Penalty for Breaking Employment Contract in Saudi Arabia

by | Aug 8, 2023 | Leagel

August 8, 2023

In Saudi Arabia, employment contracts are bound by stringent regulations designed to protect the rights of employees and employers alike. Strict penalties, including the penalty for breaking an employment contract in Saudi Arabia, exist in cases of contract termination, underscoring its significance. Familiarizing all involved parties with these consequences is of paramount importance. This blog post aims to delve into the penalties associated with contract termination as defined by the Saudi Labor Law. By doing so, we aim to offer a clear understanding of the rights and responsibilities vested in both employees and employers within this legal framework.

Notice Period and Compensation

The Ministry of Human Resources and Social Development mandates that employees must provide a notice period of at least 60 days in advance if the contract is unlimited and wages are paid monthly. Similarly, if the employee does not receive monthly wages, the notice period is reduced to 30 days. Failure to comply with these notice periods can result in material compensation equal to the wages for the notice period.

Termination for Legitimate Reasons

Terminating a contract for legitimate reasons must follow the notice period mentioned above. If either party fails to comply with the notice period, the affected party is entitled to receive material compensation equal to the wages during the notice period.

Termination for Unlawful Reasons

If a contract is terminated for an unlawful reason and does not include specific compensation, the penalties differ based on the type and duration of the contract.

Unlimited Contract: The employee is entitled to material compensation equal to 15 days of wages for each year of service, provided the compensation is not less than two months of wages.

Fixed-Term Contract: The employee is entitled to material compensation equivalent to the wages for the remaining period of the contract, ensuring the compensation is not less than two months of wages.

Read more: The Personal Data Protection Law, Saudi Arabia

Understanding Fixed-Term Contracts:

Article 55 of the Saudi Labor Law defines fixed-term contracts as contracts with a specific end date. If the contract continues after the end date, it becomes indefinite. If the contract includes a clause for renewal, it will be renewed for the agreed-upon period. After three consecutive renewals or four years (whichever is less), the contract becomes indefinite.

Conditions for Termination – Article 74:

Article 74 outlines various cases in which a work contract may be terminated, such as mutual agreement, contract expiration, and retirement age attainment. Written consent is essential for mutual agreement terminations to protect workers’ rights.

Termination of Indefinite-Term Contracts – Article 75:

Article 75 governs the termination process for indefinite-term contracts. It allows either party to terminate the contract for a valid reason. Written notice of at least 60 days (30 days for non-monthly wage employees) must be provided.

Compensation for Invalid Termination – Article 77:

Article 77 stipulates that an employee harmed by an invalid termination is entitled to compensation, as specified in the law. The compensation amount depends on the type of contract and the circumstances of the termination.

Grounds for Termination – Article 80:

Article 80 lists nine valid reasons for an employer to terminate an employment contract without providing notice or compensation. These reasons are designed to protect the employer’s interests and ensure proper conduct within the workplace.

End-of-Service Awards – Article 84:

Upon termination of employment, an end-of-service award is mandatory for the employer to pay. The amount is calculated based on the worker’s last wage and the years of service rendered.

Adhering to Saudi Arabia’s labor laws regarding contract termination is essential to avoid legal disputes and protect the rights of both employees and employers. Understanding the penalties for breaking employment contracts ensures fair treatment and promotes a transparent labor market. Whether you are an employee or an employer in Saudi Arabia, knowledge of these laws is crucial for a harmonious and legally compliant work environment.

Read more: Decoding Saudi Companies Law: Navigating Business Regulations

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