Are you unsure whether you’re on a limited or unlimited contract?
Does your offer letter still say “unlimited” — but you’ve heard those contracts no longer exist?
Are you worried how this affects resignation, termination, or gratuity?
This confusion is extremely common in the UAE — especially after the major reform introduced by Federal Decree-Law No. 33 of 2021.
Here is what you need to know clearly and practically.
What Is the Difference Between Limited and Unlimited Contract in UAE?
In the UAE, a Limited Contract is a fixed-term employment agreement with a specific end date (up to 4 years). It is commonly used for project-based roles or defined employment periods. An Unlimited Contract is open-ended and continues until either party terminates it in accordance with UAE Labour Law.
While limited contracts provide clarity and stability through a fixed duration, unlimited contracts traditionally allowed more flexibility in termination, subject to notice requirements.
Important Update: Following the implementation of Federal Decree-Law No. 33 of 2021, unlimited contracts were required to be converted into fixed-term (limited) contracts, making limited-term agreements the standard employment model in the UAE.
Key Differences Between Limited and Unlimited Contracts in the UAE
1️⃣ Duration
- Limited Contract: Has a defined start and end date (maximum 4 years).
- Unlimited Contract: No fixed end date; continues until terminated.
2️⃣ Termination Rules
Limited Contract:
- If an employer terminates early without valid cause, compensation of up to 3 months’ salary may apply.
- If an employee resigns before expiry without valid reason, they may owe compensation (often up to 45 days’ salary, depending on terms and circumstances).
Unlimited Contract:
- Can be terminated by either party with proper notice (usually 30–90 days).
- Must be based on a legitimate reason under UAE Labour Law.
3️⃣ Renewal
- Limited Contract: Must be formally renewed; otherwise, it automatically ends on the expiry date.
- Unlimited Contract: No renewal required.
4️⃣ Amendments
- Limited Contract: Cannot be modified without mutual agreement.
- Unlimited Contract: Changes typically require agreement but were generally more flexible in structure.
| Aspect | Limited Contract | Unlimited Contract |
|---|---|---|
| Duration | Fixed term (max 4 years) | No fixed end date |
| Expiry | Automatically ends on expiry unless renewed | Continues until terminated |
| Early Termination (Employer) | May owe up to 3 months’ salary compensation | Termination with notice (30–90 days) |
| Early Resignation (Employee) | May owe up to 45 days’ salary (depending on contract terms) | Resignation allowed with notice |
| Renewal Requirement | Must be renewed to continue | No renewal required |
| Flexibility | More structured and fixed | Historically more flexible |
| Current Legal Status | Standard contract type under current UAE law | Largely phased out after 2022 reforms |
Why Did “Unlimited Contract” Become a Legacy Term?
Under the previous law — Federal Law No. 8 of 1980 — employers could issue:
- Limited (fixed-term) contracts
- Unlimited (indefinite) contracts
After the 2021 reform:
- Employers were required to convert indefinite contracts into fixed-term contracts within the transition period.
- The fixed-term structure became the baseline model for MOHRE private-sector employment.
Today, the law focuses on notice compliance and lawful termination, not on unlimited vs limited as two parallel options.
If Your Contract Still Says “Unlimited”
This usually means one of the following:
- It is legacy wording from older templates
- The offer letter was not updated
- The registered MOHRE contract uses fixed-term structure
In disputes, what matters most is:
✔ The registered employment contract
✔ The applicable statutory framework
✔ Notice and termination compliance
Terminology alone does not determine your rights.
Limited vs Unlimited – Old Model vs Current Reality
| Item | Limited (Fixed-Term) | Unlimited (Old Model) | What Applies Today |
|---|---|---|---|
| Duration | Ends on specific date | No defined end date | Fixed-term model |
| Expiry | Expires unless renewed | No expiry concept | Fixed-term expires |
| Termination | Notice required | Notice required | Notice-based system |
| Current Status | Active model | Largely legacy | Fixed-term baseline |
Key takeaway:
Today’s disputes focus on notice and procedure, not on the label “limited” or “unlimited.”
Notice Period in UAE (What Actually Matters)
Under Federal Decree-Law No. 33 of 2021:
- Notice must be between 30 and 90 days
- Notice must be in writing
- Both parties must perform obligations during notice
- Failure to serve notice may trigger compensation equal to salary for the unserved period
Notice compliance is now central to employment disputes.
Limited Contract: Expiry vs Early Termination
This is where most misunderstandings occur.
1️⃣ Contract Expiry
If a fixed-term contract reaches its end date:
- It ends automatically unless renewed
- No termination compensation applies purely due to expiry
- End-of-service benefits must still be settled
Expiry is not the same as dismissal.
2️⃣ Early Termination Before Expiry
If either party ends the contract early:
- Notice rules apply
- Termination must be for legitimate reason
- Improper termination may create liability
Many employees wrongly believe limited contracts cannot be resigned from.
Many employers wrongly assume limited contracts require no notice.
Both assumptions are incorrect.
Is Unlimited Contract Still Valid in UAE?
