Federal Decree-Law No. 33 of 2021 changed the structure of employment contracting across the UAE private sector. Unlimited contracts are no longer issued, with all new private sector employment now required to be fixed-term. For founders setting up in Dubai or hiring their first employees through a free zone company, the question of limited versus unlimited contracts still creates confusion. This guide explains the legal position in 2026, based on the primary legislation and official guidance.
Key Points on Limited and Unlimited Contracts in the UAE
A limited contract in the UAE is a fixed-term employment agreement with a defined end date, renewable by mutual agreement. Federal Decree-Law No. 33 of 2021, effective 2 February 2022, made fixed-term contracts the required model for new private sector employment and required legacy unlimited contracts to be converted under Article 68.
- All new private sector employment contracts must be structured as fixed-term under Article 8
- Legacy unlimited contracts issued under the repealed Federal Law No. 8 of 1980 had to be converted within one year of the law’s effective date. MoHRE later extended the deadline to 31 December 2023, and that conversion window has now closed.
- Fixed-term contracts may be terminated with notice, with a statutory minimum of 30 days and a maximum of 90 days, and the specific period must be set out in the contract
- End of service gratuity is calculated using a single statutory formula regardless of contract type or how employment ends, 21 days’ basic salary per year for the first five years, and 30 days per year from the sixth year onwards
- Gratuity eligibility begins after one completed year of continuous service
- Claims for rights under the Decree-Law cannot be brought after two years from the date employment ends, under Article 54(9)
The Legal Position After the 2022 Reform
Fixed-Term Contracts are Now the Required Structure
Federal Law No. 8 of 1980, which governed UAE employment relationships for more than four decades, was repealed in full when Federal Decree-Law No. 33 of 2021 came into force on 2 February 2022. The implementing rules followed under Cabinet Resolution No. 1 of 2022.
Article 8 requires private sector employment contracts to be concluded for a definite period and allows them to be renewed by agreement. If both parties continue performing after the contract expires without signing a new agreement, the contract is treated as extended on the same terms.
The Decree-Law does not state a numerical maximum duration in the operative text of Article 8. UAE Government guidance has described employment contracts as fixed-term and renewable for periods not exceeding three years.
Article 3 confirms that the Decree-Law applies to private sector establishments, employers, and workers in the UAE, with specific exclusions for federal and local government employees, armed forces personnel, and domestic workers.
The Conversion of Unlimited Contracts
Article 68 addressed the stock of unlimited contracts that existed under the old law. Employers were required to convert indefinite-term contracts into fixed-term agreements within one year of the law’s effective date, and the Minister had authority to extend that period. MoHRE later extended the conversion deadline to 31 December 2023.
Unlimited contracts are therefore not a parallel option for new hires. They belong to the previous legal framework and were subject to a mandatory transition.
Article 65 also contains specific notice provisions for indefinite-term contracts that existed before the law came into force, setting minimum notice periods of 30, 60, or 90 days depending on years of service. These provisions were transitional and did not preserve unlimited contracts as an ongoing model.
Fixed-Term Contracts Under the Current Law
A fixed-term contract under Federal Decree-Law No. 33 of 2021 is an employment agreement with a defined end date. It must be issued in the approved MoHRE format and include the minimum content requirements set out in Cabinet Resolution No. 1 of 2022, including the contract term, wage, notice period, and termination procedures. The approved format applies across work models such as full-time, part-time, temporary, flexible, remote, and job-sharing arrangements.
A fixed end date does not mean the contract must run until expiry in every case. Either party may terminate for a legitimate reason by serving written notice within the period stated in the contract. The end date simply determines when the contract expires naturally if neither party takes action.
