Navigating the complexities of employment termination in Saudi Arabia requires a thorough understanding of the Saudi Labor Law. Both employers and employees must be aware of their rights and obligations to ensure a lawful and smooth process. Compliance with the regulations regarding notice periods, severance pay, and valid grounds for dismissal is essential to avoid potential disputes and legal challenges.
The Saudi Labor Law provides a framework designed to protect employee rights while also outlining legitimate reasons and procedures for employers to terminate employment relationships. Understanding these provisions is critical for businesses operating in the Kingdom, particularly when managing a global workforce through entities like an Employer of Record.
Notice Period Requirements
The required notice period for terminating an employment contract in Saudi Arabia depends primarily on the type of contract and the employee's payment frequency. The law distinguishes between definite-term and indefinite-term contracts.
For indefinite-term contracts, the minimum notice period is stipulated by law. For definite-term contracts, termination before the contract's expiry without a valid cause specified in the law typically requires compensation rather than a notice period, unless the contract itself specifies a notice period for early termination.
| Contract Type | Payment Frequency | Minimum Notice Period |
|---|---|---|
| Indefinite-Term | Monthly Paid | 60 days |
| Indefinite-Term | Other Paid | 30 days |
| Definite-Term | N/A | As per contract or compensation for remaining term (unless termination is for cause) |
It is important to note that the employment contract or company policy may stipulate longer notice periods than the legal minimum, in which case the longer period applies. The notice must be provided in writing.
Severance Pay (End-of-Service Award)
Employees who have completed at least two years of service are generally entitled to an end-of-service award upon termination of their employment, unless the termination is for specific grave misconduct reasons outlined in the Labor Law. The calculation of this award is based on the employee's final basic wage plus housing allowance (or housing benefit).
The calculation formula is as follows:
- For the first 5 years of service: Half a month's wage for each year.
- For years exceeding 5 years: One full month's wage for each year.
The end-of-service award is calculated proportionally for fractions of a year. The employee is entitled to the full award upon contract expiry or termination by the employer without cause. If the employee resigns, the entitlement is prorated based on the length of service:
- Service between 2 and 5 years: One-third of the award.
- Service between 5 and 10 years: Two-thirds of the award.
- Service exceeding 10 years: Full award.
Employees resigning with less than two years of service are generally not entitled to an end-of-service award.
Grounds for Termination
The Saudi Labor Law specifies valid grounds for terminating an employment contract, distinguishing between termination with and without cause.
Termination Without Cause
Termination without cause typically occurs when the employer decides to end the employment relationship for reasons not related to employee misconduct or performance issues that constitute a valid cause under the law. In such cases, the employer must adhere to the required notice period and pay the full end-of-service award.
Termination With Cause
The Labor Law lists specific actions or omissions by an employee that constitute valid grounds for termination without notice and without the end-of-service award. These grounds are detailed in Article 80 of the Labor Law and include:
- Assaulting the employer, manager, or colleagues.
- Failure to perform fundamental obligations under the contract or labor law despite written warnings.
- Following instructions that result in serious damage to the employer, despite being warned of the consequences.
- Absence without valid reason for more than 20 non-consecutive days or more than 10 consecutive days in a year.
- Proving the employee obtained the job through fraud.
- Divulging industrial or commercial secrets.
- Committing an act contrary to morality or public integrity at work.
- Being under the influence of alcohol or narcotics during working hours.
- Using the employer's premises or resources for illegal purposes.
- Being absent from work without legitimate reason for more than 30 days in a year.
For termination with cause to be lawful, the employer must be able to prove the employee committed the act and must follow specific procedures.
Procedural Requirements for Lawful Termination
To ensure a termination is lawful, employers must adhere to specific procedural steps. Failure to follow these procedures, even if a valid ground for termination exists, can render the dismissal unlawful.
Key procedural requirements include:
- Written Notice: Providing the employee with written notice of termination, adhering to the required notice period for indefinite contracts or as specified in definite contracts.
- Statement of Cause (for termination with cause): Clearly stating the specific reason(s) for termination based on Article 80 of the Labor Law.
- Investigation (for termination with cause): Conducting a proper investigation into the alleged misconduct or performance issue.
- Opportunity to Respond (for termination with cause): Giving the employee an opportunity to respond to the allegations.
- Documentation: Maintaining thorough documentation of the reasons for termination, warnings issued (if applicable), investigation findings, and the termination notice itself.
- Payment of Dues: Paying all outstanding entitlements, including final salary, accrued leave pay, and the end-of-service award (if applicable), within the legally stipulated timeframe (typically one week for termination by employer, two weeks for resignation).
Common pitfalls include failing to provide written notice, miscalculating the end-of-service award, or terminating for cause without sufficient evidence or without following the correct disciplinary process.
Employee Protections Against Wrongful Dismissal
The Saudi Labor Law provides significant protections against arbitrary or wrongful dismissal. An employee who believes they have been unfairly terminated can file a complaint with the Ministry of Human Resources and Social Development (MHRSD) and subsequently with the Labor Court.
A dismissal may be deemed wrongful if:
- It occurs without a valid reason specified in the Labor Law.
- The employer fails to follow the correct procedural requirements (e.g., not providing notice, not conducting an investigation for cause).
- It is based on discriminatory grounds.
If the Labor Court finds the dismissal to be wrongful, the employer may be ordered to reinstate the employee or, more commonly, pay compensation. The compensation for wrongful dismissal is typically calculated based on the employee's wage and length of service, in addition to the end-of-service award and other entitlements. For indefinite contracts, compensation is usually at least two months' wages for every year of service. For definite contracts, it is compensation equivalent to the wage for the remainder of the contract term.
Understanding and complying with these regulations is crucial for employers to manage their workforce effectively and legally in Saudi Arabia.
