Legal Disclaimer: This guide provides general information about UAE employment contract types as of November 2025. It is not legal advice. For specific contract questions, consult MOHRE or a qualified employment lawyer.
Difference Between Limited and Unlimited Contract UAE
TL;DR: Since 2 February 2022, UAE eliminated unlimited contracts—all new employment contracts must be limited-term (max 3 years, renewable). Both use identical gratuity formulas and resignation penalties, but limited contracts can naturally expire (granting 100% gratuity) while unlimited contracts continue indefinitely with no expiry concept.
As of 2 February 2022, UAE eliminated unlimited contracts for all new private-sector employment. All contracts must now be limited (fixed-term) with maximum 3-year duration, renewable indefinitely. However, employees hired before 2022 may still hold unlimited contracts until termination or conversion. Understanding the differences between these contract types is critical because they affect notice periods, termination procedures, resignation penalties, and gratuity entitlement. This guide explains both contract types, their legal implications under Federal Decree-Law No. 33 of 2021, and what changed in the 2022 labour law reforms.
Overview: Limited vs. Unlimited Contracts
Quick comparison:
| Feature | Limited (Fixed-Term) Contract | Unlimited Contract |
|---|---|---|
| Contract duration | Fixed term (max 3 years) | No end date (indefinite) |
| Legal status (2025) | All new contracts (mandatory) | Legacy only (pre-Feb 2022) |
| Renewal | Must be renewed explicitly | Continues indefinitely |
| Notice period | 30 days (minimum) | 30-90 days (per contract) |
| Gratuity formula | 21/30 days per year | 21/30 days per year (same) |
| Resignation penalty | 33.33% / 66.67% if <5 years | 33.33% / 66.67% if <5 years (same) |
| Early termination | Either party can terminate with notice | Either party can terminate with notice |
| Contract expiry | Expires on end date (unless renewed) | No expiry (continues indefinitely) |
What Is a Limited (Fixed-Term) Contract?
Definition: A contract with a specific start and end date, maximum 3 years duration, renewable upon mutual agreement.
Key characteristics:
Fixed duration: 1-3 years (commonly 2 or 3 years)
Automatic expiry: Contract ends on specified date unless both parties renew
Renewal required: Must be explicitly renewed; doesn't auto-renew
30-day notice: Minimum notice period for early termination by either party
Mandatory for all new hires (post-February 2022)
Example contract clause:
This contract is for a fixed term of 3 years, commencing
1 January 2023 and ending 31 December 2025. Contract may be
renewed by mutual written agreement before expiry.
Limited Contract Lifecycle
Stage 1: Contract signing (Year 0)
- Contract specifies 3-year term
- Registered with MOHRE
- Labour Card issued
Stage 2: Active employment (Years 1-3)
- Contract in force until end date
- Either party can terminate early with 30-day notice
- Service years accumulate for gratuity
Stage 3: Contract expiry (Year 3)
- Three scenarios:
- Both parties renew: New 3-year contract signed
- One party doesn't renew: Contract expires, employment ends, 100% gratuity
- Early termination: Notice period, gratuity settlement
Limited Contract: Resignation vs. Expiry
Critical distinction for gratuity:
Scenario A: You resign BEFORE contract end date
- Classification: Voluntary resignation
- Gratuity penalty applies if service < 5 years:
- 1-3 years: 33.33% (one-third)
- 3-5 years: 66.67% (two-thirds)
Scenario B: Contract EXPIRES naturally (you don't renew)
- Classification: Contract expiry, not resignation
- Gratuity: 100% (no penalty), regardless of service length
Example:
- Contract: 2023-2026 (3 years)
- You resign in 2025 (2 years in): 33.33% gratuity
- Contract expires in 2026, you leave: 100% gratuity
What Is an Unlimited Contract?
Definition: A contract with no fixed end date, continuing indefinitely until either party terminates with notice.
Key characteristics:
No expiry date: Contract continues until termination
Notice period: Typically 30-90 days (longer than limited contracts)
Legacy status: Only valid for pre-February 2022 hires
Perceived stability: No need for periodic renewals
Same gratuity rules: 21/30 days per year formula applies
Example contract clause:
This contract is for an unlimited (indefinite) term,
commencing 15 March 2020. Either party may terminate
with 60 days' written notice.
