Limited vs Unlimited Contracts in the UAE (Updated 2025 Guide)

Employment in the UAE is governed by the UAE Labour Law (Federal Decree-Law No. 33 of 2021). Understanding the difference between limited contracts and unlimited contracts is essential for both employees and employers. These agreements determine job duration, termination rights, gratuity entitlement, notice periods, and compliance obligations.

A limited contract (also called a fixed-term contract) is signed for a specific period — generally two to three years, aligned with the employee’s residency visa.

Main Characteristics of a Limited Contract:

• Duration: Defined start and end date.
• Renewal: Possible through mutual agreement (Article 38, UAE Labour Law).
• Termination by Employee: Written notice of 1–3 months is required.
• Termination by Employer: Must provide valid grounds; early termination may require compensation of up to three months’ salary.
• Gratuity: After one full year, calculated as 21 days’ basic salary (for 1–5 years of service) and 30 days’ basic salary thereafter.

Limited contracts are most common for project-based employment or roles with predetermined timelines.

An unlimited contract is open-ended and does not include a fixed duration. Historically, it was widely used for long-term or permanent jobs.

Main Characteristics of an Unlimited Contract:

• Flexibility: No end date; employment continues until terminated by either party.
• Termination by Employee: Minimum 30-day notice (or as stated in the contract).
• Termination by Employer: Must provide valid reasons; dismissal without cause may result in compensation of three months’ gross salary.
• Gratuity: Based on years of service but reduced if the employee resigns before 5 years of service.

Under the New UAE Labour Law (2023), all unlimited contracts in the private sector were required to be converted to limited contracts. Today, unlimited agreements are only valid in free zones like DIFC, ADGM, or government entities.

Aspect	Limited Contract	Unlimited Contract
Duration	Fixed term (2–3 years)	No fixed end date
Legal Status (2025)	Mandatory in UAE private sector	Phased out, only in DIFC/ADGM & government
Termination by Employee	1–3 months’ notice; may owe compensation if early	30-day notice, more flexible
Termination by Employer	Early termination = 3 months’ salary compensation	Valid reasons required; otherwise compensation
Gratuity Entitlement	Full gratuity after 1 year of service	Reduced gratuity if resigning before 5 years

1- Limited Contract

• Resignation requires 1–3 months’ notice.
• Probation resignations:
  • 14 days’ notice (if leaving UAE).
  • 30 days’ notice (if joining another UAE company).
• Early resignation without proper notice may require payment of compensation.

2- Unlimited Contract (Before Phase-Out)

• Resignation: At least 30 days’ notice.
• Employer dismissal: Valid reasons required under Article 120.
• Employee resignation without notice allowed under Article 121 (e.g., contract breach, unsafe workplace).

1- For Limited Contracts

• 1–5 years: 21 days’ basic salary per year.
• 5+ years: 30 days’ basic salary per year.
• Maximum entitlement = 2 years’ basic salary.

2- For Unlimited Contracts (Legacy Cases)

• Resignation before 1 year: No gratuity.
• 1–3 years: Gratuity reduced by ⅔.
• 3–5 years: Gratuity reduced by ⅓.
• 5+ years: Full gratuity as per law.

Use our UAE Gratuity Calculator for accurate estimates based on your contract type, years of service, and basic salary.

• Limited contracts are now mandatory across the UAE private sector, giving employers clarity and employees structured rights.
• Unlimited contracts offered flexibility but were phased out under the UAE Labour Law reforms.
• Employees should always check notice period, gratuity entitlement, and termination clauses before signing.
• Employers must stay compliant to avoid disputes and penalties.