Limited vs Unlimited Contracts as per UAE Labor Law [2024]

The job market of the United Arab Emirates is full of employment opportunities. That is why it is of utmost necessity for employees and employers both to understand the labor laws and regulations. It may include employment practices and other relevant necessities like limited and unlimited employment contracts in the UAE.

The framework for employment and different types of contracts associated with it are provided by the UAE Labor Laws and employment relationships also rely on it that involves limited and unlimited contracts.

The qualities of both contracts are different from each other and you will be able to explore everything about them in this article. So without further ado, let's discuss limited and unlimited contracts under UAE Labor Law.

Limited Employment Contracts UAE

Key Features:

Fixed Duration: 

Limited contracts specify a fixed employment period that can be a few months or years, varying according to the employer and employee mutual agreement.

Renewal and Termination:

The employer is free to not renew the employment contract upon its expiration. However, it is typically renewed for a similar duration if the employer wants, it or can be modified according to mutually agreed terms and conditions. The employer must provide a notice period to the employee upon expiry of the employment contract.

Termination Before Contract Expiry: 

Typically, the employee may be required to compensate the employer in case of resigning before the contract expiration. Similarly, an employer must have to compensate the employee in case of termination before the expiry date of the contract.

Benefits: 

End-of-service benefits or gratuities are granted to limited contract employees based on their service duration.

Suitability:

For Employers:

Hiring for temporary job roles or want a project-based team.

For Employees:

Students, remote workers, or part-time workers seeking time-specific, time-bound job opportunities.

Unlimited Employment Contracts UAE

Key Features:

Open-Ended: 

Unlimited contracts are without any fixed durations with an agreement of open-ended employment until either the termination of the contract is requested by the employer or employee.

Renewal and Termination: 

The process of termination for unlimited contracts is simple and straightforward as the employer or employee must provide a notice period that aligns with the UAE Labor Law. The notice period depends on the position level of an employee or the job role nature.

Termination Before Contract Expiry: 

Under an unlimited contract, employees are not typically required to pay compensation if they resign before the contract's end. Similarly, employers can terminate employees with notice or payment instead of notice as per labor law requirements.

Benefits: 

Employees on unlimited contracts may receive end-of-service benefits (gratuity) as well, but the calculation may differ from limited contracts.

Suitable For:

For Employers:

Seeking a workforce for long-term and stable job roles

For Employees:

Seeking employers who ensure job security and long-term career growth within their organization

The major difference between limited and unlimited contracts in the UAE

Both limited and unlimited contracts are poles apart from each other when it comes to employment duration contract expiry terms, contract renewal, or termination, and benefits associated with them. Here we will discuss the key differences between limited employment contracts and unlimited employment contracts in the United Arab Emirates:

Contract Duration:

Limited Contract:

Just like its name, a limited contract is an employment contract with a fixed or time-specific duration. The specific terms of the contract are drafted upon the mutual agreement of the employer and the employee to cater to temporary job roles or project-based hiring.

Unlimited Contract:

As the name already suggests, the unlimited contract is an open-ended employment contract with no specified job duration mentioned. It continues until the employer or employee terminates it.

Renewal and Termination:

Limited Contract:

The employer has the right to renew the limited employment contract upon its expiry with similar terms or modified ones. If not, the employer must provide the employee with the notice according to the UAE Labor Law. Employer and employee can also terminate the contract before the contract expiry date in compliance with the labor law provisions.

Unlimited Contract:

The process of termination for unlimited contracts is simple and straightforward as the employer or employee must provide a notice period that aligns with the UAE Labor Law. The notice period depends on the position level of an employee or the job role nature.

Termination and Compensation:

Limited Contract:

Typically, the employee may be required to compensate the employer in case of resigning before the contract expiration. Similarly, an employer must have to compensate the employee in case of termination before the expiry date of the contract.

Unlimited Contract:

Under an unlimited contract, employees are not typically required to pay compensation if they resign before the contract's end. Similarly, employers can terminate employees with notice or payment instead of notice as per labor law requirements.

Benefits:

Limited Contract and Unlimited Contract:

Employees with limited and unlimited contracts both are entitled to end-of-service benefits or we can say gratuity based on their service duration typically. However, the calculation of gratuity may differ between the two contract types.

Use Cases:

Limited Contract:

• For Employers:

Hiring for temporary job roles or want a project-based team.

• For Employees:

Students, remote workers, or part-time workers seeking time-specific, time-bound job opportunities.

