Limited vs. Unlimited Contracts in the UAE: The Complete 2026 Guide
The UAE's employment landscape changed fundamentally in 2022. If you are still unsure which type of contract you are on — or what it means for your rights — this guide explains everything clearly.
The Big Change: What Happened in 2022?
On 2 February 2022, the UAE introduced Federal Decree-Law No. 33 of 2021, which fundamentally restructured how employment contracts work in the private sector. The most significant change was the abolition of the traditional unlimited (open-ended) contract as a standard format going forward.
All private sector employers were required to convert existing unlimited contracts to fixed-term (limited) contracts. The initial deadline for conversion was February 2023, though MOHRE allowed extensions in some cases. By 2026, the vast majority of employees in the UAE private sector are on fixed-term contracts.
Check your contract and speak with your HR department. If your contract has not been updated, it should have been — and you may be missing out on updated benefit structures. Contact MOHRE if your employer is not cooperating.
What is a Limited (Fixed-Term) Contract?
A Limited Contract is now the standard employment format in the UAE private sector. It is a contract with a defined start date and end date, typically running for two to three years and renewable upon mutual agreement.
Key Features
- Specific start and end dates
- Renewable by mutual agreement
- Full gratuity on resignation
- Standard notice period (30–90 days)
- No gratuity reduction for early departure
Typical Terms
- Duration: 1–3 years
- Auto-renewable or new contract
- Probation up to 6 months
- WPS salary registration required
When the contract reaches its end date and is not renewed, the employee is entitled to full gratuity for the entire period served — as if they had resigned normally. The expiry of a fixed-term contract is not treated as a termination for misconduct, and full entitlements apply.
What Was an Unlimited Contract?
An Unlimited Contract was an open-ended employment agreement with no fixed expiry date. It was the most common contract type in the UAE before 2022 and could only be ended by either party giving proper notice.
The unlimited contract system had a significant problem for employees: the gratuity calculation was heavily penalized if the employee resigned before completing 5 years of service. The rules under the old system were:
| Years Served | Old Rule (Resignation) | New Rule (All Cases) |
|---|---|---|
| Less than 1 year | No gratuity | No gratuity |
| 1–3 years | 1/3 of gratuity only | Full gratuity |
| 3–5 years | 2/3 of gratuity only | Full gratuity |
| 5+ years | Full gratuity | Full gratuity |
The removal of these penalties is a major improvement for employees in the UAE. Under the new system, as long as you serve your notice period, you receive the full gratuity you have earned — no deductions based on who initiated the separation.
Gratuity Under the New System
The shift to limited contracts has made gratuity calculations much simpler and fairer. The standard formula now applies universally:
- Years 1–5: 21 days basic salary per year of service
- Years 6+: 30 days basic salary per year of service
- Maximum: Capped at two years' total salary
There is no longer a distinction between gratuity for "resignation" versus "termination" in the standard calculation. The reason for leaving only matters in exceptional misconduct cases under Article 44.
New Contract Types Introduced in 2022
Beyond the standard full-time fixed-term contract, the New Labor Law also introduced several new officially recognized work arrangements:
Part-Time Contracts
Employees working fewer hours than the standard 48-hour week. They receive proportional benefits, including gratuity, annual leave, and sick leave.
Temporary Contracts
For specific projects or tasks with a defined completion point. Benefits are proportional to the duration of service.
Flexible Work Contracts
Allows employers and employees to agree on flexible working hours and days. Pay is based on actual hours worked. Gratuity and benefits are calculated proportionally.
Job-Sharing Contracts
Two employees share a single full-time role and split the associated salary and benefits proportionally.
Real Situations We Have Seen
Frequently Asked Questions
Can my employer convert my unlimited contract to a limited one?
Only with your written agreement. A unilateral change to your contract type by the employer is not enforceable. If you are pressured to sign a new limited contract without wanting to, you are not obligated to do so.
Under the 2021 law, are limited contracts still worse than unlimited?
The gap has narrowed significantly. The main practical differences now are around early termination clauses and automatic renewal terms. For most employees, the day-to-day experience is similar.
What happens at the end of a limited contract if neither side does anything?
If both parties continue working without signing a new contract after the limited contract expires, it is automatically treated as renewed on the same terms — or converted to an unlimited contract depending on the circumstances and MOHRE interpretation.
Frequently Asked Questions
My contract says "unlimited" — is it still valid?
Technically, unlimited contracts issued before February 2022 may still be in force if they were never updated. However, MOHRE requires that they be converted. Check your latest contract document and speak to your HR department. If you are unsure, you can verify your contract type through the MOHRE app.
Does my gratuity reset when my contract is renewed?
No — as long as you remain with the same employer without a break in service, your years of service continue to accumulate regardless of how many times your fixed-term contract has been renewed.
Can my employer refuse to renew my contract?
Yes. An employer is not obligated to renew a fixed-term contract. However, if they choose not to renew, you are entitled to full gratuity for your service period, and they must inform you before the contract expires with proper notice.
Calculate Your Gratuity Under the New Rules
Since contract types have changed, make sure you know your updated entitlement.
Calculate Your Gratuity Now