For MOHRE private-sector employment:
- The recognised model is fixed-term.
- “Unlimited” wording is generally legacy.
- Courts assess the relationship under the current statutory framework.
Separate rules apply in:
- DIFC
- ADGM
Jurisdiction matters.
Can You Resign Under a Limited Contract?
Yes.
You may resign provided that you:
- Serve contractual notice (30–90 days)
- Comply with probation rules if applicable
- Honour contractual obligations
The contract being fixed-term does not prevent resignation.
The “3 Months’ Salary on Termination” Myth
This remains one of the most searched employment topics in the UAE.
Under the old labour law, structured compensation formulas applied in some early termination situations.
Under the current framework:
- There is no automatic universal “3-month salary” rule.
- Courts examine notice compliance and lawful grounds.
- Compensation depends on contract wording and procedural conduct.
Outdated online advice often causes unnecessary panic.
End-of-Service Gratuity – Does Contract Type Matter?
Under current UAE labour law:
- Minimum 1 year of service required
- 21 days’ basic salary per year (first 5 years)
- 30 days’ basic salary per year (after 5 years)
- Maximum cap: 2 years’ salary
Gratuity is calculated based on basic salary only.
The contract label (limited vs unlimited) is far less important than:
- Length of service
- Termination circumstances
- Compliance with notice
Where Most Disputes Start
Employment disputes usually arise from:
- Misclassifying termination as expiry
- Failing to serve notice
- Incorrect gratuity calculation
- Alleging misconduct without evidence
- Using outdated unlimited templates
In practice, liability arises from procedure, not terminology.
What Employees Should Check Before Resigning
✔ Confirm notice period in contract
✔ Verify whether probation applies
✔ Calculate gratuity properly
✔ Keep written resignation proof
✔ Confirm final settlement breakdown
Documentation protects your rights.
What Employers Should Check Before Terminating
✔ Confirm expiry vs early termination
✔ Serve written notice
✔ Document termination grounds
✔ Calculate gratuity accurately
✔ Settle dues before visa cancellation
Most labour claims arise from procedural mistakes.
The Real Difference in 2025
Historically:
Limited = Fixed-term
Unlimited = Open-ended
Practically today:
The UAE private sector operates under a fixed-term framework, and disputes focus on:
- Notice compliance
- Lawful termination
- Renewal handling
- Proper settlement
Understanding process is more important than contract labels.
Frequently Asked Questions – Limited vs Unlimited Contract in UAE
What is a limited contract in UAE?
A limited contract (now referred to as a fixed-term contract) is an employment agreement with a defined start and end date. It expires at the end of the agreed term unless renewed.
What is an unlimited contract in UAE?
An unlimited contract was an open-ended employment agreement with no specified end date under the old labour law system. In the MOHRE-regulated private sector, this structure has largely been replaced by fixed-term contracts.
Is unlimited contract still valid in UAE?
For most private-sector employment regulated by MOHRE, fixed-term contracts are now the standard model under Federal Decree-Law No. 33 of 2021. “Unlimited” is typically legacy wording from older templates.
What is the notice period in UAE labour law?
The notice period must be between 30 and 90 days, as agreed in the employment contract. Notice must be in writing, and both parties must continue fulfilling their obligations during the notice period.
Can I resign after 6 months in a limited contract UAE?
Yes. You may resign by serving the contractual notice period (30–90 days). If you are still in probation, separate notice rules apply.
Do I get 3 months’ salary on termination in UAE?
There is no automatic rule guaranteeing three months’ salary. The “3 months” concept largely stems from the old law under Federal Law No. 8 of 1980. Under the current framework, compensation depends on contract terms, notice compliance, and whether termination was lawful.
Does contract type affect end-of-service gratuity?
Gratuity is primarily based on length of service and basic salary, not simply whether the contract was labelled limited or unlimited.
What happens if a limited contract expires?
If a fixed-term contract reaches its expiry date and is not renewed, employment ends automatically. End-of-service benefits must still be calculated and paid.
Can an employer terminate a limited contract early?
Yes, but proper written notice must be served, and the termination must be for a legitimate reason. Improper termination may expose the employer to compensation claims.
What is the difference between expiry and early termination?
Expiry occurs when the contract ends on its agreed date. Early termination occurs before the end date and requires notice compliance. Misclassifying one as the other often leads to disputes.
Does resignation affect gratuity entitlement?
Under the current law, employees who complete at least one year of service are generally entitled to gratuity, even if they resign, unless dismissal is based on serious misconduct.
How can I check my labour contract in UAE?
You can verify your registered employment contract through MOHRE’s official website, mobile application, or authorised typing centres.
Need Legal Clarity on Your Employment Contract?
Whether you are:
- An employee facing termination
- An employer restructuring staff
- Drafting or reviewing employment contracts
- Handling a dispute over notice or gratuity
Professional legal assessment can prevent costly mistakes.
Al Ramsy Advocates advises across Dubai and the UAE on:
- Employment contract review
- Contract drafting
- Termination disputes
- MOHRE complaints
- Labour court representation
Contract type confusion should not cost you financially.
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