Difference between Limited and Unlimited Contract in UAE

If you are a current employee or are looking for a job in the UAE, you need to have the basic knowledge of how the employment structure works. An understanding of employee contracts can help you navigate your career smoothly and safeguard your future. Let us have a closer look at the different types of employee contracts that exist in the UAE and what do they entail under the UAE labour law.

An Overview of the Different Types of Employee Contracts in the UAE

As per the UAE Labour Law No. 8 of 1980 that applies to all the lawful employees of the country (except for those who are based in Dubai International Financial Centre), there are two primary divisions of employee contracts that an employer can issue to their employees – limited term and unlimited term contracts. You can take the assistance and guidance of a law firm in UAE that specializes in dealing with labour law in order to ensure that you are on the safer side of the spectrum.

Both these contracts differ from each other in terms of entitlements and legal rights. The employee contracts have been electronic ever since July 2014. Here is a laydown of both the contracts. Let’s begin with understanding limited employee contracts.

Limited Employee Contract

A limited employee contract is also known as a fixed-term contract. It clearly defines the start date and end date of the employment regime and has a maximum duration of four years. It is often linked to the duration of the concerned person’s UAE residency visa. It can also change depending upon the location of the employer.

This type of employment contract automatically gets cancelled if it is not renewed on a specific date. In addition, its renewal requires the consent of both the employer and the employee.

A limited employee contract must mention the following points:

  • The starting date of the work
  • The ending date of the work
  • The workplace
  • The nature of the work
  • The total duration of the work
  • The amount of remuneration

A limited employee contract is recommended in a situation wherein an employer has to engage his or her employees for specific projects or in situations where the lengths of those projects are well-known in advance.

If you are under a limited employee contract in the UAE and you get terminated by your employer on grounds of reasons that are not mentioned in Article 120 of the UAE Labour Law, then you are eligible to receive compensation from your employer. This compensation can either be three months’ worth of wages or wages for the remaining contract period, whichever is less. These contracts usually have no notice provisions.

As per Article 120 of the UAE Labour Law, an employee can be dismissed by an employer under the following circumstances:

  • If the employee has submitted any forged certificate or document or has adopted any false nationality or identity.
  • If the employee is in a probationary period and his or her dismissal took place during or at the end of the probationary period.
  • If the actions of the employee violate the instructions that endanger the safety of the place of the business. The instructions must be displayed in writing in conspicuous places. In the case of employees who are unable to read due to extenuating circumstances, the instructions must be informed to them verbally.
  • If the employee divulges the secrets of the business where he or she is currently employed.
  • If the employee makes an error that causes substantial loss to the employer’s business. In this case, the employer must inform about the incident to the labour department within 48 hours of gaining knowledge regarding the incident.
  • If the employee doesn’t perform the basic duties that are mentioned in his or her contract of employment. The same is true if he or she keeps on violating the duties despite formal investigations with him or her or warning him or her of dismissal in case of a repetition of the same.
  • If the competent court awards final judgment to him or her relating to an offence that prejudices public morals, honesty, or honour.
  • If he or she is found under the influence of drug or alcohol during working hours.
  • If he or she is absent from work for more than twenty intermittent days or more than seven successive days during a single year without any lawful excuses.
  • If he or assaults the employer, the managers, or any of his or her colleagues.

It should be noted that if you, as an employee, resign on your own free will for reasons that are not mentioned in Article 121 of the UAE Labour Law, then you would be liable to compensate your employer. The employee must make a payment of 45 days worth of salary or the remaining period of the concerned contract, whichever is less.

As per the Article 121 of the UAE Labour Law, an employee can leave his or her services without serving a notice in the following circumstances:

  • If he or she has been assaulted by the employer or any of his or her legal regal representatives.
  • If the employer fails to fulfill his or her end of the obligations towards the employee as mentioned in the contract or by law.

Failure to follow through the rules and regulations of the contract can give you an automatic labour ban by the UAE for six months. Your employer can also ban you for six months for the same reasons. These contracts are non-transferable meaning that an employee can’t be transferred to other companies within your contract.

Therefore, if you want to resign before the end of the contract you either have to find a job in a Freezone company or get involved in a government-owned business since these are exempted from any UAE law ban. At the end of the duration for which the limited contract was set, the employer and the employee can convert it into an unlimited contract as well.

If an employee has completed one year or more period of continuous service under a limited contract, then he or she is entitled to end of service benefits as well. The only exception is when the payment of two years exceeds the total remuneration. The end of service gratuity is calculated by taking into account the following points:

  • The basic pay of 21 calendar days for each year for the first five years of service.
  • The basic pay for 30 calendar days for each additional year.

If an employee has been terminated due to gross misconduct, then he or she would not be eligible for end of service gratuity.

Let us now shift our gear and try and understand unlimited employee contracts.

Unlimited Employee Contract

Evident by its name, an unlimited employment contract means that it has no set date. To put it simply, it has a starting day but it doesn’t have an ending day.

An unlimited employment contract is recommended for those who are looking for a more flexible, fluid, and user-friendly work regime. It is no surprise why these are more popular than their limited counterparts. These contracts can be used for those employees who intend to work on a permanent basis but are not undertaking any project work wherein the duration is known in advance.

Termination of such type of contract is done by either the employee or the employer as long as there is 30 days of notice period is given in advance. Based on mutual agreement, this notice period can be further extended. Please remember that you, as an employee, are entitled to be paid in full even during the notice period.

In case the notice period is not given, whichever party agrees to not move ahead must compensate the other by paying 30 days wages. However, the employer can terminate the employee without issuing a notice if and when the employee fails to oblige any of the points mentioned in Article 120 of the UAE Labour Law. The same goes for the employee as well. He or she may terminate the contract if his or her employer violates any points mentioned in Article 121 of the UAE Labour Law.

If employees are terminated without any justification, they would be entitled to three month’s wages. It should be noted that any compensation for damages that are awarded to the employee who is terminated on the grounds of unreasonable justification would not affect their entitlement to end of service gratuity and payments in lieu of notice.

This type of contract allows you to get transferred to other companies as long as your salary is at least 5000 Dirhams and you have a high school diploma degree. This means that if you find another job that gives you a better salary, you can take up that job. You will also be eligible to work in a Freezone company or in a government-owned business.


An employment contract is the ultimate proof of the terms of agreement between an employer and an employee. Therefore, it should be taken seriously and must be followed during the entire tenure of employment.

Although the details of the contract that we have stated above regarding the limited and unlimited employee contracts are, same everywhere in the UAE, please remember that minute changes might be there depending on the type of business that you are into. Hope this helps you in understanding the major differences between a limited and an unlimited employment contract.

This is why we recommend contacting the HR (Human Resource) department of your company or Freezone Authorities in order to clear any confusion that you might have. In addition, getting the opinion of legal authorities will always keep you on the safe side of the fence. So, we encourage you to take the help of a law firm that can help you in keeping your best interest in mind.

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