Unlimited Contract

The legacy UAE open-ended employment contract type with no fixed end date — effectively retired for new MoHRE-jurisdiction hires after the February 2022 reforms made limited contracts universal, though pre-2022 unlimited contracts remain valid for existing employees.

Detailed Definition

An Unlimited Contract is the older UAE employment-contract format — an open-ended employment arrangement with no defined termination date, terminable on either side with the contractually-specified notice period. Until February 2022, unlimited contracts were the default option for many UAE employers because they were perceived as more flexible than fixed-term limited contracts and avoided the renewal-cycle administration that limited contracts impose. The entry into force of Federal Decree-Law No. 33 of 2021 in February 2022 fundamentally changed this — limited contracts became the universal MoHRE-registered standard for new hires, and unlimited contracts were effectively retired for new employment. Understanding the legacy unlimited-contract regime remains relevant because (1) many existing employees in the UAE still hold unlimited contracts signed before February 2022, and these contracts continue in force until separation; (2) certain edge-case scenarios may still permit unlimited-contract structures; (3) the historical contrast helps HR teams understand why current Article 51 gratuity treats limited and unlimited contracts identically.

**The pre-2022 regime.** Before the 2022 reform, UAE labour law operated on a dual-contract framework: limited contracts (fixed-term) and unlimited contracts (open-ended). The two had materially different rules around termination, notice, and end-of-service gratuity. Limited contracts typically ran 2-3 years aligned with the residency-visa cycle, with renewal at term end. Unlimited contracts had no end date and could continue indefinitely until terminated by either party. Each format had its proponents — employers liked unlimited for stable senior roles where long-tenure was expected; employees often preferred unlimited for the implicit job security suggested by no end date.

**The pre-2022 gratuity differential.** The most consequential pre-2022 difference was in the gratuity treatment of resignations. Limited-contract employees who completed their full term received full gratuity; those who resigned mid-term forfeited the full gratuity entitlement. Unlimited-contract employees who resigned received reduced gratuity on a tiered scale: one-third reduction for resigning at 1-3 years of service, two-thirds reduction for 3-5 years, full payment only after 5 years. This was a meaningful financial penalty that effectively locked unlimited-contract employees into long tenures, since leaving before 5 years cost them a significant portion of their accumulated gratuity.

**The 2022 abolition.** Article 51 of Federal Decree-Law No. 33 of 2021 abolished the gratuity differential between contract types. Under the new law, the calculation is the same regardless of (1) contract type — limited or legacy unlimited — and (2) which party initiated separation. This was a significant pro-employee change that immediately benefited unlimited-contract employees who had been planning to resign — they now receive full gratuity instead of the reduced amount under the old regime. For employers, the change increased gratuity exposure on early-tenure resignations of unlimited-contract employees who would previously have forfeited a portion.

**Continued validity of pre-2022 unlimited contracts.** Federal Decree-Law No. 33 of 2021 did not retroactively convert existing unlimited contracts to limited contracts. Employees who signed unlimited contracts before February 2022 continue under those contracts until separation. The contractual terms (notice period, salary, role, etc.) remain as agreed; only the gratuity calculation has been harmonised under the new Article 51 rules. Some employers chose to formally migrate legacy unlimited contracts to limited-contract format at the next natural renewal point (e.g., a salary increase or role change), but this is not legally required.

**Hybrid service-period gratuity calculation.** For employees with continuous service spanning the pre-Feb-2022 and post-Feb-2022 periods on a legacy unlimited contract, the gratuity calculation is typically run on a hybrid basis: pre-2022 service under the old rules (with the resignation-reduction tiers if applicable), post-2022 service under the new Article 51 rules. The two are then added together. Some employers have adopted a simpler approach of calculating the entire service period under the new rules, which is more generous to employees and avoids the procedural complexity. Either approach is defensible; the simpler all-new-rules calculation is increasingly common.

**When unlimited contracts may still be used.** While limited contracts are the default for new MoHRE-jurisdiction private-sector hires, certain edge cases may still permit or require unlimited-contract structures: (1) UAE Nationals — some employers continue to use unlimited contracts for UAE National employees, though this is not universal. (2) Executive roles where parties prefer open-ended terms — though these typically use limited contracts with very long terms (e.g., 5 years) plus auto-renewal. (3) DIFC and ADGM employees — financial-free-zone employment law permits both fixed-term and indefinite-term employment, so unlimited-equivalent contracts remain available there. (4) Pre-existing hires not migrated to the new format. For most new MoHRE-jurisdiction hires, however, limited contracts are the only practical option since the registered MoHRE contract template is now limited-contract-based.

**Notice and termination under legacy unlimited contracts.** Termination of a legacy unlimited contract works much as it always did: either party can terminate by giving the contractually-specified notice (typically 30-90 days), with the terminating party paying out notice in lieu if they want immediate termination. Article 42 (with-notice termination) and Article 44 (gross-misconduct dismissal) apply in the same way they apply to limited contracts. The Article 47 mid-term-termination compensation (which applies to limited contracts) does not apply to unlimited contracts since there is no defined term.

**Common compliance traps.** First, attempting to register new unlimited contracts at MoHRE — the standard MoHRE contract template is now limited-contract-based, so this typically fails. Second, applying the pre-2022 gratuity reduction tiers to a separation occurring after February 2022 — incorrect; Article 51 applies regardless. Third, failing to compute the hybrid service-period gratuity correctly for long-tenured employees crossing the 2022 boundary. Fourth, treating legacy unlimited contracts as automatically converted — they continue under their original terms unless explicitly migrated. Fifth, denying notice or gratuity to legacy unlimited-contract resignations — both apply in full under current law.

**Automation through Peoplifi.** Peoplifi handles both limited-contract and legacy unlimited-contract structures, with appropriate gratuity calculation per the rules in force during each service period. The gratuity engine automatically applies hybrid pre-2022/post-2022 calculation for employees crossing the boundary, generates final-settlement statements showing the calculation breakdown, and supports MoHRE contract migration workflows for employers choosing to convert legacy contracts to the current limited-contract format.

Automate Unlimited Contract with Peoplifi

Peoplifi handles UAE payroll (WPS, end-of-service gratuity, Emiratisation, GPSSA), ZKTeco / Suprema biometric attendance, and IBFT bank-sheet export in one platform — so concepts like Unlimited Contract stay handled, not stuck in spreadsheets.