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Insights   >   Termination Of The Contractual Relationship Under Saudi Labour Law

Termination Of The Contractual Relationship Under Saudi Labour Law

Author: Albatul Alharthi, Daniyal Chishti
Feb 9, 2023
Employers • KSA

Are you an employer in Saudi Arabia? If so, it's essential to be aware of the laws and regulations governing the termination of a contractual relationship. Knowing how to handle employment contracts requires knowledge of local labour laws and international standards.

Read this blog to take a deep dive into the various article sections for terminating a contract as defined under Saudi Labour Law.

Article 55: Understanding Fixed-Term Contracts In Saudi Arabia

Regarding employment contracts in Saudi Arabia, it's essential to understand the different types of contracts available, including fixed-term ones. According to Article 55 of Saudi Labor Law, a fixed-term contract is a contract that has a specific end date. Once the term of the contract has expired, it will automatically terminate. However, if the two parties continue to implement the contract after the end date, it will be deemed renewed indefinitely. This is subject to the provisions of Article 37, which pertains to non-Saudi workers.

Additionally, suppose the fixed-term contract includes a clause that provides for its renewal for a similar or specified term. In that case, the contract will be renewed for the agreed-upon period. If the contract is renewed for three consecutive terms, or if the original contract term plus the renewal period equals four years (whichever is less), and the two parties continue to implement it, the contract becomes indefinite term.

It's vital for both employers and employees to understand the terms of a fixed-term contract and to be aware of the provisions of Article 55. This knowledge can help to avoid confusion and potential legal disputes in the future.

Understanding Article 74: The Termination Of Work Contracts Conditions In Saudi Arabia

In Saudi Arabia, the conditions for the termination of a work contract are regulated by Article 74 of the Labor Law. The article outlines several cases in which a work contract may be terminated, including the mutual agreement between the worker and the employer, the expiry of the term specified in the contract, and the attainment of retirement age for the worker. A critical aspect of Article 74 is the requirement for written consent from the worker if the contract is terminated by mutual agreement. This protects the rights of the worker and ensures that the termination is not forced or coerced.

Another significant aspect of Article 74 is the provisions regarding retirement age. The law states that the legal retirement age is 60 years for both males and females, but this may be reduced in some instances. If a fixed-term work contract extends beyond the retirement age, it will terminate at the end of its term.

Both workers and employers need to understand the provisions of Article 74 to effectively manage and terminate work contracts following the law. The article provides clear guidelines for the termination of work contracts in Saudi Arabia, protecting the rights of both parties and promoting a fair and transparent labour market.

Exploring Article 75 Of The Saudi Labor Law: The Right To Terminate

In the world of employment, the right to terminate a contract is a crucial aspect for both employees and employers. The Saudi Labor Law outlines the conditions under which a contract can be terminated, with the main focus being on the protection of workers' rights.

Article 75 of the Saudi Labor Law governs the termination of indefinite-term contracts. According to the article, either party may choose to terminate the contract for a valid reason. This reason must be specified in a written notice served to the other party at least 60 days before the termination date, provided the worker is paid monthly. The notice period is at least 30 days for those who are not paid monthly.

This article provides clear guidelines for the termination process, ensuring that workers are aware of their rights and employers are aware of their obligations. Providing a clear and concise approach protects workers from unjust termination and prevents any misunderstandings between employers and employees.

Article 77: Compensation For Invalid Termination Of Contract

According to Article 77 of the Saudi Labour Law, if a work contract is terminated for an invalid reason, the party harmed by the termination has the right to receive compensation.

In case the contract doesn’t include specific compensation, the party affected by termination shall be entitled to compensation as follows:

  1. For indefinite term contracts: an amount equivalent to a fifteen-day wage for each year of the worker’s employment.
  2. For fixed-term contracts: the wage for the remainder of the contract term.
  3. The compensation referred to in paragraphs (1) and (2) of this Article shall not be less than the worker’s wage for two months.

Both employers and employees need to be aware of the provisions of the labour law to avoid any disputes or conflicts. This article ensures that the rights of the affected party are protected in case of an invalid termination, and they can receive appropriate compensation.

Article 80: Grounds For Termination In Saudi Labour Law

This section explores the provisions laid out in Article 80 of the Saudi Labour Law. This article outlines the conditions under which an employer may terminate a contract without providing an award, advance notice, or compensation.

The nine valid reasons for termination of employment as per Article 80 of Saudi Labor Law are:

  1. Assaulting the employer, manager in charge, or superiors during work.
  2. Failure to perform essential obligations or obey legitimate orders.
  3. Deliberately failing to follow instructions related to work safety.
  4. Committing misconduct or an act infringing on honesty or integrity.
  5. Deliberately causing material loss to the employer.
  6. Resorting to forgery to obtain the job.
  7. Serving probationary period.
  8. Being absent without a valid reason for more than 30 days in a year or 15 consecutive days.
  9. Unlawfully taking advantage of the position for personal gain or disclosing work-related industrial or commercial secrets.

The article also outlines the process for termination, stating that the employer must give the worker a chance to state their objections. This protects workers, ensuring their rights are respected and upheld.

Article 84: End-Of-Service Awards In Saudi Arabia

In Saudi Arabia, labour laws dictate that the employer must pay an end-of-service award to the worker upon the termination of a worker's employment. The end-of-service award is calculated based on the worker's last wage and is meant to serve as compensation for the years of service provided to the company.

The worker is entitled to a half-month wage for the first five years of service as an end-of-service award. For each year of service beyond the first five years, the worker is entitled to an entire month's wage as an end-of-service award.

The end-of-service award is a significant benefit for workers in Saudi Arabia, providing them with compensation for their years of service and helping to ensure a smooth transition out of their employment.

Let TASC Streamline Your HR Recruitment And Payroll Process

While our regular updates will keep you up to date with the latest developments in Saudi Arabia's labour and payroll regulations, you can contact our GRO and payroll specialists for assistance in setting up fully compliant payroll and HR functions.

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