The Saudi Labor Law is one of the most comprehensive and integrated legal systems in the region, distinguished by its organization and precision in regulating the relationship between the employee and the employer. It aims to achieve balance and ensure justice and the protection of rights in the workplace.

The Labor Law sets out clear and detailed regulations that define the employee’s rights in every case of employment termination—whether by mutual agreement, dismissal, unfair dismissal, resignation, or reaching the retirement age. In all these cases, the Saudi system guarantees the employee’s full rights to ensure their financial and social security even after the termination of their employment.

Below, we will explain in detail each case of employment termination, along with the rights and regulations governing it under the Saudi Labor Law.

Types of Employment Contracts in the Saudi Labor System

Before explaining the types of employment relationships, it is important to first understand some of the most important types of employment contracts under the Saudi system, which are classified into three main categories:

• Fixed-term employment contracts: These contracts automatically terminate upon the expiration of the period specified in the agreement.
• Indefinite-term employment contracts: These contracts remain in effect until one of the parties decides to terminate them in accordance with the applicable legal procedures.
• Project-based employment contracts: These contracts end upon the completion of the specific work or project agreed upon in the contract.

Cases of Termination of Employment in the Saudi Labor System  

Employment may be terminated in several ways, each governed by specific regulations and legal provisions. Below, we discuss the cases of employment termination and the legal details of each according to the Saudi Labor Law.

First: Termination upon Expiration of the Contract Term or Completion of Work

Fixed-Term Contract:
Article 74 of the Labor Law outlines the circumstances under which employment is terminated upon the expiration of the contract term, as follows:

1. When both parties agree to terminate the contract, provided that the employee’s consent is given in writing.
2. Upon the expiration of the period specified in the contract, unless the contract has been explicitly renewed in accordance with the provisions of this Law—in which case it continues until its new expiration date.
3. When either party wishes to terminate an indefinite-term contract.

4. Upon the employee reaching the retirement age, which is sixty years.
5. Force majeure refers to a cause beyond the control of either party to the contract that makes it impossible for one or both parties to fulfill their obligations. Examples include an earthquake resulting in the complete collapse of the facility, an employee suffering a disability that prevents them from performing their work, and other similar situations.

The parties to a fixed-term contract may agree to renew the contract for another period; in such a case, the fixed-term contract terminates upon the expiration of the renewed period, provided that the following conditions are observed:

• Employment contracts for non-Saudis must always be in writing and for a fixed term.
• For Saudi employees, if a fixed-term contract is renewed three consecutive times, or if the duration of the original contract combined with the renewal periods reaches four years (whichever is shorter), and both parties continue to perform under the contract, it shall be deemed an indefinite-term contract.

Indefinite-Term Contracts:

Regarding indefinite-term contracts, Article 75 of the Labor Law stipulates that if the contract is for an indefinite period, either party may terminate it for a legitimate reason, which must be stated in a written notice given to the other party prior to termination.

If the party terminating the contract fails to observe the required notice period, they shall be obligated to pay the other party compensation equivalent to the worker’s wage for the notice period, or the remaining portion thereof. The worker’s last wage shall be used as the basis for calculating the compensation for employees who are paid on a time-based system.

For workers who are paid on a different basis, the provisions of Article 96 of the Law shall apply, which states:

1. If the worker’s wage is determined on a piece-rate basis, the average wage received by the worker for their actual working days during the last year of service shall be used for calculating any rights due under this Law.
2. If the worker’s wage consists entirely of commissions or similar variable amounts, the average daily wage shall be calculated based on the total amount received by the worker divided by the number of actual working days.

However, if the termination of employment occurs for an unlawful reason, the party harmed by such termination shall have the right to compensation, which shall be determined by the Labor Disputes Settlement Committee, taking into account both material and moral damages incurred—whether actual or potential—as well as the circumstances surrounding the termination.

Notice Period: 

The notice period is the legally prescribed duration during which an employee must continue working after being notified of the termination of their contract, or during which the employer must retain the employee after the employee decides to terminate the contract.

According to Article 75 of the Saudi Labor Law, the length of the notice period varies depending on the type of contract concluded between the two parties:

• For indefinite-term contracts: The notice period is typically 60 days for employees paid on a monthly basis and 30 days for other workers.
• For fixed-term contracts: The notice period does not apply unless the contract specifically includes a clause stipulating otherwise.

Secondly: Termination by Mutual Agreement between the Two Parties

In this case, both parties to the contract agree to terminate the employment relationship. It is required that the employee’s consent to the termination be in writing, as this serves as the most reliable form of proof. This written consent enables the employer, in the event of a dispute and the employee’s denial of having agreed to the termination, to present the written document as evidence of mutual agreement, unlike other less definitive methods of proof.

Thirdly: Termination of Employment by Dismissal

There are two types of dismissal: lawful dismissal and unfair dismissal, each governed by specific conditions and resulting in different employee entitlements depending on the circumstances.

(1) Lawful Cases of Dismissal

Article 80 of the Saudi Labor Law stipulates that an employer may not terminate an employee’s contract without compensation, notice, or severance pay except in the following cases, provided that the employer gives the employee the opportunity to present their objections to the termination. The article lists the legitimate grounds for dismissal as follows:

• Assaulting the employer, the responsible manager, or supervisors during work.
• Failure to fulfill obligations or comply with legitimate orders.
• Intentionally disregarding safety instructions at work.
• Misconduct or committing an act that violates honor or integrity.
• Intentionally causing material damage to the employer.
• Resorting to forgery to obtain the job.
• Termination during the probationary period.
• Absence without a valid reason for more than 30 days in one year or 15 consecutive days.
• Misusing one’s position for personal gain or disclosing industrial or commercial secrets related to the work.
• In such cases, the employee is not entitled to any rights or notice prior to dismissal.
• The article also specifies that the employer must allow the employee to present their objections before termination. This ensures fairness and protects the worker’s rights in accordance with the principles of justice outlined in the Labor Law.

