Termination of Employment Contract: A Comprehensive Legal Guide to Understanding Rights and Obligations under Saudi Law

Termination of Employment Contract - sada law

The termination of employment contract marks a pivotal phase in the contractual relationship between employer and employee. In Saudi Arabia, such decisions must align with clear legal standards that maintain a fair balance between both parties. With different contract types and reasons for termination, any lack of legal understanding can result in lost rights or violations.

This comprehensive guide will help you understand all aspects of termination of employment contract within the Saudi labor system, including lawful and unlawful terminations, statutory compensation, the difference between termination, resignation, and contract cancellation, and legal remedies in case of disputes. Awareness of these elements helps both employees and employers avoid legal pitfalls.

1. Types of Employment Contracts and Their Impact on Termination

1.1 Fixed-Term Contracts

Fixed-term contracts expire automatically at the end of the agreed duration unless renewed explicitly or implicitly. However, premature termination of employment contract by either party requires compensation to the other, usually equivalent to the remaining salary.

Employers often believe such contracts offer flexibility, but Saudi labor law imposes strict conditions. Any termination of employment contract must be justified by a lawful reason and supported by documentation.

1.2 Indefinite Contracts

Indefinite contracts are the most common and allow both parties to terminate with prior notice. Still, termination of employment contract must be justified per Article 77 of the Saudi Labor Law, such as low performance or breach of internal policy.

There must be a distinction between legitimate and arbitrary termination. Many labor disputes stem from misjudging how to terminate an employment contract lawfully.

2. Special Cases That Require Attention

2.1 During the Probation Period

Probation allows both sides to assess suitability. During this time, termination of employment contract may occur without notice or compensation, if clearly stated in the contract. Misunderstanding this clause often confuses.

2.2 After Implicit Renewal

If a contract is renewed multiple times, the law may consider it indefinite. Thus, termination of employment contract must then follow rules applicable to indefinite contracts.

2.3 Voluntary Termination by Employee

Employees may terminate the contract voluntarily with notice. Some contracts may impose penalties for early termination of employment contract, particularly if the employer invested in training. Saudi law strikes a balance between employee freedom and contractual responsibility.

2.4 Repeated Absenteeism

Absenteeism is a frequent reason for termination of employment contract. However, the employer must issue written warnings and document absences. Proper attendance records are essential legal proof.

3. Lawful Grounds for Termination by Employer

An employer may lawfully proceed with termination of employment contract when serious misconduct occurs:

  • Disclosure of confidential information
  • Fraud or forgery
  • Physical or verbal assault
  • Major negligence resulting in loss
  • Committing a crime affecting honor

However, the law requires an internal investigation and an opportunity for the employee to respond. Skipping these steps may turn a lawful termination of employment contract into an unlawful one, leading to compensation claims.

4. Compensation After Termination

4.1 In Unlawful Termination

If termination of employment contract is unjustified or violates legal procedure, the harmed party may claim:

  • Two months’ salary for each service year
  • End-of-service benefits
  • Pay for unserved notice period
  • Moral damages in select cases

Each case is evaluated individually, based on the nature of the contract and the cause of termination of employment contract.

4.2 End-of-Service Benefits

Even in the lawful termination of employment contract, employees with over two years of service are entitled to end-of-service pay. It’s calculated based on basic salary and years served, with percentages varying by reason for termination.

5. Recommended Procedures for Termination

For Both Parties:

  • Issue formal notice
  • Document reasons and internal investigations
  • Settle dues accurately
  • Provide experience certificate
  • Update official platforms like GOSI and “Qiwa”

For Terminated Employees:

  • Request the reason for termination
  • Review entitlements thoroughly
  • Obtain copies of contracts and documents
  • Seek immediate legal advice if termination of employment contract seems unfair

6. When Is Termination Considered Arbitrary?

Termination of employment contract is deemed arbitrary if:

  • No legitimate reason is given
  • Procedures were skipped
  • Termination followed a labor complaint
  • It happened during leave or medical absence

Intent is irrelevant; what matters is process and justification.

7. Termination vs. Resignation vs. Cancellation

TypeInitiated ByConsequences
ResignationEmployeeRequires notice period
CancellationEither partyUsually immediate
TerminationEither partyMust follow legal procedures

Correct classification is essential, especially when claiming compensation or defending actions in labor court.

8. Practical Legal Advice

  • Never sign termination documents without full review
  • Keep performance records
  • Have any settlement reviewed by a legal expert
  • Ensure termination notices are formally signed
  • File grievances if termination of employment contract appears unlawful

Conclusion: Ending a Contract is a New Beginning if Done Right

Proper termination of employment contract is in everyone’s interest. Done right, it secures the rights of both parties and avoids legal conflict. Ignorance or abuse, however, can lead to serious liability.

If you’re involved in a termination of employment contract, don’t leave your rights vulnerable. Seek timely legal consultation.

Why Sada Legal Consultancy is Your Trusted Partner in Employment Termination Cases

When navigating sensitive matters like termination of employment contract, expert legal support can make all the difference. Sada Law brings in-depth knowledge of Saudi labor law, with licensed attorneys specialized in employment disputes.

Whether you are an employer aiming to terminate legally or an employee seeking rightful compensation, Sada offers:

  • Detailed contract analysis
  • Specialized legal advice
  • Drafting legal complaints and court memos
  • Representation before labor courts and committees

At Sada, true empowerment comes from legal clarity. Let us help you protect your rights through expert support.

Contact us today for a personalized consultation.

FAQs:

1. Can an employer terminate an indefinite contract without cause?

No. A valid reason like misconduct or poor performance must be proven; otherwise, it’s considered arbitrary termination of employment contract.

2. What is the notice period for terminating a contract?

For indefinite contracts, notice must be given 60 days in advance for monthly-paid employees and 30 days for others. Failure to comply requires payment of the notice period as compensation.

3. Can a salary delay justify contract termination by employee?

Yes. If salary is delayed over 60 days, the employee may proceed with lawful termination of employment contract without notice and still claim full rights.

4. Do rights differ during probation?

Yes. Contracts may allow termination of employment contract without notice or pay. If not stated, regular termination rules apply.

5. What financial rights exist upon termination?

  • End-of-service pay
  • Unused leave compensation
  • Notice pay
  • Damages of unlawful termination

6. What is the difference between resignation and termination?

Resignation is employee-initiated. Termination of employment contract can be employer-driven and must follow legal steps.

7. Can termination decisions be challenged in court?

Yes. Either party may file a claim with the labor court within 21 days of termination of employment contract.