Article 37 Rights of Employment: Company Formation Saudi Laws
In the article 37 rights of employment is an essential component of labor law in Saudi Arabia, especially with regard to employment contracts. This regulation establishes clear guidelines on how contracts should be handled, differentiating between Saudi and non-Saudi employees.
In this article, we will explore in detail article 37 labor law and how it affects labor contracts in Saudi Arabia. We will cover both fixed term and indefinite contracts, and we will handle renewals, resignations, and terminations in each case.
Fixed Term Contract
Fixed term contracts are a common practice in many countries, but in Saudi Arabia, they have unique characteristics. These contracts, for the most part, are intended for expatriate employees. Article 37 rights of employment states that any contract with a non-Saudi employee will, by default, be a fixed term contract. This distinction is essential to understanding how Saudi Arabia manages its expatriate workforce, ensuring that there is a clear time frame for their employment.
Every employee in Saudi Arabia signs a fixed-term contract with their employer. This type of contract is especially relevant for expatriate employees as, according to article 37 rights of employment, a contract with a non-Saudi employee will always be of this type. Employers and employees need to understand the specific details of these contracts to ensure they protect both parties and comply with the law.
- Nature of the Contract: In the article 37 labor law, the employment contract must be for a fixed term for a non-Saudi worker. If not specified, the work permit is the term of the contract. A contract is valid even if it is not in writing. In this case, only the worker can prove the contract and the rights resulting from it by all means of proof.
- Termination: Whether a fixed-term contract was completed or not determines its termination. If the contract comes to an end, then it terminates automatically without any notice or compensation. However, if the contract does not reach its conclusion, one of the parties wishes to terminate it before the expiration date. Then the termination must be based on a valid reason and with a written notice to the other party.
Renewal of a fixed-term contract
Renewal of fixed-term contracts is a process that reflects the dynamic nature of the Saudi labor market. With a sizeable expatriate population, it is vital to have a system that allows for flexibility, but also clarity. While the presence or absence of a renewal clause may determine automatic renewal. It is essential that both parties are aware of their rights and responsibilities. Renewal not only ensures continuity of employment, but also provides a structure that benefits both the employer and the employee.
The renewal of these contracts depends largely on whether or not there is a renewal clause. If the contract contains a renewal clause, it will automatically renew for the period of time specified in the contract, as stated in Article 55 of the Saudi Labor Law. However, if there is no renewal clause, the process will varies depending on the nationality of the employee:
- Non-Saudis: The contract will renew up to the Iqama’s expiration date, a crucial document for expatriate employees, as per article 37 of employment rights.
- Saudis: If the employer does not decide to terminate the contract with a Saudi employee at the end of the term. The contract will automatically renew and convert into an indefinite contract.
These renewals ensure continuity of employment and provide some stability for both the employer and the employee. It is crucial that both parties are aware of these regulations to avoid misunderstandings and ensure a harmonious working relationship.
Resignation/Termination in a fixed-term contract
Employers and employees must handle the resignation or termination of a fixed-term contract carefully to fulfill both parties’ rights and obligations. According to the article 37 rights of employment, there are specific procedures that must be followed:
An employee has the right to resign at the end of the contract period. Similarly, the employer has the power to terminate the contract at the end of the established term. In both scenarios, employers and employees must give an adequate notice period as Article 74 of the Saudi Labor Law specifies. This notice period ensures that both parties have sufficient time to make the necessary adjustments. Either by seeking new employment or hiring a new employee.
However, if either party wishes to terminate the contract before its end, the situation changes. In this case, the party initiating the early termination must compensate the other party. This compensation aims to address any inconvenience or loss due to the contract’s early termination. Article 77 of the Saudi Labor Law details the amount and conditions of this compensation.
It is essential that both employers and employees are aware of these details to ensure that any resignation or termination is handled fairly and in accordance with article 37 rights of employment.
Indefinite Contract
Indefinite contracts, although less common than fixed-term expatriate contracts, are an integral part of the Saudi labor system. These contracts offer greater job security and reflect a long-term commitment between employer and employee.
Unlike fixed-term contracts, open-ended contracts do not have a pre-set end date. These contracts offer greater flexibility and are common among Saudi employees. According to article 37 rights of employment, a fixed-term contract may be converted into an indefinite-term contract under certain conditions.
- Stipulations for Contracts: According to Saudi Labor Law, it is imperative that employment agreements are documented in written form. When looking at the process, it is mandatory for employees who are not from GCC nations to have these written contracts to secure their visas. Such agreements should adhere to the format provided by the Ministry of Human Resources and Social Development (often referred to as HRSD or simply, the Ministry). Furthermore, both the employer and employee can include extra terms. As long as they do not conflict with the Labor Law’s guidelines.
Renewal of a permanent contract
Although it may seem contradictory to speak of “renewal” in the context of an indefinite-term contract. In practice, this refers to how a fixed-term contract can be transformed into an indefinite-term contract. This transformation is a sign of the commitment of article 37 rights of employment to ensure the stability and protection of Saudi employees.
The renewal of an indefinite-term contract in Saudi Arabia has its own particularities. Although, by definition, these contracts do not have a specific end date. There are circumstances under which a fixed-term contract can be transformed into a permanent contract:
- Without a renewal clause: If a fixed-term contract does not have a renewal clause and the employer does not decide to terminate the contract at the end of the established period, it automatically becomes an indefinite contract. This transformation guarantees the Saudi employee’s continuity of employment and provides greater job security.
- After consecutive renewals: A fixed-term contract may also be converted to a permanent contract after three consecutive renewals. Alternatively, if an employee has been in service for four years with renewals, his contract will be considered indefinite. These conditions are stipulated in the saudi Labor Law.
These transformations from fixed-term contracts to open-ended contracts reflect the commitment of article 37 rights of employment. Ensuring job stability and protect the rights of Saudi employees.
Termination/Resignation of an open-ended contract
Termination of an indefinite-term contract is a process that requires careful consideration. Since there is no pre-set termination date, both parties must be especially aware of their rights and responsibilities. The protection of employees is a priority in article 37 rights of employment. And this is reflected in the regulations related to the termination of indefinite contracts.
The termination or resignation of an indefinite contract also has its own regulations. Since there is no pre-set termination date. It is essential that both parties, employer and employee, handle the situation with care and respect:
- Notice Period: Whether an employee decides to resign or an employer chooses to terminate the contract. It is necessary to provide a 60-day notice period, as stated in Article 75 of the Saudi Labor Law. This period ensures that both parties have time to adjust to the new situation.
- Compensation: If an employer decides to terminate an indefinite contract without a justified reason, it must compensate the employee. This compensation is an additional protection for employees and ensures that they are not dismissed without a valid reason and without adequate compensation.
Article 37 rights of employment is a fundamental piece of Saudi Arabia’s labor law framework. Whether you are considering working in Saudi Arabia or simply want to better understand the country’s labor laws. It is essential to familiarize yourself with this article and its implications.
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