Understanding the Difference Between Limited and Unlimited Employment Contracts in the UAE

Employment contracts are the foundation of work life in the UAE. Whether you are a business owner, HR professional, or workforce planner, knowing how different contract types work can make a real difference in managing people and expectations. In the UAE, employment contracts are not just formalities. They are legal agreements that protect both the employer and employee. 

What Are Employment Contracts in the UAE?

In the UAE, an employment contract is a binding legal agreement between an employer and an employee. It is registered with the Ministry of Human Resources and Emiratisation (MOHRE) and acts as the official document that defines the relationship, responsibilities, and expectations of both parties. Under the UAE Labour Law (Federal Decree-Law No. 33 of 2021), these contracts must be clear, transparent, and compliant with the law.

Every employment contract needs to be in English and Arabic. If there is any dispute, the Arabic version takes precedence in legal matters. The contract must include basic details such as: 

• Job title
• Salary
• Working hours
• Leave entitlements
• Probation period
• Conditions for termination.

Employment contracts can also be involved in the process of work visa and residence permit issuance. In the absence of a valid and registered employment contract, the employee will not have the legal right to work and reside in the country. This is the reason why the employment contract should be registered with MOHRE once the job offer has been accepted.

What Are the Different Types of Employment Contracts in the UAE?

The UAE workforce has several contract models. However, the two main categories in private sector employment are Limited (Fixed-Term) and Unlimited (Open-Ended) contracts. Recent labor law reforms have made Limited contracts standard for new hires in the private sector, though other contract models also exist.

Limited (Fixed-Term) Contract
Most new jobs in the private sector today are on a limited contract basis. It defines specific beginning and ending dates, usually one to three years. This kind of contract may be renewed in case both the employer and the employee agree. Limited contracts should have well-defined termination, notice, and end-of-service benefits procedures.

Unlimited (Open-Ended) Contract
In the past, many companies used unlimited contracts. These contracts have no set end date. The contract continues until one party decides to end it. Under labor law, termination depends on notice periods and mutual consent. Unlimited contracts are gradually being replaced by limited contracts in the private sector, but some still exist, especially in older workforce agreements.

Other Contract Models

While limited and unlimited contracts are the primary forms, the UAE labour law recognizes other types of work arrangements, including

• Full-Time: Workers have a standard work schedule, usually 8 hours per day and up to 48 hours per week.
• Part-Time: Employees work fewer hours than a full-timer. The exact hours and terms are agreed upon based on business needs.
• Temporary Work: Contracts for short-term projects or seasonal roles. These are usually limited in duration.
• Flexible Work: This type of contract allows for varied work schedules. It is designed to provide flexibility in hours without changing core employment rights.
• Remote Work: Contracts in which the employee works at a different location from the employer. This was further popularized by digital transformation and work-life flexibility policies.
• Job Sharing: Two or more employees are sharing the job and salary of one full-time position. The model may assist in the work-life balance and handling the entire job requirements.

Key Information in Every Contract

Regardless of the type of employment agreement, certain details must be included in every UAE employment contract:

• Employer and Employee Details
• Job Designation and Start Date
• Place, Days, and Hours of Work
• Probationary Period
• Contract Term
• Remuneration and Benefits
• Annual Leave Entitlements
• Notice Period
• End-of-Service Benefits

These elements are not optional. They help establish clear expectations and protect rights, and they form the basis for resolving disputes if there are disagreements in the future.

Contract Variations

While the private sector generally follows the national UAE labour law, other situations may vary.

Public Sector vs. Private Sector
Government jobs sometimes have their own terms and benefits. They may follow different rules, often more generous than private sector standards.

Free Zones
Certain free zones, such as ADGM or DIFC have local labor laws. The areas have their own set of rules that are not similar to the federal UAE Labour Law. The companies that work in the free zones should be aware of particular regulations and make sure that the contracts are in accordance with the relevant laws.

Also Read: UAE Manpower Supply Licensing: What Every Business Should Know Before Collaboration

Understanding the Difference Between Limited and Unlimited Contracts

Understanding the difference between limited and unlimited contracts can have significant implications for workforce planning, employee rights, job security, and compensation.

Limited Contract

A limited contract has a fixed duration. It clearly states when the contract starts and when it ends. The maximum term allowed is typically 3-4 years in the private sector, and it can be renewed with mutual agreement.

Limited contracts offer clarity. Employers know when the agreement ends, and employees know their period of employment. This can be especially useful for project-based roles or seasonal work. However, the process for termination before the end date is stricter. If either party wants to end the contract early, they must follow the procedures defined in the agreement.

Under a limited contract, end-of-service benefits are calculated based on the length of the contract and other legal rules. If the contract ends and is not renewed, the employee normally receives gratuity according to UAE law.

Unlimited Contract

An unlimited contract has no fixed end date. The employee continues to work until either the employer or the employee decides to end the contract. Notice periods and mutual agreement are central to terminating this type of contract.

Unlimited contracts offer long-term flexibility. The job does not expire on a certain date. However, they are increasingly rare in the private sector due to recent labor law changes. When termination is necessary, employers and employees must respect notice periods and legal requirements.

End-of-service benefits for unlimited contracts depend on the total period worked and the terms of termination. Since there is no fixed end date, calculating benefits may require more careful review of tenure and legal clauses.

Key Differences

• Duration: Limited contracts have a set start and end date. Unlimited contracts have no specified end date.
• Termination Rules: Limited contracts require specific procedures to end early. Unlimited contracts rely on notice periods.
• Job Security: Unlimited contracts can be more stable in the long term, but limited contracts provide a clear picture of the employment term.
• Gratuity and Benefits: The two types of contracts have end-of-service benefits, although the calculation can be different depending on tenure and the termination requirements.

Deciding which contract works best depends on business needs, project timelines, and workforce strategy.

Read more: The Legal Aspects Of Manpower Outsourcing in the UAE

Understanding UAE Employment Contracts with Marmoom Manpower

To manage your workforce effectively in the UAE, it's important to know what an employment contract (Limited VS Unlimited) means. Employment contracts define roles, rights, responsibilities, and pay for both employee and employer, and thus serve as protection. The UAE labour law requires limited contracts to be the standard for new private sector hires. However, there are still unlimited contracts that provide other operational effects to both parties to the contract.

At Marmoom Manpower, we know the importance of having a clear and compliant employment agreement in today's workplace. We provide employers with workforce solutions that comply with UAE regulations while creating stable and productive working relationships.