Laws & Labor

Limited Vs Unlimited UAE Employment Contract

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What is Limited Versus Unlimited UAE Employment Contract?

Click here to read all about UAE Unlimited Term Employment Contract

Click here to read all about UAE Limited Employment Contract

Limited Term Contract

1.A fixed-term contract linked to the duration of the UAE residency visa, typically two or three years depending on the employer’s location.
2.Automatically terminates at the end of the term, unless terminated earlier by either party or renewed by mutual agreement.
3.Suitable for engaging employees for specific projects with known durations.
4.Termination is governed by the contract’s expiration date or earlier termination by either party.
5.Renewal can be done with the consent of both parties or by converting the contract to an unlimited term contract.
6.Early termination by the employer may require “early termination compensation” of a minimum of three months’ remuneration.
7.Employee’s early termination may result in paying the employer “early termination compensation” of half of three months’ remuneration or for the residual period.
8.Notice period, if provided in the contract, must be given in addition to any early termination compensation.
9.End of service gratuity calculation based on years of service, with a minimum of 21 calendar days’ basic pay for each year.
10.Minimum contract requirements include the dates of conclusion and work start, nature of work, workplace, remuneration amount, and duration.

Unlimited Term Contract

1.An open-ended employment contract without a fixed termination date.
2.Termination can be done by the employer for valid reasons with notice or summarily for gross misconduct.
3.Commonly used for permanent employees not engaged in project-based work.
4.Employee can resign by providing the contractual notice period or resign without notice as per Article 121.
5.End of service gratuity calculation similar to limited term contracts, based on years of service.
6.Sliding scale reduction in end of service gratuity for resignations based on the period of service.
7.Minimum contract requirements include the dates of conclusion and work start, nature of work, workplace, and remuneration amount.

Note: The information provided is based on the general understanding of limited and unlimited term contracts in the United Arab Emirates and may vary based on specific circumstances and legal regulations.

Unlimited ContractLimited Contract
No set end date, open-ended employmentFixed-term contract with a specified start and end date
Recommended for permanent employmentSuitable for specific projects or known durations
Termination by employer:Termination by employer:
– With 30 days’ notice or agreed extended notice period– With no notice provision, contract expires on end date
– Summary dismissal for gross misconduct
Termination by employee:Termination by employee:
– With 30 days’ notice or agreed extended notice period– With payment of early termination compensation
– Resignation without notice in specific circumstances
Compensation for unjustified termination:Compensation for unjustified termination:
– Three months’ wages– Three months’ wages or wages for remaining contract period
End of service gratuity calculation:End of service gratuity calculation:
– 21 calendar days’ basic pay for first 5 years,– 21 calendar days’ basic pay for first 5 years,
30 calendar days’ basic pay for additional years30 calendar days’ basic pay for additional years
– No entitlement for termination due to gross misconduct– No entitlement for termination due to gross misconduct
– Transferable to other companies with certain conditions– Non-transferable within the contract, unless converted
– Freezone and government-owned businesses exemptedto an unlimited contract or under specific circumstances

Please note that this table provides a general overview, and it’s important to refer to the specific provisions of the UAE Labour Law and consult with legal professionals for accurate and up-to-date information regarding employment contracts in the UAE.

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Key Points on Differences Between Limited & Unlimited Contracts-UAE Employment Contract

  • A limited contract has a specific beginning and end, while an unlimited contract only specifies the beginning.
  • The flexibility of the contract depends on whether you are an employee or employer and your desired employment relationship.
  • Limited contracts offer more security but less flexibility, while unlimited contracts are more flexible but provide less security.
  • In limited contracts, if an employee is terminated before the contract’s expiration, they are entitled to notice period, end-of-service benefits (21 days of basic salary for each year of service), and three months of arbitrary dismissal compensation.
  • Arbitrary dismissal compensation is usually applicable as thresholds for termination with a good cause are rarely met.
  • If an employee resigns from a limited contract, there is no arbitrary dismissal compensation, but they may forfeit their end-of-service benefits.
  • Resigning from a limited contract before its expiration waives the employee’s end-of-service benefits.
  • The length of the employment relationship affects the amount of arbitrary dismissal compensation awarded by courts.
  • In unlimited contracts, there is no penalty for employees to resign, and the notice period remains the same.
  • End-of-service benefits in unlimited contracts are not linked to the contract’s term and are based on the employee’s total service period.
  • Unlimited contracts offer more flexibility but provide no arbitrary dismissal compensation.

Key Takeaway: UAE Employment Contract

The key points to understand about limited and unlimited contracts are that limited contracts have a specific duration and provide more security to both employees and employers, while unlimited contracts offer flexibility but less security. In limited contracts, termination may entitle employees to notice period, end-of-service benefits, and arbitrary dismissal compensation. Resignation from a limited contract may result in the loss of end-of-service benefits. Unlimited contracts do not impose penalties for resignation, and end-of-service benefits are not tied to the contract’s duration. Overall, the choice between limited and unlimited contracts depends on individual preferences and circumstances

What is limited contract as per UAE Labour law?

A limited term contract refers to a contract with a predetermined duration typically tied to the length of the UAE residency visa, usually two or three years, depending on the employer's location. The contract will come to an end upon reaching its specified term, unless terminated earlier by either party or renewed through mutual agreement.

What is limited contract under new Labour law?

n the beginning, according to the New Labour Law, it was required that all employees be hired on limited term contracts. The law allowed a one-year transition period to convert existing contracts that were previously unlimited in term. Additionally, there was an initial maximum limit of three years set for the duration of the limited term contracts.

