A termination of contract is not lawful simply because a termination letter has been issued. Its effect depends on the contract type, the reason relied upon, any compensation clause, notice requirements, and the evidence available to each party. Where termination is for an illegitimate reason, compensation may arise separately from notice pay, end-of-service benefits, and other accrued rights. Both parties should therefore assess the termination under Saudi law before calculating a claim or signing a settlement.
When Is Termination of Contract Considered to Be Without a Legitimate Reason in Saudi Arabia?
- Termination is unlawful where a party ends employment without a valid statutory or contractual basis. An indefinite-term contract requires a legitimate reason, while a fixed-term contract generally continues until expiry unless a valid ground allows an earlier end.
- If Article 80 is relied upon, the facts must match a statutory ground and the worker must be given an opportunity to object.
The Difference Between Lawful and Unlawful Termination of Contract
Lawful termination of contract rests on a recognized legal or contractual ground and follows the applicable requirements. Unlawful termination occurs where that basis is missing.
Notice is a separate issue. A justified termination may still create notice pay, while an illegitimate reason may trigger Article 77 compensation. Employer-given notice also gives the worker paid time to seek alternative employment.
Rules Governing Termination of Contract Before the End of Its Term
Early termination is important for a fixed-term contract because the remaining period affects compensation where the termination is illegitimate and no compensation is specified.
For an indefinite-term contract, the employer must give written notice of at least 60 days where wages are paid monthly and 30 days otherwise. Mutual termination differs from unilateral termination because the worker’s consent must be in writing.
Take a peek at this article: What Are the Companies” Regulations and Their Role in Enhancing Legal Compliance?
When Is a Worker Entitled to Compensation for Termination of Contract?
- Article 77 entitles the party prejudiced by termination of contract for an illegitimate reason to compensation unless the contract already specifies the amount payable for that type of termination.
- The compensation clause should therefore be checked first. Article 77 compensation is separate from notice pay, end-of-service benefits, unpaid wages, and accrued leave.
How Is Compensation for Termination of Contract Without a Legitimate Reason Calculated?
If the contract does not specify compensation, Article 77 provides:
| Contract Type | Compensation |
| Indefinite-term | 15 days’ wages for each year of service |
| Fixed-term | Wages for the remaining contract period |
| Minimum | Two months’ wages |
If the contract contains a specific compensation clause for termination for an illegitimate reason, that clause should be reviewed before the statutory formula is applied.
How Does the Type of Employment Contract Affect Compensation?
- Contract type directly affects the calculation. For an indefinite-term contract, compensation is linked to years of service. For a fixed-term contract, it is linked to the remaining period.
- A fixed-term contract should also be distinguished from a contract for specific work, which ends when the agreed work is completed. Correct classification must come before calculation.
Termination of Contract Without Notice and Its Effect on the Worker’s Rights
- Notice rules principally apply to indefinite-term contracts. If the required notice period is not observed, Article 76 requires payment equal to the worker’s wage for the unserved period, unless the parties agree otherwise.
- Notice pay is distinct from Article 77 compensation, and both may arise where their requirements are met.
Burden of Proof in a Dispute Over the Legitimacy of Termination
The burden of proof does not automatically rest with one party. The claimant proves the asserted right, while the defendant may rebut it.
The worker usually proves the employment relationship, termination, and claimed rights. If the employer relies on misconduct or Article 80, supporting records become critical, including warnings, investigations, attendance records, or other required evidence.
If Article 80 is invoked, descriptions such as “serious misconduct” are not enough by themselves. The conduct must correspond to a statutory ground and be supported by the evidence required for that ground, including a written warning where the Law requires one.
What Can Be Claimed in Addition to Compensation for Termination?
Depending on the case, a worker may also claim:
- Salary due up to the end of employment.
- Notice pay.
- End-of-service benefits.
- Payment for accrued unused annual leave.
- Earned commissions, allowances, or contractual amounts.
- Article 77 compensation where applicable.
How Does the Labor Court Assess Claims for Compensation Following Termination?
Calling a dismissal “arbitrary” does not establish liability. The Labor Court considers the contract, its type, the actual termination reason, the evidence, any compensation clause, and the applicable statutory provisions.
If the employer invokes a ground permitting dismissal without notice or compensation, the facts and statutory conditions must be established. Labor disputes normally pass first through MHRSD’s Friendly Settlement process.
Documents That May Establish That a Termination Was Unlawful
Relevant documents include:
- The employment contract and amendments.
- The termination notice or decision.
- Emails and related communications.
- Warnings and investigation records.
- Performance, payroll, and attendance records.
- Documents showing that the stated reason differs from the actual reason.
Statutory Time Limit for Bringing a Termination-Related Claim
- As a general rule, a claim arising under Saudi labor law or an employment contract is not admissible after 12 months from the date the employment relationship ended.
- Exceptions apply where the court accepts an excuse or the defendant acknowledges the right. This period should not be confused with the 21-working-day Friendly Settlement timeframe.
How Can a Worker Protect Their Rights After an Unlawful Termination?
- The worker should secure the employment contract, termination decision, and supporting documents and avoid signing a final release before understanding its effect.
- Claims should then be separated into Article 77 compensation, notice pay, unpaid wages, accrued leave, and end-of-service benefits.
Related article to read: Labor Law Violations and Penalties Regulations 2026: The Complete Guide to Avoiding Ministry of Human Resources Penalties.
The Lawyer’s Role in Pursuing Compensation for Unlawful Termination
- Legal review should begin with classification, not calculation. The dispute may concern an illegitimate reason, failure to observe notice, Article 80, a contractual compensation clause, or several issues together.
- Counsel can then review the evidence, calculate each entitlement, prepare the Friendly Settlement claim, and frame the case for the Labor Court if needed.
In a nutshell, a termination dispute requires review of the contract type, reason, notice, compensation provisions, and evidence. Article 77 compensation should be assessed separately from other accrued rights. Sadalaw Legal Consultancy assists workers and employers with termination disputes, settlement, and labor court proceedings under Saudi labor law.
Contact Sadalaw to assess your termination case and identify the compensation and employment rights you may claim.
FAQs About Compensation for Termination of Contract Without a Legitimate Reason
The clause is reviewed first because Article 77 supplies the statutory formula only where the contract does not already specify compensation.
Article 77 concerns termination for an illegitimate reason. Notice pay concerns failure to observe the required notice period.
If no specific compensation clause applies, the starting point is wages for the remaining term, subject to the two-month minimum.
It depends on the ground and may include warnings, investigations, attendance data, performance records, or correspondence.
The dispute normally begins through MHRSD’s Friendly Settlement service before proceeding to the Labor Court if no settlement is reached.
