Unfair Dismissal under the Saudi Labor Law and the Rights of Employees and Employers

Unfair dismissal occurs when an employer terminates an employee’s contract without a legitimate reason recognized by the Saudi Labor Law. The subject matters to private sector employees. It also matters to companies that want to end employment relationships without facing unexpected compensation claims.

In Brief

If the employer terminates the contract for an illegitimate reason, the employee is entitled to compensation determined by Article 77 of the Labor Law unless the contract provides for higher compensation. This compensation is separate from the end of service award and from any wages due. A claim can no longer be heard if it is not filed within the statutory period set for labor claims.

What Does Unfair Dismissal Mean under the Saudi Labor Law?

The Labor Law does not use the term unfair dismissal as such. It refers instead to termination of the contract for an illegitimate reason. In practice the meaning is the same. The employer ends the relationship without a justification the law recognizes or without following the procedures the law requires. The labor judge assesses whether the reason is legitimate by looking at the circumstances of each case and the documents submitted by both parties.

Common examples include terminating the contract because the employee claimed his rights or filed a complaint with the competent authorities. Another example is dismissal on the grounds of restructuring where the employer cannot prove that this need actually exists. What counts is the real reason and not the description the company writes in the termination letter.

When May an Employer Dismiss an Employee without Compensation?

Article 80 of the Labor Law sets out cases in which the employer may terminate the contract without an award, notice or compensation. These include assaulting the employer or the manager during work or because of it, and failing to perform the essential obligations of the contract after a written warning. They also include proven misconduct, committing an act that breaches honor and integrity, and absence without a legitimate reason for periods specified by the law.

The same Article requires the employer to give the employee an opportunity to state his reasons for objecting to the termination before the decision is made. If the company omits this step, a dismissal based on a valid reason may become unlawful before the court. Every disciplinary dismissal therefore needs a documented file that includes the warnings, the investigation and the employee’s statements.

How Is Compensation for Unlawful Dismissal Calculated?

Article 77 of the Labor Law provides that the party harmed by termination of the contract for an illegitimate reason is entitled to compensation. Where the parties specified an amount of compensation in the contract, that agreement takes priority. Where there is no agreement, the rules set out in the same Article apply.

Under an indefinite term contract the employee is entitled to fifteen days’ wages for each year of service. Under a fixed term contract the employee is entitled to the wages for the remaining period of the contract. In both cases the compensation may not be less than two months’ wages.

Can an Employer End an Indefinite Term Contract Whenever It Wishes?

Article 75 of the Labor Law allows either party to terminate an indefinite term contract on the basis of a legitimate reason. The reason must be stated in a written notice sent to the other party before termination within the period specified by the law. Recent amendments to the law have covered notice periods, so the period in force at the time of termination should be verified.

A fixed term contract ends when its term expires and neither party needs to give a reason. If the employer ends it early without a legitimate reason, it must pay the wages for the remaining period as explained above.

Can the Employee Receive Both Compensation and the End of Service Award?

Yes. Compensation for unlawful termination is a right separate from the end of service award governed by Article 84 of the Labor Law. The employee is also entitled to any unpaid wages and to payment for unused annual leave. The court calculates each claim separately based on the last wage and the actual length of service.

What Is the Time Limit for Filing a Labor Claim?

Article 222 of the Labor Law provides that a labor claim will not be heard after twelve months have passed from the end of the employment relationship. This period is relatively short and many employees miss it while negotiating with the employer. The process usually begins with a request for amicable settlement at the Ministry of Human Resources before the dispute is referred to the labor court.

Step	Period or Limit	Reference
Filing a labor claim	Twelve months from the end of the employment relationship	Article 222
Minimum compensation for unlawful termination	Two months’ wages	Article 77
Compensation under an indefinite term contract	Fifteen days’ wages for each year of service	Article 77
Notice of termination of an indefinite term contract	According to the text in force after the recent amendments	Article 75

How Can a Company Terminate an Employee’s Contract without Facing a Compensation Claim?

Protection starts with drafting the contract and the internal work regulations so that violations and penalties are clear and approved. Next comes ongoing documentation of performance and written warnings, with the employee signing to confirm receipt. When termination becomes necessary, the company should review the legal reason and the procedure followed before issuing the letter.

Termination by mutual agreement with a written settlement and release may cost less than a long dispute in court. The release must state clearly which rights it covers so that no later disagreement arises over its interpretation.

What to Do Now

If you are an employee who has received a dismissal letter, keep a copy of it along with your contract, your payslips and any correspondence with management. Do not sign a release or an acknowledgment that you have received all your rights before you are sure your entitlements have been calculated correctly. Count the statutory period for filing a claim from the date the relationship ended so that it does not expire while you negotiate.

If you are an employer, review the employee’s file before deciding to terminate and make sure there is a documented legitimate reason. Confirm that the employee was given an opportunity to respond to the alleged violation and that notice was given in writing within the period in force. Then calculate the likely cost of compensation and the end of service award and compare it with the option of an amicable settlement before proceeding.

Frequently Asked Questions

Is an Employee Entitled to Compensation if Dismissed during the Probation Period?

Article 53 of the Labor Law allows either party to terminate the contract during the probation period unless the contract gives this right to only one of them. In this case the employee is not entitled to compensation or to an end of service award. The probation period must be expressly stated in the contract.

Is Resignation under Pressure Considered Unfair Dismissal?

Article 81 of the Labor Law allows the employee to leave work without notice while keeping his rights in specific cases. These include the employer’s breach of its essential obligations or the employer committing fraud or assault against the employee. The employee needs to prove these facts because a written resignation is presumed to have been made of his own free will.

Can the Contract Provide for Higher Compensation than the Law Sets?

Yes. Article 77 gives priority to the compensation agreed by the parties for unlawful termination. The agreed amount may not be lower than the minimum set by the Article because the provisions of the law were made to protect the employee. Many senior employees use this clause to secure compensation that suits their positions.

Must the Dismissal Letter Be in Writing?

The law requires written notice when terminating an indefinite term contract for a legitimate reason. Writing is also the most important means of proving the date and reason of termination before the labor court. A company’s position is much weaker if it relies on verbal notice or an undocumented message.

The Employment and Workplace Relations team at Perfect Solution Lawyers and Consultants helps employees and employers assess termination decisions, calculate entitlements and negotiate settlements. You can book an appointment through the meeting request page to discuss your case with one of our lawyers.

This article is based on the Saudi Labor Law and its Implementing Regulations.

This article is for general awareness and does not constitute legal advice. You should consult a lawyer before taking any action.