Saudi Labor Law – Unfair termination, compensation and details

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In case of an unfair contract termination, both the employee and the employer are entitled to compensation, as explained in Article 77 of the Saudi Labor Law. Royal Decree No. (M / 46) dated 06/6/1436H amended Article 77 of the SLL.

Contracting Compensation Clause

Article 77 will not apply if there is a provision in the employment contract that specifically mentions compensation in the event of an unlawful termination of the contract. Instead, the contract clause will apply.

77th Article

According to Article 77 (1) of Saudi Labor Law, if one party terminates an indefinite contract for an invalid reason, the aggrieved party (employee or employer) will be paid 15 days’ salary for each year of service.

  • Expect to be paid: 15 days’ salary for every year of service.
  • Contract termination is a valid reason.
  • Only Saudi employees are eligible for indefinite contracts.

77th Article

Article 77 (2) of Saudi Labor Law states that if a fixed-term contract is terminated without a valid reason, the aggrieved party is entitled to pay the salaries for the remaining period of the contract.

  • Compensation: Full salary for the remainder of the contract period.
  • Contract termination under Saudi Labor Law is a valid reason.
  • Every expat in Saudi Arabia has a fixed-term contract.
  • If an employee resigns before the end of his contract, he must compensate the employer by paying the salary for the remainder of the contract period, and vice versa.
  • Only Saudi employees are eligible for indefinite contracts.

Example 1

An expat signed a one-year contract with a company in January 2020.
The employer terminated the contract without cause in July 2020.
According to Article 77 (2) of the Saudi Labor Law, the employee is entitled to 5 months’ full salary.
Only Saudi employees are eligible for indefinite contracts.

Example 2

In January 2020, an expat signed a one-year contract with a company that did not include an automatic renewal clause.
According to Saudi Labor Law, the employee’s contract is automatically extended until the Iqama expiry date in January 2021.
Iqama’s expiration date is September 2021.

In April 2021, the employee was fired for no apparent reason.
According to Article 77, the employee is entitled to 5 months’ full salary.

77th Article
The compensation paid under Article 77 of the Saudi Labor Law cannot be less than two months’ salary.

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