Unlimited Contract in 2025
Current status:
- No new unlimited contracts allowed (since 2 Feb 2022)
- Existing unlimited contracts remain valid until:
- Employee or employer terminates
- Parties agree to convert to limited contract
- Employee resigns or retires
If you have an unlimited contract:
- It remains legally binding
- You cannot be forced to convert to limited contract (requires mutual consent)
- Same labour rights and protections apply
- Gratuity calculation identical to limited contracts
The 2022 Labour Law Reform: What Changed
Before 2 February 2022:
- Two contract types coexisted: limited and unlimited
- Employees could choose (subject to employer agreement)
- Different rules for each type
After 2 February 2022:
- All new contracts must be limited (fixed-term)
- Maximum 3 years duration
- Existing unlimited contracts grandfathered (remain valid)
- Standardized notice periods and termination procedures
Why the change?
- Increase labor market flexibility: Easier for employees to change jobs
- Align with international standards: Most countries use fixed-term contracts
- Reduce employer-employee disputes: Clearer expectations with defined terms
- Simplify termination procedures: Fixed terms reduce ambiguity
Who Was Affected by 2022 Reforms?
Affected (must use limited contracts):
- All new hires from 2 February 2022 onwards
- Employees whose contracts expired post-reform
- Contract renewals after February 2022
NOT affected (can keep unlimited contracts):
- Employees hired before 2 February 2022 with unlimited contracts
- Contracts in force on 2 February 2022 (remain valid)
Gratuity Differences: Limited vs. Unlimited
The formula is THE SAME for both:
Gratuity = (Basic Salary ÷ 30) × Days per Year × Service Years
Where:
- 21 days per year for years 1-5
- 30 days per year for years 5+
| Scenario | Limited Contract | Unlimited Contract |
|---|---|---|
| Employee resigns (3 years service) | 33.33% gratuity | 33.33% gratuity |
| Employer terminates (3 years service) | 100% gratuity | 100% gratuity |
| Contract expires naturally (3 years) | 100% gratuity | N/A (no expiry) |
| Employee resigns (7 years service) | 100% (no penalty) | 100% (no penalty) |
The key gratuity difference: Limited contracts offer contract expiry option (100% gratuity even if < 5 years). Unlimited contracts have no expiry, so resignation penalty always applies if < 5 years service.
Gratuity Calculator
Notice Period: Limited vs. Unlimited
Limited contracts:
- Minimum 30 days notice (Article 42)
- Contract may specify longer (e.g., 60 days for senior roles)
- Applies to both employee resignation and employer termination
- Either party can terminate early with notice
Unlimited contracts:
- 30-90 days notice (typically longer than limited)
- Often tiered by seniority:
- Entry-level: 30 days
- Mid-level: 60 days
- Senior/executive: 90 days
- Contract specifies exact notice period
Example notice period comparison:
| Position Level | Limited Contract (Typical) | Unlimited Contract (Typical) |
|---|---|---|
| Entry-level | 30 days | 30-45 days |
| Mid-level | 30-60 days | 60 days |
| Senior/Management | 60 days | 90 days |
Notice period counts toward service years for gratuity calculation.
Early Termination: What Happens?
Limited Contract: Early Termination by Employee
Scenario: You resign before contract end date.
Process:
- Submit written resignation with 30-day notice
- Serve notice period (or employer waives it)
- Receive gratuity with penalty if service < 5 years
- Labour Card cancelled
- 30-day grace period to find new job or leave UAE
Gratuity:
- 1-3 years: 33.33% (one-third)
- 3-5 years: 66.67% (two-thirds)
- 5+ years: 100% (no penalty)
Limited Contract: Early Termination by Employer
Scenario: Employer terminates you before contract end date.
Process:
- Employer provides 30-day notice (or notice pay in lieu)
- You receive 100% gratuity (no penalty)
- Labour Card cancelled
- 30-day grace period
Compensation:
- Full gratuity (21/30 days formula)
- Any unpaid salary, leave balance
- Notice period salary (if applicable)
Unlimited Contract: Termination by Either Party
Scenario: You or employer terminates.
Process:
- Provide notice per contract (30-90 days)
- Serve notice period
- Gratuity settlement:
- If you resign < 5 years: Penalty applies
- If employer terminates: 100%
- If you resign ≥ 5 years: 100%
No "contract expiry" concept: Termination is always classified as resignation or employer termination.
Conversion: Unlimited to Limited
Can you convert an existing unlimited contract to limited?
Yes, but requires mutual consent (both parties must agree).
Process:
- Employer and employee agree to convert
- New limited contract drafted (max 3 years)
- Registered with MOHRE
- Old unlimited contract cancelled
- Service years typically aggregate (continuous service)
Why convert?
- Employer preference: Standardization, flexibility
- Employee benefit: May negotiate better terms during conversion
- Legal alignment: Matches current law standards
Why NOT convert?
