, responsibilities, and the terms under which people work. The two primary types—limited contracts and unlimited contracts—each come with their own legal structures and implications.
Understanding these contract types is key for both employees and employers to make informed decisions and ensure compliance with UAE Labour Law. In this guide, we’ll break down their definitions, benefits, challenges, and how they fit into the current job market.
What Are Limited and Unlimited Contracts in the UAE?
Employment contracts in the UAE are regulated by the Ministry of Human Resources and Emiratisation (MOHRE). These contracts are legal documents that define the terms of work, obligations, and rights of both employers and employees.
There are two types:
Limited Contract in UAE
A limited contract is a fixed-term agreement, typically lasting up to two years. It has a clear start and end date and is often used for project-based or short-term employment.
Unlimited Contract in UAE
An unlimited contract has no end date. It continues indefinitely until either the employer or employee ends it with proper notice. This type is more common in long-term, stable roles.
Both are governed under Federal Decree-Law No. 33 of 2021, which updated key labor rights and protections.
Understanding the Limited Contract in UAE
A limited contract in the UAE sets a clear start and end date, offering job security for a fixed period. It suits project-based roles and guarantees gratuity upon completion. However, early termination can lead to penalties, making it important for employees and employers to understand all contract terms.
Definition and Structure
A limited employment contract clearly states the employment duration. It’s used when an employer needs talent for a specific period or project.
Key Features
- Fixed duration (up to 2 years)
- Gratuity entitlement at contract completion
- Early termination penalties may apply
- Renewal upon mutual agreement
Advantages
- Predictable job duration and financial planning
- Guaranteed end-of-service benefits
- Clear employment expectations
Challenges
- Limited flexibility if better opportunities arise
- Potential penalties for early resignation
- Job uncertainty once the contract ends
Exploring the Unlimited Contract in UAE
An unlimited contract provides open-ended employment with flexibility for both parties. It allows termination with a notice period and is ideal for long-term roles. While it offers freedom to switch jobs, it may bring less job security compared to fixed-term contracts, depending on the employer’s staffing needs.
Definition and Structure
An unlimited contract has no fixed end date. It continues as long as both parties maintain the agreement and follow termination terms.
Key Features
- No end date unless terminated by either party
- Requires a notice period (30–90 days)
- Gratuity provided upon termination
- More adaptable for evolving business needs
Advantages
- Flexibility to resign or restructure employment
- Suitable for long-term planning
- Less administrative work compared to fixed renewals
Challenges
- Less job security compared to limited contracts
- Possible disputes around termination justification
- Employers may find it harder to forecast labor costs
Comparing Limited vs. Unlimited Contracts in UAE
| Aspect | Limited Contract | Unlimited Contract |
| Duration | Fixed (up to 2 years) | Open-ended |
| Termination Rules | May involve compensation | Requires 30–90 days’ notice |
| Job Security | Higher during contract period | Lower (subject to notice only) |
| Flexibility | Limited flexibility | Higher flexibility |
| Gratuity | Paid on contract completion | Paid on resignation/termination |
Which Contract Suits You?
Choosing the right contract depends on your priorities. If you value job stability, a limited contract offers security for a set term. If you prefer flexibility and long-term potential, an unlimited contract is better. For employers, the choice depends on whether the role is temporary or ongoing.
For Employees
- Prefer limited contracts if you want predictable tenure and end-of-service compensation.
- Opt for unlimited contracts if you value flexibility and long-term career options.
For Employers
- Use limited contracts for seasonal or project-based jobs.
- Choose unlimited contracts when hiring for permanent roles that require loyalty and long-term commitment.
Legal Framework Governing Employment Contracts in UAE
The UAE Labour Law ensures fairness and protection for both types of contracts.
Key Legal Points
- Probation Period: Up to 6 months, terminable without notice
- Notice Period: Mandatory for unlimited contracts (30–90 days)
- Gratuity:
- 21 days’ salary/year (first 5 years)
- 30 days’ salary/year (after 5 years)
- Non-compete Clauses: Allowed if reasonable and contractually specified
Contracts must be registered with MOHRE and follow their approved templates.
Practical Considerations for Employees and Employers
Employees should review contract terms, understand notice periods, and plan for the future. Employers must align contract types with role requirements and follow MOHRE guidelines to avoid legal issues. Clear communication and legal compliance are essential to maintaining a smooth and fair employment relationship for both sides.
For Employees
- Understand all clauses before signing
- Know your entitlements under UAE law
- Prepare in advance if on a fixed-term contract
For Employers
- Align contract types with job roles
- Use clear terms to prevent disputes
- Ensure MOHRE registration for all contracts
Impact of Contract Type on UAE Job Market
- Limited contracts are common in industries like:
- Construction
- Real estate
- Events and tourism
- Unlimited contracts dominate sectors such as:
- Healthcare
- Education
- Administration and retail
This division supports a flexible and stable economy, where both short-term and long-term jobs coexist.
Also Read: Mainland License in Dubai
Common Misconceptions About Employment Contracts in UAE
Many believe limited contracts are inflexible and unlimited contracts guarantee permanent jobs. In reality, both have legal protections and offer different benefits. Contracts can also be customized within UAE Labour Law, making it important to understand actual rules rather than relying on assumptions or outdated information.
Myth: Limited contracts are too rigid
Reality: They can be renewed or ended by mutual consent.
Myth: Unlimited contracts guarantee job security
Reality: They provide flexibility, but can be terminated with notice.
Myth: Contract terms are identical for all roles
Reality: Contracts can be tailored, as long as they comply with MOHRE guidelines.
Conclusion
Choosing between a limited and unlimited contract in the UAE depends on your career goals, company needs, and legal understanding. Each type offers different levels of security, flexibility, and benefits.
Employers should align contract terms with business goals, while employees must know their rights and obligations before signing. With the right information, both parties can create a balanced, transparent, and legally sound working relationship.
FAQs
What is the main difference between a limited and unlimited contract in UAE?
A limited contract has a defined end date, while an unlimited contract continues until either party ends it with notice.
Can I switch from a limited to an unlimited contract?
Yes, this can be done with mutual agreement and by registering the new contract with MOHRE.
What happens if a limited contract is terminated early?
Early termination may lead to compensation (usually up to three months’ salary), unless agreed otherwise.
Are end-of-service benefits the same for both contract types?
Yes. As long as the employee has completed at least one year, both contracts entitle them to gratuity.
How does the probation period work in UAE contracts?
Up to six months. During this time, either party can terminate without notice or compensation.
Can a non-compete clause be included in both contract types?
Yes, if it’s reasonable in scope, time, and geography—and complies with UAE Labour Law.
