Employment relationships in Saudi Arabia are governed by the Saudi Labor Law, which ensures fair treatment for both employees and employers. One of the most discussed provisions in this law is Article 77, which addresses termination of employment and the compensation owed when either party ends the contract without a legitimate reason. Understanding this article is essential for anyone working in the Kingdom or managing a business, as it sets clear guidelines for lawful termination and compensation.
What is Article 77 of the Saudi Labor Law?
Article 77 is a provision in the Saudi Labor Law that regulates how compensation is calculated when an employment contract is terminated without a valid reason. Its purpose is to protect the rights of both parties and prevent arbitrary termination by outlining a formula for fair compensation.
According to Article 77:
- If the employment contract is terminated by either party without a legitimate reason, the party who ends the contract must pay compensation to the other party.
- The compensation amount depends on whether the contract is fixed-term or indefinite.
This rule applies to employees in the private sector and is enforced by the Ministry of Human Resources and Social Development (MHRSD).
Compensation Under Article 77
1. For Fixed-Term Contracts
If the employment contract is for a specific period and is terminated without a valid reason before its end date:
- The affected party is entitled to compensation equal to the wages for the remaining period of the contract.
- For example, if an employee has six months left on a fixed-term contract and is dismissed without cause, they should receive six months’ salary as compensation.
2. For Indefinite-Term Contracts
If the contract has no specific end date, compensation is calculated as follows:
- 15 days’ wages for each year of service.
- The minimum compensation cannot be less than two months’ salary.
This rule ensures that employees are fairly compensated for their time and loyalty to the company, while giving employers flexibility when necessary.
Why Was Article 77 Controversial?
When Article 77 was introduced, it sparked significant debate. Critics argued that it made it easier for employers to dismiss workers by simply paying compensation, leading to potential job insecurity. On the other hand, businesses appreciated the clarity it brought to the termination process.
To address these concerns, subsequent amendments and related provisions were introduced to maintain balance and prevent abuse. Today, Article 77 works alongside other legal protections that safeguard employee rights, such as anti-discrimination laws and requirements for valid termination reasons.
Legal Conditions for Termination
Although Article 77 allows for compensation in cases of termination without cause, the law does not encourage employers to dismiss employees arbitrarily. Termination must still comply with the general principles of fairness and the regulations stated in other articles of the Saudi Labor Law, such as Article 80, which lists valid reasons for dismissal, including:
- Misconduct or serious violations.
- Repeated absences without justification.
- Breach of contract terms.
- Committing fraudulent acts or submitting false documents.
If an employer dismisses a worker based on these valid reasons, compensation under Article 77 does not apply.
How to Claim Compensation Under Article 77
If an employee believes they were terminated without a legitimate reason, they can take the following steps:
- File a Complaint with MHRSD
The Ministry of Human Resources and Social Development handles labor disputes. Employees can submit their complaint online or in person. - Attempt Amicable Settlement
The first step is a mediation process between the employee and employer to reach an agreement without court intervention. - Take Legal Action
If settlement fails, the case is referred to the Labor Court, which will review the evidence and issue a ruling based on the law.
Practical Tips for Employees and Employers
For Employees:
- Always keep a copy of your employment contract.
- Document all communications with your employer.
- Seek legal advice if you feel your termination was unlawful.
For Employers:
- Ensure that termination decisions are backed by valid reasons and proper documentation.
- Follow notice periods as required by the law.
- Calculate and pay compensation promptly to avoid legal disputes.
Frequently Asked Questions (FAQs)
Q1: Does Article 77 apply to probationary employees?
No, probationary employees are subject to different rules under the Saudi Labor Law.
Q2: Can an employer terminate an employee at any time by paying compensation under Article 77?
Yes, but this should not contradict other provisions of the law, such as discrimination or retaliation protections.
Q3: What happens if both parties agree to end the contract?
If both parties mutually agree to end the contract, Article 77 compensation rules do not apply.
Protect Your Rights Under Article 77 Today!
If you believe you were terminated without a valid reason, don’t wait. Check your eligibility for compensation now with SNDK’s AI-powered claim checker. Get a clear estimate of what you’re owed and start your claim quickly and securely.
➡ Try SNDK Claim Checker Now