Key Features of Fixed-Term Contracts in the UAE
| Feature | Fixed-Term Contract (Current Law) |
|---|---|
| Legal Status | Mandatory structure under Article 8 |
| Duration | Defined term, renewable by agreement |
| Termination | Permitted with notice for a legitimate reason, or under Article 44 grounds |
| Notice Period | Between 30 and 90 days, as set in the contract |
| Early Exit Exposure | Warning allowance equal to the unserved notice period |
| Gratuity | Calculated under a single statutory formula with no reductions based on resignation |
| Governing Law | Federal Decree-Law No. 33 of 2021 |
Termination Rights and Employer Exposure
Ending a Contract with Notice
Article 43 of Federal Decree-Law No. 33 of 2021 gives either party the right to terminate a fixed-term employment contract for a legitimate reason, provided written notice is served and the contractual notice period is observed. The statutory minimum is 30 days and the maximum is 90 days, and the specific period must be written into the contract.
Where notice is not served, the law creates a warning allowance payable to the party that did not receive notice, equal to the worker’s wage for the unserved portion of the notice period. This payment is automatic and does not require proof of loss. An employer who wants employment to end immediately, rather than requiring the employee to work through notice, must pay salary in lieu of the full notice period.
Dismissal Without Notice
Article 44 sets out an exhaustive list of grounds on which an employer may dismiss a worker without serving notice. These include submitting false identity documents or credentials, causing grave material loss to the employer, with an obligation to notify MoHRE within seven business days of becoming aware of the incident, serious breaches of workplace safety instructions, and continued failure to perform core duties after a formal investigation and two written warnings.
The process is as important as the ground itself. The employer must conduct a written investigation and issue a written, reasoned dismissal decision before acting. Employers who treat Article 44 as a shortcut to avoid notice, rather than a genuine exception for serious misconduct, take on significant legal exposure.
Termination by Mutual Agreement
The Decree-Law recognises written mutual consent as a valid basis for ending employment. This route is commonly used where both parties want a clean exit without one side serving the full notice period. The agreement should be recorded clearly and signed by both parties.
Employee Resignation
An employee who wishes to resign must serve the notice period specified in the contract, within the 30 to 90 day statutory range. Resignation without notice is permitted only in the circumstances defined in Article 45, including employer breach of contractual obligations, with notice to MoHRE at least 14 business days before departure if the breach goes unremedied, employer assault, and serious workplace danger as further defined in Article 26 of the Executive Regulation.
Outside those grounds, an employee who leaves without notice may be exposed to a warning allowance claim covering the unserved period.
Unlawful Termination and the Compensation Cap
The Decree-Law draws a specific line around retaliatory dismissal. Where an employer terminates a worker because that worker filed a serious complaint with MoHRE, or brought a valid case against the employer, the termination is treated as unlawful. Article 47 caps the compensation payable at three months’ wage, calculated on the last wage received, with the court determining the exact amount based on the nature of the work, the damage suffered, and the employee’s length of service.
This is not a general wrongful dismissal compensation rule. It applies specifically to termination in retaliation for the exercise of legal rights. Employers who document legitimate termination grounds, follow notice requirements, and maintain proper investigation records reduce their exposure substantially.
Separately, Article 54(9) sets the limitation period for claims under the Decree-Law at two years from the date the employment relationship ends. Claims brought after that point will not be heard.
Employer Position Under the Current Rules
The current framework allows either party to terminate a contract during its term, subject to notice and statutory conditions. A fixed-term contract is not locked until its end date. Either party can exit during the term with proper notice for a legitimate reason.
Compared with the old limited contract model, where early exit was structured around capped compensation rules, the 2021 law makes termination more predictable. The financial consequences of ending employment are defined in the legislation, and employers who follow the process correctly face more limited residual exposure.
End of Service Gratuity Under the Current Law
The Statutory Calculation
Article 51 of Federal Decree-Law No. 33 of 2021 governs end of service gratuity for foreign full-time workers. Eligibility begins after one completed year of continuous service. The calculation is based on basic salary only, excluding allowances and variable pay.
For the first five years of service, the entitlement is 21 days’ basic salary for each completed year. From the sixth year onwards, it rises to 30 days’ basic salary per year. Pro-rata entitlement applies for part of a year once the one-year threshold has been met. Unpaid absence days are excluded from the service calculation, and the total gratuity amount is capped at two years’ wage.
A software developer earning 18,000 basic salary per month who completes four years of service would have a daily basic wage of 600. Four years at 21 days per year equals 84 days, producing a gratuity entitlement of 50,400.
