Limited vs Unlimited Contract in UAE | The Difference

Employment contracts signed between employers and employees in the United Arab Emirates (UAE) can either be limited or unlimited. These contractual arrangements set out the rights, duties, and benefits provided under the UAE labour law.

This article explains limited and unlimited contracts; the meaning and implications of each, as well as key considerations.

Also read: Co-employment roles and benefits

Limited Contracts

A limited-term contract is also known as a fixed-term contract with a specific commencement and expiration time.

Key features of limited contracts include: 

• Duration: The contract provides for a specific duration of the contract, usually a maximum of four years after which the contract expires unless it is renewed by mutual agreement.
• Salary and Benefits: The contract lays down the compensation package which includes salary, benefits, and allowances, and does not change during the period of the contract unless both parties agree to it.
• Termination: This contract terminates as a result of the happening of an event stated therein upon the occurrence of which the contract comes to an end automatically. Pre-termination is allowed under the UAE Labour law provided there are justifiable causes and all relevant legal formalities have been met about notice and contractual provisions.
• Job Specificity: These are contracts that are bound by an employer and an employee whereby the employee is not free to change his or her employer or employer’s organization without the consent of the two parties or fulfilling the contract term.

The limited contracts are used mainly in situations where the engagement is specific to a project, or the period of employment is well defined.

Also read: Termination of Employment Contract in UAE

Unlimited Contracts

On the other hand, an unlimited-term contract refers to an employment relationship where there is no fixed time limit within which the contract will expire. Such a contract offers employers and employees the best of both worlds, that is, flexibility and stability.

Key aspects include:

• Duration: There is no set time for when the employment will stop as it has to continue until an agreement is made by both parties or by legal means to say otherwise.
• Benefits: Unlimited contract employees are also entitled to various benefits that include job security, annual leave, wages for overtime, sick leave, and end-of-service perks such as gratuity.
• Flexibility: There are no binding and restrictive clauses pushed through the employment contract and the employee can easily move from one company to another. The employment contract can be altered by agreement between the employer and the employee provided that it does not contravene the law.
• Career Longevity: When the employment is permanent or when there are positions that need long-term commitment and career growth within the organization, then unlimited contracts are recommended.

Main Factors to Distinguish the Limited and Unlimited Contracts in UAE

Comparison of limited and unlimited contracts;

Aspect	Limited Contract	Unlimited Contract
Contract Duration	Fixed start and end dates (usually 2-3 years, tied to UAE residency visa).	Indefinite duration; continues unless terminated by any contracting party.
Renewal of Contract	Becomes NULL and VOID if not renewed upon expiry. Can be renewed or converted to unlimited.	No automatic renewal provision; lasts forever unless parties agree to end or change it.
Termination of Contract	Ends by operation of law once the contract period is completed. Can be terminated earlier for cause.	Maybe rescinded by either party with or without cause, subject to notice periods and severance pay.
Gratuity/End-of-Service	Entitles employees to end-of-service gratuity based on service duration.	A similar provision for gratuity based on years of service and last drawn basic salary after leaving.
Use Cases	Short-term positions, project-based roles, and specific abilities are needed briefly.	Permanent jobs, long-term commitment, career advancement.
Conclusion for Employees	Likely job loss at contract expiration, limited mobility to other employers.	Job security, long-term employment, and improved retention.
Conclusion for Employers	Useful for short-term projects, cost-effective.	A stable workforce reduces hiring costs.

The right type of contract can be chosen by considering the above-stated aspects.

Legal Considerations and Compliance

UAE labour laws concerning limited and unlimited contracts involve adherence to specific legal frameworks:

• Notice Periods: Both contracts require the employer/employee to follow the notice period for termination which in turn protects the rights of employees and follows the labour laws.
• Renewal and Extension: It is the responsibility of the employer to check the contracts’ expiry dates and negotiate renewal or extension where necessary in line with the legal framework.
• End-of-Service Gratuity: Thus, it is important to note that for both types of contracts, organizations are required to calculate and distribute the gratuities in compliance with UAE Labour Law to protect employees’ rights.

Also read: Final Settlement in UAE Labour Law & End of Service Benefits

FAQs

What Are the Categories of Employment Relationships in the UAE?

Employment contracts as per Federal Law No. 8/1980 of UAE can be classified into two groups of contracts; limited-term contracts and the other is unlimited-term contracts.

What Is a Limited-Term Employment Contract?

A limited-term contract has a pull-off date accompanied by the contract validity and usually does not exceed four years after the employee’s UAE residence permit. Reports wade into compensation structure and expire by itself at the end of it or in case of certain circumstances; one can be pre-terminated provided there be legal formality.

What Is an Unlimited-Term Employment Contract?

An unlimited-term contract is open-ended and thus does not have a specific time limit and can only be dissolved by prior notice. It provides a certain level of freedom and the safety that comes with it, along with the prospect of having a stable income and being promoted or even transferred to another department in the firm.

How to Differentiate Between the Limited and Unlimited From Termination and Renewal Views?

• Limited Contract: Terminated by operation of law and can only be renewed or converted to unlimited if the parties of the contract agree.
• Unlimited Contract: Extends itself with time and may be brought to an end either by the employee or the employer through the provision of notice and severance.

What Are the Compliance Issues With an Employment Contract in the UAE?

Employers have some legal requirements to follow under UAE Labour Laws such as the notice period to terminate, staff renewal and extension obligation, and determination of end-of-service gratuity by UAE Labour Laws to safeguard employees’ interests.