# Limited vs Unlimited Contracts in the UAE: Why Only One of These Still Exists

> Why 'unlimited' employment contracts no longer exist in the UAE, what every contract being fixed-term actually changes, and what it means for gratuity and notice.

Source: https://officehr.ae/blog/uae-limited-vs-unlimited-contracts
Published by OfficeHR (https://officehr.ae). September 2026 · 4 min read

This comes up constantly in UAE hiring conversations because the old distinction is still floating around in job ads, templates, and people's heads — even though it's no longer how UAE contracts actually work.

## The short answer

> Unlimited contracts don't exist anymore. Every private-sector employment contract in the UAE has to be a limited-term (fixed-term) contract.

Under the UAE's labour law reform, the old "unlimited contract" — an open-ended arrangement with no set end date — was phased out. Existing unlimited contracts had to be converted to limited-term ones, and every new contract since has to be fixed-term from the start.

## What "limited-term" actually means in practice

- A contract term can run for up to **3 years**.
- It can be **renewed** for further terms, with no cap on how many times — an employee can genuinely work at the same company for a decade-plus on a series of renewed fixed terms.
- What ends is the individual **term**, not automatically the employment relationship — most ongoing employment is a fixed-term contract that keeps renewing, not a one-off 3-year stint.

## What this changed for employers

The practical shift is mostly about how a contract ends. With a fixed term, both sides know the contract's end date going in; ending the relationship earlier than that (by either side) is treated as an early termination of a fixed term, with its own notice and compensation considerations — rather than the older unlimited-contract logic of arbitrary dismissal compensation.

## What it didn't change: gratuity

One thing that stays exactly the same regardless of contract type: end-of-service gratuity. It's calculated on years of service and basic salary — the old limited/unlimited split, and the reductions for resigning early, affected gratuity under the previous law, but under the current law every eligible employee's gratuity is worked out the same way, contract type and reason for leaving aside. (We cover exactly how that calculation works in [a separate post](https://officehr.ae/blog/uae-gratuity-calculation-explained).)

This is a general explanation of the UAE's shift to fixed-term contracts under the UAE Labour Law (Federal Decree-Law No. 33 of 2021) for HR teams doing their own planning — not legal advice for a specific case. Contract drafting, early-termination compensation, and renewal terms should be confirmed with a UAE labour lawyer, especially for anything unusual.