Limited VS Unlimited Contract As Per Labour Law

Written ByMuhammad Ibrahim Updated on

In the UAE, employment contracts are generally divided into two types: limited and unlimited. A limited contract runs for a fixed period, while an unlimited contract has no defined end date. Choosing between them affects termination rules, end‑of‑service benefits, and the overall employer‑employee relationship.

Banner showing the difference between limited and unlimited contracts

Limited And Unlimited contracts

The limited and unlimited contracts differ in terms of termination rules, end-of-service benefits, and the overall nature of the employer-employee relationship. You can take legal action in both contracts if employer is not giving gratuity. Here is the detailed breakdown of it:

Infographic showing the difference between limited and unlimited contracts

Note: According to the new labour law, all private sectors must hire new workers on limited contracts. Unlimited contracts are no longer valid for new hires.

Limited Contracts

Limited contracts in the UAE have a fixed duration with a clear start and end date. They define specific terms, duration, and conditions, impacting employment stability and renewal options. Here is the detailed guide about the new labour law for limited contracts in the UAE:

  • Limited contracts end on a fixed date unless both employer and employee agree on early ending.
  • Employees must give at least 30 days’ notice before resigning to avoid penalties.
  • Employers can end the contract early for valid reasons like poor performance, misconduct, or breach of contract, following legal procedures. In such situations, employers have the right of gratuity. 
  • When the contract naturally reaches its end date, no additional notice is needed.
  • Early termination by the employer may require compensation or payment of end-of-service benefits to the employee.
  • Employees who resign without notice or before contract expiry risk fines or labor bans.
  • Both the employer and employee should clearly understand contract end terms to avoid disputes.
  • Proper documentation and clear communication are essential for smooth resignation or termination under limited contracts.

Unlimited Contracts

An unlimited contract in the UAE has no fixed end date and continues until either the employer or employee decides to end it. It offers more job security and stability, with clear termination rules and end-of-service benefits. Here is an in-depth detail about it:

  • Unlimited contracts have no fixed end date. It continues until either the employer or employee decides to end it.
  • The employer and the employee can terminate the contract by giving a minimum of one month’s notice or as agreed in the contract.
  • During the notice period, the employee receives full pay and benefits.
  • Employers have full right to terminate without notice and end-of-service benefits like gratuity if the employee commits a serious violation. 
  • Employees can also resign without notice in certain circumstances, such as breach of contract by the employer.
  • Employees under unlimited contracts can change jobs without facing labor bans or restrictions.
  • The terms of employment, including salary and benefits, can be changed if both parties agree and it complies with UAE labor law.
  • Unlimited contracts provide higher job security and protection against unfair dismissal.
  • End-of-service benefits such as gratuity pay are applicable based on years of service under the contract.
  • Employers must follow legal procedures to avoid penalties or litigation in case of termination.

Limited And Unlimited contracts

Aspect

Limited Contract

Unlimited Contract

Contract Duration

Fixed start and end dates 

No fixed end date

Renewal

Automatically ends 

continues indefinitely until terminated

Termination

Ends automatically at contract expiry or can be terminated early for cause

Can be terminated by either party with notice and severance pay

End-of-Service Benefits

Gratuity based on service duration

Gratuity based on years of service and last salary

Job Security

Less job security due to a fixed term

More job security and long-term employment stability

Flexibility

Best for project-based or temporary roles

Flexible for long-term roles; easier employee movement

Employer Advantage

Cost-effective for short-term needs

Helps retain a stable workforce long-term

Employee Advantage

Clear contract length; less commitment

Career growth and job stability

Note: The workers must fulfill the gratuity eligibility to get the payment.

Gratuity Calculations

After the recent updates in the UAE Labour Law, gratuity for unlimited contract termination and limited contract resignation is the same. Here is how to calculate gratuity in uae for a limited contract:

According to the UAE Labor Law, the gratuity is calculated based on your basic salary and the number of years worked. For the First five years, you will get 21 days’ basic salary for each year of service. For each additional year after that, you will get 30 days’ basic salary for each additional year. You can use Dubai Gratuity calculator for error free calculations.

FAQs

The gratuity is calculated based on your last basic salary and the number of years you worked. For the first five years, you will get 21 days’ basic salary for each year of service. After five years, you will get 30 days of salary for each additional year you work.

Yes, you can resign after 6 months in a limited contract in the UAE. However, you must provide at least 30 days’ written notice to your employer.

The limited contract is a type of employment contract that runs for a known period. 

Yes, you are allowed to resign from an unlimited contract. However, it is necessary to provide your employer with a minimum of 30 days’ written notice

Conclusion

Limited and unlimited contracts are both types of employment contracts in the UAE. According to the UAE Labour Law, limited contracts have a defined end of the service date. On the opposite side, unlimited contracts run until either party agrees to termination. 

After the recent updates in Labor Law, gratuity calculation for limited and unlimited contracts in UAE becomes similar. Gratuity in the UAE for a limited and unlimited contract is now the same. 

Aslam o Alaikum, I am Muhammad Ibrahim, an expert in gratuity, labour law, and employee benefits with 10 years of experience in the UAE. I hold a degree in Human Resource Management and specialize in gratuity calculations and end-of-service benefits. In my free time, I enjoy reading and traveling.

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