The Change from the Previous Law
Under Articles 137 and 138 of the repealed Federal Law No. 8 of 1980, gratuity outcomes depended on both the contract type and the manner in which employment ended. An employee who resigned from an unlimited contract received one-third of their gratuity entitlement for one to three years of service, two-thirds for three to five years, and full entitlement only beyond five years. An employee who left a limited contract before its end date could lose gratuity entirely unless they had completed more than five years of service.
Article 51 of the current law removes those distinctions. The formula now applies uniformly whether the employee is dismissed, resigns, or the contract expires naturally.
For employers, the practical effect is clear. There is no longer a situation in which an employee’s resignation reduces the gratuity liability. Full entitlement should be provisioned from the point the one-year service threshold is met.
Gratuity When Employment Ends Early
Where an employer terminates a fixed-term contract before its natural expiry, the employee retains their gratuity entitlement calculated on completed years of service, subject to the one-year minimum. If the termination is found to be unlawful under Article 47, additional compensation of up to three months’ wage may apply alongside gratuity as a separate entitlement.
Where an employee resigns before the contract end date, the same gratuity formula applies. Under Article 53, the employer must pay all wages and other entitlements, including gratuity, within 14 days from the end of the employment contract, regardless of how the employment relationship ended.
Probation, Renewal, and Contract Expiry
Probation Period Rules
Article 9 of Federal Decree-Law No. 33 of 2021 sets the maximum probation period at six months from the date employment begins. Either party may terminate during probation with at least 14 days’ written notice.
Where an employee wishes to leave during probation to join another employer in the UAE, they must give the original employer one month’s written notice, and the new employer must compensate the original employer for recruitment or contracting costs, unless otherwise agreed. Where a foreign employee ends employment during probation to leave the UAE, 14 days’ notice applies. If that employee returns and obtains a new work permit within three months, the new employer must compensate the original employer for those costs unless the parties agree otherwise.
Probation offers flexibility, but it does not remove the need to follow process. Failure to observe the notice requirement during probation triggers the same warning allowance principle that applies outside probation.
Renewal and Implied Extension
Renewal should be made by express written agreement before the contract end date. Under Article 8, any renewed term is treated as a continuation of the original employment period for calculating gratuity and other service-based entitlements.
An employer who intends not to renew but allows the employee to continue working without documentation may create an implied extension on the same terms and conditions. That includes the same notice, gratuity, and contractual obligations as the original agreement.
Non-Renewal and Contract Expiry
Where non-renewal is the intention, it should be communicated in writing before the expiry date. All accrued entitlements, including gratuity where the one-year threshold has been met, must be settled within 14 days under Article 53.
Contract expiry without renewal is also recognised as a basis for employee transfer under the Executive Regulation, Cabinet Resolution No. 1 of 2022.
Non-Compete Clauses
Article 10 of Federal Decree-Law No. 33 of 2021 allows post-employment non-compete clauses where the role gives the employee access to clients or confidential business information. To be enforceable, the clause must define the geographic scope, the restricted activity, and a duration that does not exceed two years from the contract end date. The restriction is not enforceable where the employer terminates the contract in breach of the Decree-Law.
Article 12 of Cabinet Resolution No. 1 of 2022 places the burden of proving damage on the employer in any court dispute and also provides a buy-out mechanism. A worker may be released from the restriction if compensation not exceeding three months’ salary is paid to the original employer by the worker or the new employer, with the original employer’s written approval.
For roles involving genuine commercial sensitivity, the clause should be drafted narrowly and with precision from the outset. A broad restriction included for completeness is far less likely to survive court scrutiny.
Employment Contracts in UAE Free Zones
Which Employers the Law Covers
Federal Decree-Law No. 33 of 2021 applies across the UAE private sector, and Article 3 does not list free zones as a general exclusion. For businesses setting up a free zone company in Dubai, that means the federal rules on fixed-term contracts, notice, gratuity, probation, and termination remain the starting point.
Alongside that federal framework, free zone authorities also administer their own licensing and administrative requirements. UAE government guidance on recruiting in free zones states that work permit and residence visa processes are handled through the respective free zone authority.