Unlimited Contract:

• For Employers:

Seeking a workforce for long-term and stable job roles

• For Employees:

Seeking employers who ensure job security and long-term career growth within their organization

P.S:

It is recommended for employers as well as employees to read and review carefully all the terms and conditions mentioned in the limited or unlimited contracts before signing them. Also, the UAE labor laws and regulations may evolve with time, so these contracts must be updated with the latest legal requirements.

What happens after an unlimited work contract is terminated?

There are serval things that you must know about unlimited contract termination in the UAE. We are listing them below:

Notice Periods:

Employers and employees must provide a notice period before terminating an unlimited contract for employment. Vice versa, employers must provide notice to employees before the termination of unlimited contracts. The notice period may vary on various conditions.

If an employee is resigning while he is employed under an unlimited contract, he must provide notice as follows: 

• Employees with up to 5 years of services = 30 days of notice period

• Employees with 5 to 10 years of service= 60 days of notice period

• Employees with 10 or more years of service = 90 days of notice period

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Compensation:

Employees under unlimited employment contracts receive gratuity or end-of-service benefits which are calculated according to their service duration in the company, their last drawn basic salary, and the gratuity calculation formula of MOHRE.

Legal Rights:

A termination from an employer without any "legitimate reason" is considered illegal in the UAE. In this case, the employee must be compensated with up to 3 months' salary, as per the new UAE labor law.

In case of termination upon valid reason, employers must: 

• Provide a valid termination reason

• Follow a specified procedure comprises of inquiry conduction, warning letter issuance, and carrying out a written investigation.

•  

Employee's Rights and Protections:

The UAE Labor Law protects the rights of the employees through the following steps:

• Employers are responsible for the payment of recruitment, processing employee’s visa & work permit, costs for medical treatment, and insurance fees.

• Employers are prohibited from keeping the passports of employees

• Employers must be unbiased with experience certificates.

• Employers must ensure that contract terminations are compliant with the UAE Labor Law

•  

Selecting the Right Contract

Selecting the limited and unlimited contracts of employment in the UAE should be based on the following factors: 

What is the job role and job nature?

What are the requirements and needs of the employer?

What are the preferences of the employee?

The contracts should be designed by employers while keeping in mind the following factors:

• The specific job role requirements of the employee

• The estimated project or employment time duration

• The cost associated with the job fulfillment

 On the other hand, employees must evaluate what are their long-term goals for their career, whether is there job stability or not, and what are their personal preferences. Ultimately, limited and unlimited contracts have benefits for employers and employees, and also both must be aware of their rights and obligations to select the best contract according to the job role.

Frequently Asked Questions:  Limited and Unlimited Contracts 

Here are some common questions that may hit the minds of employees and employers regarding limited and unlimited contracts:

1. What is the basic difference between limited and unlimited contracts in the UAE?

There is a fixed duration of employment in the Limited contracts. However, unlimited contracts have open-ended employment duration terms with no specific end date.

2. Is it possible to change the unlimited and limited contracts during employment?

Yes, it is possible to change the employment contract type during employment only upon mutual agreement between the employee and employer and with compliance with the UAE Labor Law.

3. How does the termination process differ between limited and unlimited contracts?

Typically, the employee may be required to compensate the employer in case of resigning before the contract expiration. Similarly, an employer must have to compensate the employee in case of termination before the expiry date of the contract.

Under an unlimited contract, employees are not typically required to pay compensation if they resign before the contract's end. Similarly, employers can terminate employees with notice or payment instead of notice as per labor law requirements.

4. Do employees on limited contracts receive gratuity (end-of-service benefits) like those on unlimited contracts?

Yes, limited contract employees are entitled to gratuity similar to unlimited contract employees.

5. Can an employee resign from a limited or unlimited contract before its expiration without any consequences?

The following are the conditions for the resignation of an employee under limited and unlimited contracts:

• An employee under a limited contract must compensate the employer

• An employee under unlimited contracts must serve a notice period without paying compensation

•  

6. Can the employment contract terms and conditions be customized to suit the employer and employee’s needs?

Employment contracts can be customized, but they must comply with the minimum labor law requirements. Any changes should be mutually agreed upon and documented in accordance with the law.

7. How do the notice period and compensation work for termination in both contract types?

Notice periods and compensation for termination can vary based on factors like seniority and the nature of the role. The UAE Labor Law specifies the minimum notice periods and compensation requirements for both contract types.

8. Where can I seek legal advice or further information about limited and unlimited contracts under UAE Labor Law?

Legal advice can be obtained from legal professionals or law firms specializing in employment law. Employers and employees can also contact the UAE Ministry of Human Resources and Emiratization or consult with their HR departments for guidance.