The KSA ensure that all provisions of the rights and obligations that arise upon the termination of the employment contract are applied to promote a fair work environment. As part of Saudi Vision 2030's goal to build a robust and sustainable economy, The Kingdom is committed to implementing strict legal provisions to ensure a fair and balanced work environment. Saudi Arabia focuses on implementing the best legal and regulatory practices to ensure justice and transparency in the relationship between employees and employers. To this end, the Kingdom has established a comprehensive legal framework that clearly defines the rules for terminating employment contracts, while providing adequate legal protection for employees to ensure they receive their financial entitlements, alongside safeguarding the interests of employers. This balance enhances contractual relationships between the parties. In this article, we will delve into the rights and obligations associated with terminating employment contracts in detail, and we will review the rules that ensure justice and protect the rights of all parties in light of the latest amendments to the Saudi Labor Law, starting with the circumstances of terminating an employment contract and moving on to the various rights and obligations arising from such termination according to the latest amendments to the labor law.

Termination of Employment Contracts in Saudi Arabia

To understand the rights and obligations stipulated in the system upon termination of an employment contract, it is essential to first identify the circumstances under which an employment contract is terminated in Saudi Arabia. An employment contract in Saudi Arabia terminates in any of the following cases:

• If both parties (the employee and the employer) agree to terminate the contract, provided that the worker’s consent be in writing.
• If the specified term of the contract expires, unless the contract has been explicitly renewed in accordance with the provisions of the Labor Law, in which case it shall remain in force until the expiry of its term.
• At the discretion of either party in indefinite-term contracts.
• Resignation
• Upon reaching the retirement age as stipulated in the provisions of the Social Insurance System, unless the parties agree otherwise to continue employment beyond this age.
• Force Majeure.
• Permanent closure of the establishment
• Issuance of a final court order or judgment terminating an employee's contract in any bankruptcy proceedings initiated in accordance with the Bankruptcy Law.
• Termination of the activity in which the employee is engaged, unless otherwise agreed.

Rights and Obligations upon Termination of Contract of Employment in Saudi Arabia:

Terminating Employment contracts are subject to a broad range of rights and obligations that shall be adhered to as outlined in labor law, they are as follows:

Notice period upon termination of employment contract

Where the contract is of indefinite duration, and the remuneration is paid monthly, either party may terminate it for a licit cause, as follows:

• In the event of termination by the employee, the employer shall be given at least thirty days' prior written notice.
• In the event of termination by the employer, the employer shall be given at least sixty days' prior written notice.

If the contract is of indefinite term and the remuneration is not paid monthly, either party wishing to terminate the contract for a just cause shall give at least thirty days' prior written notice to the other party.

If a party terminates an indefinite-term contract without giving the required notice period, they shall be liable to pay the other party an amount equivalent to the employee's remuneration for the notice period, unless otherwise agreed by the parties.

If the notice is given by the employer, the employee shall be entitled to be absent from work for one full day per week or eight hours per week during the notice period in order to seek alternative employment. The employee shall be entitled to their full pay for such absences. The employee shall inform the employer of the day or hours of absence at least one day in advance. The employer may also exempt the employee from work during the notice period, in which case the employee's service shall be deemed to continue until the expiry of the notice period. The employer shall remain liable for all obligations arising therefrom, particularly the employee's entitlement to remuneration for the notice period.

It shall be noted that an employment contract in Saudi Arabia is not terminated upon the death of the employer, unless the employer's personality was specifically considered when the contract was concluded. However, the contract shall terminate upon the death of the employee or their incapacity to perform their work, as evidenced by a medical certificate issued by an authorized health authority or a physician appointed by the employer.

Compensation for illegal termination

Unless the contract stipulates a specific compensation for termination by either party for an illegal reason, the party suffering from the termination shall be entitled to compensation as follows:

• Fifteen days' wages for each year of service shall be paid to the employee if the contract is of indefinite duration.
• Wages for the remaining period of the contract if the contract is for a fixed term.
• The compensation referred to in paragraphs (1) and (2) above shall not be less than two months' wages of the employee.

End of Service Gratuity

Upon termination of employment in Saudi Arabia, the employer shall pay the employee an end-of-service gratuity calculated on the basis of half a month's basic salary for each of the first five years of service, and one month's basic salary for each subsequent year. The last basic salary shall be used for the calculation, and the employee shall be entitled to a proportional gratuity for any part of a year worked.

Furthermore, regarding the end-of-service gratuity, it is important to note that the employer may not terminate the employment contract without paying the gratuity, providing notice, or providing compensation, except in the following cases, provided that the employee is given the opportunity to present reasons for opposing the termination.

