One of the most common sources of confusion for employees in the UAE is the difference between a limited and unlimited contract — and how each affects gratuity, resignation rights, and end-of-service benefits. With the New UAE Labour Law (Federal Decree-Law No. 33 of 2021) now fully in effect, the rules have changed significantly. Here’s everything you need to know.
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What Is a Limited Contract?
A limited contract (also called a fixed-term contract) has a defined start and end date. Under the new UAE Labour Law, all new employment contracts must be fixed-term, with a maximum duration of 3 years (renewable).
📋 Official source: MOHRE – Federal Decree-Law No. 33 of 2021
What Is an Unlimited Contract?
An unlimited contract has no defined end date. It continues until either party gives notice to terminate. Since February 2022, unlimited contracts are no longer issued for new employees. However, employees hired before this date on unlimited contracts continue under their existing terms until contract renewal.
Key Differences: Limited vs Unlimited Contract
| Limited Contract | Unlimited Contract | |
|---|---|---|
| End date | Fixed (max 3 years) | No end date |
| New contracts allowed? | ✔ Yes (only option now) | ✖ No (post-Feb 2022) |
| Resignation rights | Can resign with notice | Can resign with notice |
| Gratuity on resignation | Full gratuity | Full gratuity |
| Early termination by employer | Compensation may apply | Notice period applies |
| Notice period | As per contract (min 30 days) | As per contract (min 30 days) |
How Does Contract Type Affect Gratuity?
Under the old law, unlimited contract employees who resigned received reduced gratuity depending on years of service. Under the new law (2022), this distinction is gone. Both contract types now receive the same full gratuity on resignation:
- 21 days’ basic salary per year for the first 5 years
- 30 days’ basic salary per year beyond 5 years
- Capped at 2 years’ total basic salary
📋 Official source: UAE Government Portal – End of Service Gratuity
What Happens at the End of a Limited Contract?
When a limited contract expires:
- If not renewed, the employee is entitled to full gratuity and leave encashment
- If renewed, service is considered continuous for gratuity purposes
- If the employer terminates early without valid reason, the employee may be entitled to compensation of up to 3 months’ salary
Resignation from a Limited Contract
Under the new law, resigning from a limited contract before its end date is permitted with the required notice period (minimum 30 days, up to 90 days as per contract). You will still receive:
- ✔ Full gratuity (if 1+ year served)
- ✔ Full leave encashment
- ✔ Notice period salary
Transitioning from Unlimited to Limited Contract
Employees on pre-2022 unlimited contracts must transition to fixed-term contracts by February 2023 (one year after the law’s implementation). Crucially, this transition does not reset your gratuity entitlement — your continuous service period carries over.
📋 Official source: MOHRE – New Labour Law FAQ
FAQs
Can I still have an unlimited contract in the UAE?
No new unlimited contracts can be issued after February 2022. Existing ones remain valid until renewed, at which point they must convert to fixed-term.
Does switching from unlimited to limited contract affect my gratuity?
No. Service is continuous and your gratuity calculation carries over without interruption.
What is the maximum length of a limited contract?
3 years, renewable for the same or shorter periods.
Can my employer refuse to pay gratuity if I resign from a limited contract?
No. Full gratuity is payable on resignation from a limited contract under the 2022 law, provided you have completed at least 1 year of service.
Key Takeaways
- All new UAE employment contracts since February 2022 must be fixed-term (limited)
- Unlimited contracts continue for existing employees until renewal
- Both contract types now carry the same gratuity entitlement on resignation
- Service continuity is preserved when converting from unlimited to limited
- Early termination by employer on a limited contract may entitle you to compensation
Official Government Resources
| Authority | Link |
|---|---|
| MOHRE – Labour Laws | mohre.gov.ae |
| UAE Government Portal | u.ae – Gratuity Guide |
| MOHRE – New Labour Law FAQ | mohre.gov.ae/newlaw |
Not sure what you’re owed? Use our free UAE Gratuity Calculator — works for both limited and unlimited contracts, updated for the 2022 Labour Law.