Differences Between Limited and Unlimited Contracts

The UAE is one of the most popular locations worldwide for foreign workers. This due to top-notch career opportunities, tax-free environment, strong economy, and more. As most expats choose to live and work in the region, it is essential that they know the differences between limited contract and unlimited contract UAE.

In this article, we will be giving you the run down about what is the difference between limited and unlimited contracts. The country has the highest number of foreign employees in the area, so keep on reading and learn all about UAE contract.

What are they types of employment contracts in UAE?

According to the Labour Law, there are two types of employment contracts in UAE:

• Limited contract UAE
• Unlimited contract UAE

Limited contract UAE:

This is a fixed-term contract with a particular start and finishing date. The duration of the contract usually links to the duration of the worker’s employment visa. In this contract, both parties decide to a specific employment period.

Employers can choose to terminate or renew the limited contract UAE according to the mutual agreement between employees and employers. Key features include:

• Contracts cannot go over four consecutive years.
• Salary is established for the complete contract duration and cannot change unless both parties agree.
• Employers must define employment benefits within the contract.
• Contracts must include an established termination at the end of the term.

Likewise, the nature and place of work cannot change without consent.

Unlimited contracts UAE:

This type of employment contract UAE is open-ended. It means that it has a starting date but not a finishing date, so it is more flexible for both parties. According to the law, the conditions and terms will remain until both parties decide to end the contract.

Key features include:

• The unlimited contract UAE will be in place until both parties decide to end it.
• Employers must include mandatory and compulsory benefits.
• Employment term changes. Employees have more flexibility to change jobs since their residency visa is not linking the contract. Likewise, employers can easily change employment terms, in accordance with the employees.

What is the difference between limited and unlimited contract UAE?

There is a main, very important difference between the limited contract and unlimited contract UAE, it is that the limited contract has an ending date while the unlimited does not.

Other differences between limited contract and unlimited contract UAE are:

Renewal

• Limited contract UAE. When the term expires, the whole contract is over unless both parties decide to renew it. The renewal date can last for the same period as the original contract. Nevertheless, if one of the parties decides not to renew, they must provide notice according to the employment law.
• Unlimited contract UAE. Since the contract does not have an end date, it automatically renews.

UAE contract termination

• Limited contract. The termination of the contract happens once it expires. Also, it can happen before the ending date if there is a valid reason. According to the local labor law, employers can dismiss employees without notice or gratuity in certain instances.
• Unlimited contract. To end in infinite employment contract UAE, both parties enter a mutual agreement. Also, according to the law, there must be a minimum of one month as notice period. During this period, employees can receive full pay and benefits.

Compensation

• Limited contract. If termination happens, both parties have to receive compensation. If the company terminates the employee with no valid reason, they have to provide a 3-month salary compensation. However, if an employee ends the contract without notice, they must provide a 45-day compensation.
• Unlimited contract. If the contract ends without notice or a valid reason, the ending party must provide a 1-month salary compensation. If the company terminates the employee with no valid reason, they have to provide a 3-month salary compensation.

End of service benefits

Since both types of contracts have to provide end-of-service benefits, the main difference between limited contract and unlimited contract UAE relies on how much gratuity goes to the employee. For instance:

• 5 years of limited term employment: Employees receive a 21-day salary compensation for each year and it will increaser to a 30-day salary compensation if the employment goes for beyond 5 years.
• 5 years of unlimited term employment: Employees that resign will obtain 2/3 of their 21-day salary gratuity as pay. However, they will receive the full 21-day gratuity if they have been working for over 5 years. When the employer terminates the contract, they will obtain a complete 21-day gratuity payment each year and it will raise to 30-day gratuity payment if they have been operating for over 5 years.

Use cases

• Limited contract UAE. These are usually for seasonal, project roles, or temporary employment.
• Unlimited contract UAE. It is ideal for permanent and long-term roles.

Employee implications

• Limited contract. The main implication for this contract is job security. Which means that, if the company chooses not to renew the contract after it expires, the employee has to look for a new job. Additionally, if the employee decides to end the contract before it expires, they must pay fees and penalties.
• Unlimited contract. The main benefit of this contract is that it provides job security. With this unlimited contract UAE, workers have a higher level of protection against unfair dismissal.

Employers implications

For both limited contract and unlimited contract UAE, employers have several implications. These include:

• Notice period. Both contracts have a particular notice period that has to enter in conversation if one party wants to terminate it. Limited contracts usually have shorter notice periods.
• Limited contracts have a particular duration, when it ends both parties can decide to renew it or not. However, unlimited contracts will last until both parties decide to end it.
• Both limited contract and unlimited contract UAE require companies to provide end-of-service compensation for employees. Nevertheless, the calculation for this benefits varies according to the contract.
• Visa cancellation. In the area, the employment visa goes hand in hand with the contract. Subsequently, once the contract is over, employers must cancel the worker’s visa immediately. The visa cancellation process usually varies for limited contract and unlimited contract YAE, and companies must follow the steps to do it compliantly.
• Litigation risk. When a contract is over, companies must follow the processes as they appear in the UAE labor law. If they fail to do so, employees may litigate against them.

Frequently Asked Questions

Can an unlimited contract UAE transform into an limited contract?

Yes, it is possible to convert contracts. Actually since December 2023, unlimited contracts in the UAE private sector must transform to limited contracts, according to the labor law.

Can I resign after 1 year in UAE limited contract?

Yes, it is possible. According to the UAE employment law, employees can terminate their limited contract UAE as long as their employers agree to it too.

Is it necessary to renew my limited contract when it expires?

No, it is not necessary to renew the limited employment contract. Renewal happens when both parties agree to it.

How do I know if the contract is limited or unlimited in UAE?

To know if your contract is limited or unlimited you need to confirm if it has an expiration date. If it does, it is a limited contract UAE, if it does not then it is unlimited.

Can a company dismiss employees under limited contract without a valid reason?

No, employers cannot dismiss their workers without a valid reason. Nevertheless, they can terminate the agreement if they violate any contractual obligation or for gross misconduct.

If you want more information regarding limited contract and unlimited contract UAE, go to our insights section now.