The UAE is a prime destination for expatriates. Many reasons, including its vibrant economy, and tax-free environment. Fueled by promising career opportunities. The growing number of foreign nationals in the country raises the need to understand contract types. That’s why It is essential to have knowledge of employment contracts. Important for both employees and employers alike. There are two types of employment contracts. One is limited-term and the other one is unlimited-term contracts. We’ve written this article to deep dive into these topics in detail.
In this article, we will explore the:
- The key difference between limited and unlimited contracts UAE
- How they work, and the implications they have
Types of UAE Employment Contracts
As per the UAE Federal Law No. 8 of 1980:
Employers can offer employees two types of contracts—limited and unlimited. The main distinction between them lies in the:
- Duration
- Termination clauses, and
- Other entitlements. Let’s explore both types in more detail.
1. Limited-Term Contracts: Overview
A limited-term contract is a fixed-term agreement. It has a specified start and end date. The contract is tied to the employee’s residency visa duration. The UAE visa lasts for 2 or 3 years. The contract is terminated automatically at the contract term end. Unless both parties mutually agree to renew it.
Key Features of Limited-Term Contracts:
Duration: A limited-term contract has a fixed start and end date. It is no longer than 4 years.
Salary: The salary is fixed for the entire contract duration. It can only be altered with mutual consent.
Termination: This contract expires at the end of the term unless renewed. If a valid reason arises, either party can terminate it earlier
Job Security: Limited-term contracts offer less flexibility for employees. Ones who may wish to change jobs or companies before the term ends.
Benefits: Typically includes health insurance and end-of-service gratuity. Along with annual leave, and other perks as agreed.
When to Use a Limited-Term Contract:
Limited contracts are ideal for project-based roles or temporary work. Companies may hire staff for a specific period to meet demand. Also, they hire during peak seasons without committing to long-term employment.
2. Unlimited-Term Contracts: Overview
An unlimited-term contract has no fixed end date. This agreement continues indefinitely. Unless the parties decide to terminate the contract or amend the terms. It can be either the employer or the employee
Key Features of Unlimited-Term Contracts:
Duration: With no defined end date, it’s an open-ended contract. Allowing parties to continue the employment relationship indefinitely unless terminated.
Salary and Benefits: Employees are entitled to salary, and benefits. These include:
- Health insurance
- Annual leave, and
- Gratuity.
However, changes to salary or benefits can be made through mutual agreement.
Termination: The employer or the employee can terminate the contract. A notice period is given as per UAE labor law.
Flexibility: Employees can change employers without facing restrictions or penalties. The contract also offers more flexibility. It means altering the terms and conditions of the agreement.
Job Security: Unlimited contracts provide employees with long-term job security. Employers must have valid reasons for dismissal. They must follow proper legal processes.
When to Use an Unlimited-Term Contract:
Unlimited contracts are best suited for long-term and permanent roles. These contracts are used by companies to retain skilled employees for the long haul. They want to promote stability in their workforce.
Key Difference Between Limited and Unlimited Contracts in UAE
Here’s the table designed to discuss the differences between the contract types:
| Feature | Limited-Term Contract | Unlimited-Term Contract |
| Contract Duration | Fixed start and end date (max 4 years) | No fixed end date; continues indefinitely |
| Flexibility | Less flexible; termination is set by the contract term | More flexible; can be terminated anytime with proper notice |
| Renewal | Requires mutual agreement to renew after expiration | No renewal required; continues unless terminated |
| Termination | Automatically ends when the term is up; can be terminated early for valid reasons | Can be terminated by either party with notice |
| Job Change | Restricts changing employers during the term | No restriction on changing employers after the notice period |
| Compensation for Termination | Depends on the circumstances; may require payment for the remaining term | Must give notice period or pay in lieu |
| End-of-Service Gratuity | Entitled to gratuity after completing the contract term | Entitled to gratuity after completing one year of service |
| Use Cases | Short-term, project-based, or seasonal work | Permanent roles, long-term employment |
Termination Clauses: Limited vs. Unlimited Contracts
The process of termination differs for both types of contracts:
Limited-Term Contract Termination
Automatic Expiry:
The contract expires at the term ends unless both parties agree to renew it.
Early Termination:
Employers must have a valid reason for contract termination before the end date. The reason could be anything. Be it a contract breach or poor performance. However, they must comply with the required notice period.
Employee Resignation:
Employees cannot resign before the contract’s end date without penalty. For instance, if they do, they may have to compensate the employer. It could be paying for the remaining contract term.
Unlimited-Term Contract Termination
Notice Period:
Either party must provide a notice period (usually 30 days) before termination.
Termination Without Cause:
An employer can terminate an unlimited contract but must provide compensation if done without valid cause.
Employee Resignation:
Employees can resign with a notice period. They have more freedom to switch employers.
End-of-Service Benefits: Gratuity
Both contract types provide employees with end-of-service gratuity. However, it is based on the length of service. Note that, the calculation differs slightly between these contract types:
Limited-Term Contract:
Gratuity is calculated based on the employee’s full service term. It means if an employee leaves before the end of the contract. In this scenario, they may lose eligibility for gratuity.
Unlimited-Term Contract:
Employees are entitled to end-of-service benefits. This is regardless of the contract type. However, gratuity payments are calculated differently. It is based on the service length.
Which Contract Should You Choose?
- For Employees: Unlimited-term contracts offer more job security, flexibility, and ease of switching employers. They are suitable for long-term career growth and stability.
- For Employers: Limited-term contracts are ideal for temporary roles. Best suited for short-term projects or seasonal staffing needs. In comparison, unlimited contracts are perfect for long-term hires. Particularly when aiming to retain talent.
Emiratisation Hub: Get Instant Assistance on Limited and Unlimited Contracts:
Deciding between a limited-term and unlimited-term contract differs. It is unique and different from case to case. Primarily depends on the employer’s needs and the employee’s preferences. However, limited contracts offer flexibility for project-based work. It comes with restrictions regarding termination and job changes. In comparison, unlimited contracts provide stability and more freedom for employees. But, it requires a longer-term commitment from the employer. Difficult to decide? You can get help from experts like Emiratisation Hub!
Understanding these contracts is important for businesses. For this, getting assistance from Emiratisation Hub is a good choice. They better understand the UAE’s employment landscape. Not only for businesses, they also help employees weigh their priorities. Get help related to job security or flexibility that suits you best. On the other hand, experts provide guidance to employers to opt for contracts based on their requirements. Considering the nature of the roles they are hiring for. The UAE’s labor laws are designed to balance the needs of employers and employees and Emiratisation is proving successful in fulfilling their client’s needs. As a result, a fair and legally sound working environment is guaranteed.
Hope this article gives you better insights into the difference between limited and unlimited contracts. Don’t forget to give your feedback! Your feedback is valued.