- Employee preference: Keep indefinite security
- Longer notice periods: Unlimited contracts often have longer notice
- No compelling benefit: If relationship is stable, no need to change
Which Contract Type Is Better?
Limited contract advantages:
- Contract expiry = 100% gratuity (no penalty if < 5 years)
- Flexibility to leave at contract end
- Shorter notice periods (typically 30 days)
- Aligned with current UAE law
- Clearer expectations (defined terms)
Limited contract disadvantages:
- Less perceived "job security" (must be renewed)
- Risk of non-renewal by employer
- Frequent contract renewals (administrative)
Unlimited contract advantages:
- Indefinite security (no contract expiry)
- Longer notice periods (more time to transition)
- No renewal hassle
Unlimited contract disadvantages:
- No "contract expiry" option (resignation penalty applies if < 5 years)
- Legacy status (will phase out over time)
- Less flexibility
Most employees in 2025: Have limited contracts (mandatory for new hires). Unlimited contracts are rare and diminishing.
Common Scenarios
Scenario 1: Limited Contract Non-Renewal
Situation: Your 3-year limited contract expires. Employer doesn't renew.
Result:
- Employment ends (legal termination)
- You receive 100% gratuity
- 30-day grace period to find new job
- No wrongful termination claim (contract expiry is lawful)
Employer obligation: Pay gratuity + end-of-service dues within 14 days.
Scenario 2: Unlimited Contract, You Resign After 4 Years
Situation: You've worked 4 years on unlimited contract and resign.
Result:
- 60-day notice period (per contract)
- Resignation penalty: 66.67% gratuity (3-5 year bracket)
- Employer must pay within 14 days of last working day
Gratuity calculation (AED 10k basic):
- Gross: (10,000 ÷ 30) × 21 × 4 = AED 28,000
- After penalty: 28,000 × 66.67% = AED 18,667
Scenario 3: Limited Contract, Multiple Renewals
Situation: You've worked 6 years across two consecutive 3-year limited contracts.
Result:
- Service years aggregate: 6 years total (not 3 + 3 separately)
- Gratuity calculated on 6 years
- No service reset between renewals
Gratuity calculation (AED 12k basic):
- Years 1-5: (12,000 ÷ 30) × 21 × 5 = AED 42,000
- Year 6: (12,000 ÷ 30) × 30 × 1 = AED 12,000
- Total: AED 54,000
How to Check Your Contract Type
Method 1: Read employment contract
- Look for "Duration" or "Term" section
- Limited: Specifies end date (e.g., "31 December 2026")
- Unlimited: States "indefinite" or no end date
Method 2: Check Labour Card
- Log in to MOHRE UAE app
- View contract details
- Contract type displayed as "Limited" or "Unlimited"
Method 3: Ask HR
- Request written confirmation of contract type
- Verify against contract and Labour Card
Frequently Asked Questions
1. Can I still get an unlimited contract in 2025?
No. All new contracts since 2 February 2022 must be limited (fixed-term), maximum 3 years.
2. If I have an unlimited contract, can employer force me to convert to limited?
No. Conversion requires mutual consent. You cannot be forced.
3. Do limited contracts mean less job security?
Not necessarily. Contracts can be renewed indefinitely. Non-renewal at expiry is employer's right, but you receive full gratuity.
4. Does contract type affect gratuity calculation?
No. The formula is the same: 21/30 days per year. Only difference is how resignation penalties apply.
5. Can I negotiate contract type?
For new hires (post-2022): No. Must be limited. For pre-2022 unlimited contracts: You can negotiate conversion terms, but not required.
6. If my limited contract expires and I immediately start a new one, does service aggregate?
Yes, if consecutive with same employer and no gratuity settlement between contracts. Service years add up.
Official Resources
MOHRE Contact:
- Hotline: 600590000
- Website: mohre.gov.ae
- App: MOHRE UAE (iOS/Android)
For contract disputes:
- File online complaint: mohre.gov.ae/en/complaints
- Visit MOHRE service centers
Calculate Gratuity for Limited or Unlimited Contract
Our calculator works for both contract types. Enter your details for accurate gratuity estimate.
Related Resources
- Limited vs Unlimited Contracts: UAE Gratuity Differences
- MOHRE Updates 2025: New Gratuity Rules Explained
- Gratuity Eligibility in UAE: Who Qualifies
- UAE Labour Law 2025: Gratuity Entitlement Breakdown
For an instant end-of-service estimate, use our online gratuity calculator UAE.
Final Disclaimer: This guide reflects UAE labour law as of November 2025. It is for informational purposes only and is not legal advice. For contract-specific questions, consult MOHRE or a qualified employment lawyer.