DUQE Free Zone and Separate Financial Free Zone Regimes
Companies licensed through DUQE follow the federal labour law framework that governs most private sector employment in the UAE. DIFC and ADGM sit outside that model, with their own employment legislation, regulatory rules, and dispute mechanisms.
That distinction matters when founders compare setup options. A business licensed in DUQE is not operating under the same employment regime as a business licensed in DIFC or ADGM, so contract structure, compliance obligations, and employment processes should be considered on their own terms.
Employment Contracts in a DUQE Free Zone Company
Employment contracts issued by a DUQE-licensed company must meet the requirements set out in Cabinet Resolution No. 1 of 2022, including contract term, wage, notice period, and termination provisions.
The employee’s role should align with the company’s licensed activities. For founders reviewing or refining their licence scope, DUQE’s Business Activities page sets out the available categories.
Clear role definition at the outset reduces delays and supports a smoother onboarding process.
Choosing the Right Contract Structure for Your Team
A well-structured employment contract supports compliance, protects the business, and provides clearer visibility on employment obligations from day one. For businesses hiring through a free zone company in Dubai, the contract should match the company’s licensed activities, follow the correct employment framework, and fit into a reliable onboarding process.
DUQE helps founders put that structure in place, from company formation and licence alignment through to the practical steps involved in hiring employees compliantly. If you are preparing to hire your first employee, speak to DUQE about company setup, licence alignment, and onboarding requirements.
Frequently Asked Questions
Are Unlimited Contracts Still Valid in the UAE?
No. Article 8 of Federal Decree-Law No. 33 of 2021 requires all new private sector contracts to be fixed-term from 2 February 2022. Article 68 required older unlimited contracts to be converted, and MoHRE later extended the deadline to 31 December 2023.
Can a Fixed-Term Contract be Ended Before it Expires?
Yes. Article 43 allows either party to terminate for a legitimate reason by serving the contractual notice period in writing. Termination without notice is limited to the specific grounds in Article 44, which require a written investigation and a reasoned dismissal decision before the employer acts. The fixed end date only determines when the contract expires naturally if neither party takes action.
What Notice Period Does UAE Labour Law Require?
Article 43 sets a statutory minimum of 30 days and a maximum of 90 days. The exact period must be written into the employment contract. If an employer chooses to end employment immediately rather than having the employee work through notice, salary for the unserved notice period must be paid as a warning allowance.
Does Gratuity Calculation Differ by Contract Type?
No. Article 51 applies a single formula to eligible workers regardless of contract type or how employment ends. The resignation-based reductions under the old Federal Law No. 8 of 1980 no longer apply.
What Happens to Gratuity if An Employer Terminates Before the Contract End Date?
The employee keeps any gratuity entitlement based on completed service, provided the one-year minimum threshold has been met. If the termination is found to be unlawful under Article 47, compensation of up to three months’ wage may be awarded in addition to gratuity.
Can an Employee Resign Without Serving Notice?
Only in the circumstances set out in Article 45, including employer breach of obligations, employer assault, or serious workplace danger as defined in Article 26 of Cabinet Resolution No. 1 of 2022. Outside those circumstances, leaving without notice can expose the employee to a warning allowance claim for the unserved period.
Do Free Zones Follow the Same Labour Law?
Most do. Federal Decree-Law No. 33 of 2021 applies across the UAE private sector, including most free zone companies. DIFC and ADGM are the main exceptions because they operate under separate employment regimes. DUQE-licensed companies follow the federal framework.
What Happens When a Fixed-Term Contract Expires Without a Renewal Agreement?
If the employee continues working after expiry without a new agreement, Article 8 treats the contract as extended on the same terms. If the employer does not intend to renew, that should be confirmed in writing before expiry, and all accrued entitlements should be paid within 14 days under Article 53.
How Long Does an Employee Have to Bring an Employment Claim?
Article 54(9) provides a two-year limitation period from the date employment ends. The first step is an application to MoHRE for amicable settlement. If settlement is not reached, the dispute is referred to the competent court.