• If an employee commits an act of aggression against the employer, the manager in charge, or any of their superiors or subordinates during work hours or as a result of their work.
• If an employee fails to fulfill their essential obligations under the employment contract, or fails to obey lawful orders, or intentionally disregards the employer's clearly posted safety instructions for the workplace and employees, despite a written warning.
• If it is proven that the employee has engaged in misconduct or committed an act that is dishonest or immoral, this constitutes a serious breach of the employment contract.
• If an employee intentionally commits any act or omission with the intent to cause financial harm to the employer, provided that the employer reports the incident to the relevant authorities within twenty-four hours of becoming aware of it.
• If it is proven that the employee resorted to forgery to obtain the job.
• If the employee is on a probationary period.
• If an employee is absent without a valid reason for more than thirty days in a contractual year or more than fifteen consecutive days, the employer may terminate the employment contract, provided that the employee has been given a written warning after twenty days of absence in the first case and ten days of continuous absence in the second case.
• If it is proven that the employee has abused their position for personal gain or to achieve personal objectives.
• If it is proven that the employee has disclosed confidential business or trade secrets.

If the employment relationship is terminated due to the employee's resignation, the employee shall be entitled to one-third of the end-of-service gratuity if their service period is not less than two consecutive years and not more than five years. The employee shall be entitled to two-thirds of the gratuity if their service period exceeds five consecutive years but does not reach ten years. The employee shall be entitled to the full gratuity if their service period reaches ten years or more.

Resigning without notice

On the other hand, an employee has the right to resign without notice while retaining all their statutory rights in any of the following circumstances:

• If the employer fails to fulfill their substantial contractual or statutory obligations to the employee:
• If it is proven that the employer or their representative has misled the employee regarding the terms and conditions of employment during the hiring process
• If the employer assigns the employee, without their consent, to work that is substantially different from the agreed-upon job
• If the employer, a member of the employer's family, or a responsible manager commits an act of violence or engages in misconduct towards the employee or a member of their family
• If the employer or the responsible manager treats the employee with cruelty, oppression, or insult
• If there is a serious risk to the employee's health or safety at the workplace, and the employer is aware of this risk but has failed to take adequate steps to eliminate it
• In the event that the employer or their agent has, by their conduct, especially through unfair treatment or a breach of the contract, compelled the employee to seemingly resign

Non-disclosure and non-compete clause

The employee shall also be aware that if the work assigned to him allows him to know the employer's clients, the employer may, in order to protect his legitimate interests, stipulate that the employee shall not compete with him after the termination of the contract. For the validity of this condition, it shall be written and specific as to time, place, and type of work, and its duration shall not exceed two years from the date of termination of the relationship between the parties. If the work assigned to the employee allows him to access the employer's trade secrets, the employer may, in order to protect his legitimate interests, stipulate that the employee shall not disclose his secrets after the termination of the contract. For the validity of this condition, it shall be written and specific as to time, place, and type of work. The employer has one year from the date of discovering the employee's violation of any of these obligations to file a lawsuit.

In conclusion, Saudi Arabia has demonstrated a strong commitment to ensuring that both employees and employers are aware of their rights and obligations upon termination of employment contracts. This contributes to a stable work environment and fosters trust among all parties. Through clear legislation and effective legal mechanisms, the Kingdom aims to achieve a balance between the rights of employees and the responsibilities of employers, aligning with Saudi Vision 2030's goal of building a prosperous and sustainable economy. Moreover, understanding the rights and duties is not merely a legal obligation, but also a fundamental element in achieving job stability in the Saudi labor market.

What makes us reliable?

Legal services related to employment contracts and labor disputes are crucial for protecting the rights of both employers and employees. Therefore, Dr. Fahad Alrefaei & Partners Consulting & Law Firm provides a comprehensive range of legal services related to employment contracts in Saudi Arabia. These legal services cover several aspects, including:

• Preparing clear and comprehensive employment contracts that cover the rights and obligations of both employers and employees.
• Reviewing employment contracts to ensure compliance with Saudi regulations and to safeguard the rights of both parties.
• Providing legal advice on resolving disputes between employers and employees.
• Representing parties in negotiations to reach an amicable settlement.
• Representing parties before the labor court.
• Providing legal advice on the termination of employment contracts, whether initiated by the employee or the employer.
• Ensuring that the termination process complies with Saudi regulations to avoid unjustified compensation claims.

For legal advice on employee rights and obligations upon termination of employment, please do not hesitate to contact Dr.Fahad Alrefaei & Partners Consulting & Law Firm at 920012753 or via [email protected]
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