Introduction
If you run a business or work in Saudi Arabia, understanding how employment termination is regulated is essential.
The Saudi Labor Law outlines the rules, rights, and obligations for both employers and employees when ending an employment relationship.
In this article by Sandak, we simplify the main legal articles that govern employment termination — with practical examples for better understanding.
Article 55: Fixed-Term Contracts
A fixed-term contract automatically ends when its duration expires.
If both parties continue working after that, it is considered renewed or may become indefinite after 4 years of total duration (including renewals).
Example:
If an employee signs a 2-year contract that’s renewed twice and continues working afterward, the contract becomes indefinite.
Article 74: Conditions for Termination
Termination can occur in the following cases:
- By mutual agreement (with written consent from the employee).
- At the end of the fixed term.
- Upon reaching retirement age (60 years).
This ensures termination is fair, lawful, and free from coercion.
Article 75: Lawful Termination of Indefinite Contracts
Either party may terminate the contract for a valid reason, provided:
- A written notice is given 60 days in advance (for monthly-paid employees).
- Or 30 days for others.
This article prevents sudden or unfair dismissals and ensures a fair process.
Article 77: Compensation for Unlawful Termination
If termination occurs without a valid reason, the affected party is entitled to:
- 15 days’ wage per year of service (for indefinite contracts).
- Wages for the remaining duration (for fixed-term contracts).
- Compensation must not be less than two months’ salary.
Article 80: Valid Reasons for Immediate Termination
The employer may terminate employment without notice if the employee:
- Assaults the employer or a manager.
- Fails to fulfill essential duties.
- Deliberately ignores safety rules.
- Acts dishonestly or immorally.
- Intentionally causes financial loss.
- Falsifies documents to obtain the job.
- Is absent for 30+ days a year without excuse.
- Misuses position for personal gain or leaks company secrets.
The employee must still be given a chance to respond before termination.
Article 84: End-of-Service Benefits
Upon termination, employees are entitled to End-of-Service Benefits (EOSB) based on their last wage:
- Half a month’s pay for each of the first five years.
- One month’s pay for each additional year.
Example:
An employee who worked 8 years with a salary of SAR 6,000 is entitled to:
(5 × 3,000) + (3 × 6,000) = SAR 39,000 EOSB.
FAQs
Q1: Can an employer terminate an employee without notice?
Yes, only under Article 80 conditions.
Q2: What is the official retirement age?
60 years for both men and women.
Q3: What if the contract is terminated early without cause?
The employee is entitled to compensation under Article 77.
Q4: Can overtime payment be converted into leave?
Yes, if the employee agrees in writing.
Summary
Understanding the Saudi Labor Law helps both parties avoid disputes and protect their rights.
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