What is the new limited contract in UAE 2023?

Under the new law, the concept of unlimited-term contracts has been abolished, and only fixed-term contracts with a maximum duration of three years are permitted. Businesses are required to convert all existing employees who are currently on unlimited-duration contracts to fixed-term contracts by the deadline of February 2nd, 2023.

Do I need to pay if I resign in limited contract?

No, you are not responsible to pay anything unless agreed in employment contract personally between both parties.

Can I terminate a limited contract?

If an employee chooses to end the contract before its completion, they are obligated to provide compensation to the employer. The compensation amount is equivalent to the total salary for a period of 45 days or for the remaining duration of the contract, whichever is shorter, unless specified otherwise in the contract.

What is the leave salary for a limited contract employee in UAE?

The payment amount is calculated as 21 days of salary per year of service. However, for employees with more than 5 years of experience, the payment is increased to 30 days of salary for each year worked.

What is a limited work contract?

Typically, limited term contracts specify the exact dates marking the beginning and end of the employment period. Unless renewed, the contract is automatically terminated upon its expiration. These types of contracts are utilized when an employer requires employees for particular projects or a specific duration.

What is the difference between limited contract and unlimited contract in UAE?

While an unlimited contract has no fixed termination date, a limited contract has a predetermined end date specified.

What is the maximum notice period for limited contract in UAE?

30 days

What is the UAE Labour Law 2023 about salary?

Qualified employees will receive a payment equal to 60% of their registered monthly salary, capped at a maximum amount of AED 20,000, for a duration of three months after their termination.

Can we change unlimited contract to limited contract?

In the event that the employer wishes to modify the contract, mutual agreement from both parties is required to proceed with the proposed changes. It is important to be aware that upon the expiration of a limited contract, the employer holds the right to terminate the employee without providing any form of compensation.

What is the limited contract rule?

A limited contract, as the name implies, is an employment agreement that has a defined duration. According to legal regulations, these contracts cannot exceed 3 years in length, and they may be extended for a similar or shorter period if mutually agreed upon by both parties involved.

Can I resign during probation period in limited contract?

Is it possible to resign at any point during the probationary period? Employees under an unlimited term contract retain the right to resign at their discretion within the probationary period. However, this provision is applicable only to employees with an unlimited term contract.

What is better, unlimited or limited contract in the UAE?

The choice between an unlimited and limited contract depends on individual circumstances and preferences. An unlimited contract offers more flexibility and long-term stability, as it has no set end date. On the other hand, a limited contract is suitable for specific projects or known durations. Ultimately, what is better for you will depend on your employment needs and objectives.

What are the benefits of a limited contract in the UAE?

Some benefits of a limited contract include:
  1. Clearly defined start and end dates.
  2. Often linked to the duration of the employee's UAE residency visa.
  3. Suitable for specific projects or known durations.
  4. Automatic cancellation if not renewed.
  5. Eligibility for compensation if terminated without valid reasons.

Is an unlimited contract valid in the UAE?

Yes, an unlimited contract is valid and widely used in the UAE. It offers an open-ended employment arrangement without a fixed end date.

How do you know if a contract is limited or unlimited?

To determine if a contract is limited or unlimited, you need to review the terms and conditions stated in the contract itself. The contract should clearly specify the start and end dates for limited contracts, while unlimited contracts will not have a specified end date.

Can I resign after 1 year in an unlimited contract?

Yes, you can resign after 1 year in an unlimited contract. Generally, a notice period of 30 days is required for resignation, although this can be extended by mutual agreement.

Do I need to pay if I resign in a limited contract?

If you resign from a limited contract, you may be required to pay compensation to your employer. The payment would be equivalent to 45 days' worth of salary or the remaining period of the contract, whichever is less.

Can I resign after 1 year in a UAE limited contract?

Yes, you can resign after 1 year in a UAE limited contract. However, you may be required to pay compensation to your employer as mentioned earlier.

Can I terminate a limited contract?

As an employee, you can terminate a limited contract if your employer violates any points mentioned in Article 121 of the UAE Labour Law. However, termination must be done in accordance with the provisions of the law and the contract itself.

Is a limited contract good?

Whether a limited contract is good or not depends on individual circumstances. Limited contracts can be beneficial for specific projects or when the duration of employment is known in advance. They provide clarity and protection for both employers and employees, as the terms and conditions are clearly defined.

How many years is an unlimited contract?

An unlimited contract has no set duration or maximum limit in terms of years. It is an open-ended employment arrangement that continues until either party terminates the contract.

Do I need to pay if I resign in the UAE?

If you resign from your employment in the UAE, you generally do not need to pay anything to your employer. However, if there are specific contractual provisions regarding early termination or if you have violated any terms of the contract, there may be financial implications.

What are the benefits of an unlimited contract?

Some benefits of an unlimited contract include:
  1. Flexibility and long-term stability, as there is no fixed end date.
  2. Ease of transferability to other companies, provided certain conditions are met.
  3. Eligibility to work in free zone companies or government-owned businesses.
  4. Payment in full during the notice period when resigning.
  5. Entitlement to end of service gratuity and other benefits after completing a certain period of continuous service.

Please note that the answers provided are general in nature and may vary depending on specific circumstances and the provisions of the UAE Labour Law. It is always advisable to refer to the law and seek professional advice for accurate and up-to-date information regarding employment contracts in the UAE.

Federal Decree Law No. 33 of 2021 on the Regulation of Labour Relations in the Private Sector, the ‘UAE Labour Law’ 


About Author is a news syndication and press release service company based in UAE.

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