(2) Unfair Dismissal 

Unfair dismissal is one of the most concerning issues for employees, as it results in job loss without legitimate cause. It occurs when the employer terminates the employment contract without a lawful reason. For this reason, the Saudi Labor Law includes provisions guaranteeing fair compensation for unfair dismissal to protect the employee’s rights and compensate them for the damages suffered as a result of wrongful termination.

• The most common causes and motives for unfair dismissal include:
• Dismissal for expressing an opinion or due to conflicts with subordinates.
• Dismissal for requesting annual or sick leave.
• Dismissal due to marriage, pregnancy, or childbirth.
• Dismissal due to personal incompatibility between the manager and the employee.
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Rights of an Employee Who Has Been Unjustly Dismissed

Articles 77 of the Saudi Labor Law stipulate that an employee who has been unjustly dismissed is entitled to compensation for the damages suffered as a result of the termination of their employment without a legitimate reason. The amount of compensation is calculated according to the following rules:

• For indefinite-term employment contracts: The employee is entitled to compensation equivalent to 15 days’ wages for each year of service with the employer, provided that the compensation is not less than two full months’ wages.
• For fixed-term employment contracts: The employee is entitled to compensation equivalent to the wages for the remaining period of the contract, provided that the compensation is not less than two full months’ wages.

For an employee who has been unjustly dismissed to be eligible for these rights, the following conditions must be met:

1. The dismissal must be unjust, meaning that the employer did not have any legitimate reason for terminating the employment.
2. There must be a valid employment contract between the employer and the employee, whether in written or electronic form. In the absence of a contract, proof of salary payment must be provided through any means, such as bank transfers or payment receipts.
3. The employee must not have left the job voluntarily without any action or decision from the employer.

Therefore, employees are strongly advised not to leave their jobs unless they receive a written dismissal notice from the employer, and not to rely solely on verbal notifications from a manager or the company owner.

Fourth: Termination of Employment by Resignation     

Resignation is one form of employment termination based on the employee’s desire to end the contract. It is a right guaranteed to employees by law, in accordance with the principle of freedom of will in terminating the contractual relationship. In this case, the employee ends the employment contract voluntarily by submitting a written request to the employer expressing their intention to leave the job.

According to Article 79 of the Saudi Labor Law, for a resignation to be valid, it must be submitted in writing, and it is required that the employee submit it in person or through a legal representative to ensure its authenticity.

It is noted that a resignation becomes effective upon the expiration of the statutory notice period stipulated in Article (75). However, the point of contention lies in the extent of the employer’s acceptance and its effect on the resignation.

However, in the case of a conditional resignation—that is, when an employee resigns due to abuse, mistreatment, or the employer’s violation of the contract terms—Article 81 grants the employee the right to leave work without prior notice while retaining all statutory rights. 

Fifth: Termination of Employment upon Reaching Retirement Age

Another reason for the termination of employment is the employee reaching the retirement age. According to Article 74 of the Labor Law, the retirement age for both male and female employees is 60 years. The retirement age may be lowered in cases of early retirement as stipulated in the work regulations.

If the employment contract is for a fixed term, and its duration extends beyond the retirement age, then in this case, the contract terminates upon the expiration of its term.

End-of-Service Gratuity

Article 84 of the Saudi Labor Law defines the end-of-service gratuity as a sum of money paid by the employer to the employee upon the termination of their service or the expiration of their employment contract, whether fixed-term or indefinite. This payment is based on specific criteria and conditions, calculated according to the employee’s last salary, as a token of appreciation for their efforts and as compensation for their period of service. It is considered a fundamental financial right of the employee, guaranteed by the Saudi Labor Law, and cannot be waived or forfeited under any agreement.

The gratuity is calculated according to the type of employment termination, with each case having its own specific rules and criteria, as follows:

1. In case of contract termination or lawful  termination by the employer :
   • Half a month’s salary for each year of service during the first five years.
   • A full month’s salary for each year of service thereafter.
2. In case of resignation:
   • If the service period is less than two years: No gratuity is due.
   • If the service period is from two to five years: One-third of the gratuity.
   • If the service period is from five to ten years: Two-thirds of the gratuity.
   • If the service period is more than ten years: The full gratuity.

Exception: Working women who terminate their contract within six months of marriage or three months of giving birth are entitled to the full gratuity, regardless of the length of service.

3. In case of unfair dismissal:
   • The employee is entitled to the full end-of-service gratuity as stipulated in Article 84, in addition to compensation for the unfair termination.
4. In case of death or disability:
   • The employee (or their heirs) is entitled to the full gratuity, regardless of the length of service.

Conclusion

In conclusion, after outlining and detailing the provisions governing the termination of employment under the Saudi Labor Law, it is essential to understand your rights clearly.
If you require further clarification, or if you are involved in a dispute and are uncertain about how to claim your rights, we in Mohammed Alkhliwi Law Firm can help you complete the procedures properly and lawfully, ensuring that you receive all your entitlements, including your end-of-service gratuity.

Disclaimer: The above content does not constitute legal advice, and the author of this article assumes no legal responsibility. For legal advice, please contact us.