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Limited vs Unlimited Contract
Definition
UAE limited contracts have fixed terms; unlimited contracts continue until terminated per labour law.
Two contract types in UAE mainland law
Federal Decree-Law No. 33/2021 recognises limited-term and unlimited-term employment contracts. Limited contracts run for a defined period — typically one to three years — and renew by mutual agreement. Unlimited contracts continue until terminated by either party following statutory notice provisions. MOHRE contract templates require explicit selection of contract type at registration.
Impact on gratuity and termination
Contract type directly affects end-of-service calculation and early termination consequences. Unlimited contract employees resigning before five years receive reduced gratuity compared to employer termination. Limited contract employees completing the full term receive full accrued gratuity; early departure may forfeit benefits depending on who initiates exit and remaining term length.
Transition and renewal choices
Since 2021 labour law reforms, new unlimited contracts are standard for most mainland hires, though limited contracts remain valid for project-based or fixed-duration roles. SMEs converting legacy limited contracts must understand how renewal without explicit agreement converts terms under transitional provisions — a source of MOHRE disputes when exit settlements use the wrong formula.
Example
Palm Gate Contracting issued two-year limited contracts to 18 site workers for a specific project. When the project extended six months, HR verbally renewed but did not register amended MOHRE contracts. Upon completion, workers claimed unlimited-contract gratuity rates. MOHRE mediation applied limited-contract rules to registered terms but ordered partial settlement adjustments for the undocumented extension period.
Compliance risks
Wrong contract type registered with MOHRE leads to incorrect gratuity settlement, employee complaints, and back-payment orders. Terminating limited contract employees without honouring notice or completion terms triggers MOHRE fines. Using limited contracts to circumvent unlimited-contract protections is an inspection red flag in mainland UAE employment practice.
Related terms
· by ArcHR Compliance Team
Frequently asked questions
What is Limited vs Unlimited Contract?
UAE limited contracts have fixed terms; unlimited contracts continue until terminated per labour law.
Can a UAE limited contract convert to unlimited automatically?
Under Federal Decree-Law No. 33/2021 transitional provisions, certain legacy limited contracts may convert to unlimited upon renewal or expiry depending on registration date and renewal conduct. Employers should verify each employee's registered contract type in MOHRE before calculating termination entitlements.
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