Limited vs Unlimited Contract UAE: What the Law Actually Says in 2026

You searched “limited vs unlimited contract UAE” and most of what came up is wrong. The unlimited employment contract was abolished in 2022. If you are still making decisions based on that distinction, you are working from law that no longer exists. This article covers what replaced it, what changed for termination and gratuity, and what you need to check in your contract today.

What the Law Actually Says Now: Fixed-Term Only

Federal Decree-Law No. 33 of 2021 on the Regulation of Labour Relations came into effect on 2 February 2022. One of its clearest structural changes was the removal of the unlimited employment contract.

All private sector employment contracts in the UAE must now be for a specified term. The original three-year cap was removed by Federal Decree-Law No. 14 of 2022, effective September 2022. Employer and employee can now agree on any duration: two years, five years, ten years, or longer. The requirement is that a term is stated.

The law no longer uses the old “limited vs unlimited” terminology. There is one contract type: a contract with a defined term.

What Happened to Unlimited Contracts After February 2022

Employees who held unlimited contracts before February 2022 were not immediately out of their contracts when the law changed. Employers had one year, until February 2023, to convert all existing unlimited contracts into fixed-term contracts.

Conversion meant issuing a new contract or a written addendum specifying a fixed term. The conversion did not reset the employee’s service period. Years worked under the old unlimited contract count fully towards end-of-service gratuity.

If an employer failed to convert by the deadline, the employee is not without rights. In the absence of a written fixed-term contract, MOHRE and UAE courts generally apply a default two-year term for the purpose of gratuity and benefit calculations.

Many employees have not received a new contract since February 2022 and are still operating under the assumption they hold an unlimited contract. If that describes you, ask your HR department for the current contract term and the renewal arrangement in writing.

Termination Rights Under a Fixed-Term Contract

Under the old unlimited contract regime, either party could terminate at any time by giving notice. The gratuity calculation differed depending on whether the employee resigned or was dismissed, and employees who resigned before completing five years received a reduced amount.

Under the current fixed-term framework, those distinctions are gone. An employee who resigns and an employee who is terminated follow the same gratuity calculation under Article 51 of the law, provided they have completed at least one full year of service. The old penalty for resigning was abolished.

Fixed-term contracts introduce a different consideration: early termination. If an employer ends the contract before it expires without a valid legal reason, the employee may be entitled to compensation for the remainder of the term. If an employee resigns early, the employer may claim equivalent compensation. This makes notice period provisions more significant than they were under the old regime.

Notice Periods: The Number Your Contract Must Show

Article 43 of Federal Decree-Law No. 33 of 2021 sets the minimum notice period at 30 days and the maximum at 90 days. The actual notice period is whatever the contract states within those bounds. If the contract is silent on notice, 30 days applies by default.

A notice period in the contract binds both parties equally. A contract that states 60-day notice means the employer must also give 60 days, not just the employee.

During notice, the employee continues to receive full pay and must continue performing their duties. If the employer asks the employee to leave immediately, the employer pays in lieu of notice for the remaining days. The party that fails to honour the notice period owes the other a payment equal to the wage for the days not served. This is a statutory obligation under Article 43, not a discretionary penalty.

Renewal, Non-Renewal, and the 90-Day Trigger

Fixed-term contracts can be renewed by mutual agreement for the same duration or a shorter one. There is no statutory cap on the number of renewals. Each renewal should be documented in writing.

If a fixed-term contract expires and neither party gives notice but the employee continues working and the employer continues paying, Article 38 treats the contract as automatically renewed on the same terms for the same duration. This silent renewal can create obligations that neither party intended.

To avoid automatic renewal, either party must give 90 days notice of non-renewal before the contract end date. Missing that window locks both parties into a further term. Planning contract renewals 90 days ahead is not just good practice under this framework. It is legally necessary.

End-of-Service Gratuity Under the New Framework

Under Article 51 of Federal Decree-Law No. 33 of 2021, gratuity is calculated at 21 days of basic salary for each of the first five years of service, and 30 days of basic salary for each year thereafter. Total gratuity cannot exceed two years of basic salary.

The calculation uses basic salary only. Housing, transport, and other allowances are excluded. The final basic salary at the time of departure is used, not an average over the service period.

Service continuity is preserved across contract renewals. A five-year employee whose contract has been renewed three times accumulates five years of service, not three separate shorter periods. For employees converted from unlimited contracts, service under the old contract counts in full. There is no reset at conversion.

Gratuity is forfeited only in cases of serious misconduct under Article 44, which specifies a narrow list: deliberate damage to employer property, disclosure of trade secrets, and similar. General performance-related dismissal, redundancy, or termination without cause does not forfeit gratuity once one year of service is complete.

Use our UAE End of Service Gratuity Calculator 2026 to estimate your entitlement based on your salary and service length.

Take action today: Pull out your employment contract. Check that the term is stated, the notice period falls between 30 and 90 days, and a renewal clause is included. If your contract is dated before February 2022 and you have received no addendum or replacement contract, request the conversion document from your HR department in writing.

If reading this has prompted you to think about your next role, use our free Dubai CV builder to get your UAE-ready CV prepared before you start applying.