A new directive has been issued by the UAE government lifting a three-year cap on the duration of fixed-term employment contracts in the private sector, in an update to new labour laws brought into force in February.

Under the new amendments, employment contracts must cover a defined term but the law will no longer set a cap on how long the contract can be.

The Ministry of Human Resources and Emiratisation said contracts can be renewed as long as both parties agree to the conditions.

This amendment aims to protect both parties, advance the labour market’s growth and enhance the UAE’s economic competitiveness, said, officials.

Sweeping changes to labour legislation first announced in November set out that work contracts could not exceed a period of three years.

Any indefinite contracts were to be changed to fixed-term agreements that could be renewed, in line with the Federal Decree-Law No 33 of 2021, ordered by the late Sheikh Khalifa.

Under the amended legislation — established by Federal Decree-Law No 14 of 2022 — employment contracts must cover a defined term, agreed on by an employer and employee, but “the law does not set a cap on that period”.

“The UAE government continues to develop regulations and laws that align with what the next 50 years of UAE’s development demand,” said Abdulrahman Al Awar, Minister of Human Resources and Emiratisation.

“The laws and regulations support our business environment’s stability and improve its resiliency and attractiveness.

“These regulations follow the UAE’s advanced developmental model and its fundamentals and principles that are built on justice, respecting human rights and staying ahead of changes. This guarantees the UAE’s continued progress, stability and pioneering stature.”

“The new amendments create an advanced ecosystem of mechanisms that boost the ease of doing business, productivity and resilience within the labour market while amplifying its attractiveness to the business owners and talents.”

The move will pave the way for businesses and workers to agree on longer-term contractual arrangements, providing further stability.

The amended law governs employment relations in the private sector.

This covers employees in free zones and mainland companies, with the exception of the Dubai International Financial Centre and the Abu Dhabi Global Market.

The rules do not apply to employees in the public sector and domestic workers.

“The amendment aims to protect both parties in a balanced way; [it] advances the labour market’s growth and stability, and enhances the UAE’s economic competitiveness,” the ministry said.

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