Saudi Labor Law Termination of Contract | Employment Contract KSA
In this article, we will explain the main points that you need to know about Saudi labor law on termination.
Article 37 of Saudi Labor Law
Article 37 of the Saudi Labor Law states that an employment contract with an expatriate worker must be for a fixed term, not exceeding the duration of the work permit issued by the Ministry of Labor. This means that expatriate workers cannot have indefinite contracts in Saudi Arabia. However, this is different from the Saudi nationals who can choose between fixed-term or indefinite contracts.
Fixed Term Contract
A fixed-term contract is an employment contract that specifies the start and end dates of the employment relationship, as well as the rights and obligations of both parties. It can be renewed by mutual agreement of the employer and the employee, unless the contract states otherwise. However, if the contract came to renovation for two consecutive terms. Or, instead, if the original term exceeds three years, the contract becomes an indefinite for Saudi nationals only.
The Saudi labor law termination of contract in the case of a fixed-term one depends on whether it was completed or not. If the contract came to an end, then it automatically terminates without any notice or compensation. However, if the contract did not come to conclusion, meaning that one party wants to terminates before expiration date. Then, the termination must rely on a valid reason and with a written notice to the other party.
Renewal of a fixed-term contract
A fixed-term contract came into renovation with the agreement of both parties. Unless the contract prohibits renewal. The renewal can be explicit or implicit. An explicit renewal is when both parties sign a new contract or amend the existing one. An implicit renewal is when both parties continue working after the expiry of the contract without any changes.
If a fixed-term contract is redone more than three times, or if the total period of renewal exceeds four years, the contract becomes an indefinite contract. This means that either party can terminate it for a valid reason. However, this happens if the notice period of 60 days for monthly-paid workers and 30 days for others.
Resignation / Termination
The valid reasons for terminating a fixed-term contract appear in Article 77 of the Saudi Labor Law. Which means the employer did one of the following things:
- Committing a fault resulting in a substantial loss for the employer.
- Repeatedly disobeying the instructions related to the work or safety rules.
- Being absent from work without a valid reason for more than 30 days in one year or 15 consecutive days.
- Committing an act that violates the honor or honesty or assaults his employer or any of his superiors.
- The worker starts under probation and ends up being incompetent for the work.
- Making false statements or documents to obtain the work.
- Revealing any secrets in relation to his employer’s business.
- Committing a crime involving moral turpitude or dishonesty.
- Performing their work negligently or indolently.
- Suffering from a chronic disease or an occupational injury that prevents him from performing his work.
Nonetheless, there are some Saudi labor law termination benefits for employees even if they have committed some of the faults stated.
If one of these reasons applies, then the party who wants to terminate the contract must give a written notice to the other party. It must occur at least 30 days before the termination date if the worker has a monthly salary. The notice must state the reason for Saudi labor law termination of contract and correspondent evidence.
However, if none of these reasons applies, then the party who wants to terminate the contract must pay compensation to the other party equal to half of the wage for each remaining month of the contract. The compensation should not be less than two months’ wages for the worker. Saudi labor law termination of contract by employee is also valid if the employer breaks some of the rules too.
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.
Indefinite Contract
An indefinite contract is a contract that does not have a specific end date or task. According to Article 74 of Saudi Labor Law, an indefinite contract can only terminate for a valid reason. A valid reason is one that relates to the worker’s performance, conduct, or the employer’s operational needs.
Either party can terminate an indefinite contract by giving a notice to the other party at least 60 days before the termination date. This for employers with a monthly salary and 30 days for others. The notice must state the reason for the Saudi labor law termination of contract date.
The party who terminates an indefinite contract without a valid reason must pay compensation to the other party. The compensation is equal to 15 days’ wages for each year of service, or two months’ wages, whichever is more.
Renewal of an Indefinite Contract
An indefinite contract is a contract that has no specific duration or end date. It can terminate by either party for a valid reason. A valid reason, according to Article 77, could be poor performance, misconduct, dishonesty, or breach of contract.
An indefinite contract can terminate in the following cases:
- Agreement of both parties in writing. For example, a resignation letter accepted by the employer.
- Giving a written notice to the other party at least 60 days before the Saudi labor law termination of contract date. If the employee has a monthly salary, or at least 30 days for others.
- Reaching the retirement age, unless the parties agree to continue working. The retirement age for men is 60 years and for women is 55 years.
- By force majeure, such as natural disasters, wars, or pandemics. However, this clause did not come to implementation for six months during the coronavirus pandemic.
- Shutting down the establishment entirely or ending the activity that the employee was working for.
If the party who terminates the contract does not observe the notice period, they must pay the other party an amount equal to the wage for that period. However, it can be different if they agree to more than that. If the contract terminates by one of the parties for an unlawful reason, the affected party has a right to compensation as follows:
- The wage of 15 days for each year of service, if it is less than two months.
- Two months of wage, if it is more than two months.
Termination/Resignation
Saudi labor law termination of contract and resignation states different factors on this subject. A renewed indefinite contract is an indefinite contract that has been redone at least once after its original creation.
A new indefinite contract can come to termination by either party at any time, without giving any reason. However, the party terminating the contract must give the other a notice at least 90 days before the termination date. If it is not done like that, paying a compensation equivalent to 90 days’ wages will be necessary. Termination of contract Saudi labor law states the following:
The party who terminates the contract must also pay the end-of-service benefits to the other party. Unless the termination in Saudi labor law of contract is due to a breach of contract by the other party.
Conclusion
Saudi labor law for termination of contract KSA provides different rules for different types of employment contracts. It is important for both employers and employees to understand their rights and obligations when it comes to terminating their contracts. If you have any questions or concerns about your employment contract in Saudi Arabia, you should consult a legal expert or contact your local labor office.
