Article 77 of Saudi Labor Law – Unfair termination

In case of unfair termination of the contract, both the employee and the employer are entitled to some compensation which is explained in Article 77 of Saudi Labor Law. Article 77 of SLL was amended by Royal Decree No. (M / 46) dated 06/6/1436H.

Compensation Clause in the contract

If there is a provision in the employment contract that specifically mentions the compensation in case of unlawful termination of the contract, Article 77 will not apply. Instead, the clause in the contract will apply.

Article 77 (1)

If one party terminates an indefinite contract for an invalid reason, the aggrieved party (employee or employer) will be paid 15 days’ salary for each year of service as per Article 77 (1) of Saudi Labor Law.

• Compensation: 15 days’ salary for each year of service.
• Valid reason: Article 74 of Saudi Labor Law.
• Only Saudi employees can have an indefinite contract.

Article 77 (2)

In case of termination of a fixed-term contract without a valid reason, the aggrieved party is entitled to pay the salaries for the remaining period of the contract as per Article 77 (2) of Saudi Labor Law.

• Compensation: Full salaries for the remaining period of the contract.
• Valid reason: Article 74 of Saudi Labor Law.
• All expats working in Saudi Arabia have a fixed-term contract.
• If an employee resigns without finishing his contract, he will also have to compensate the employer by paying the salary for the remaining period of the contract and vice versa.

Example 1

• Jan 2020: An expat signed a one-year contract with a company.
• July 2020: The employer terminated the contract without a valid reason.
• The employee has a right to get 5 months full salary as per Article 77 (2) of Saudi Labor Law.

Example 2

• Jan 2020: An expat signed a one-year contract with a company with a clause to automatically renew it for one year.
• Jan 2021: The contract is automatically renewed for one more year.
• Oct 2021: The employer terminated the worker without a valid reason.
• The employee has a right to get 3 months’ full salary as per Article 77 (2) of Saudi Labor Law.

Example 3

• Jan 2020: An expat signed a one-year contract with a company without an automatic renewal clause.
• Jan 2021: The contract of the employee is automatically extended up to the Iqama expiry date as per Article 37 of Saudi Labor Law.
• Iqama Expiry Date: September 2021.
• April 2021: The employer terminated the employee without a valid reason.
• The employee has a right to get 5 months’ full salary as per Article 77 (2).

Article 77 (3)

The compensation paid under Article 77 of Saudi Labor Law must not be less than 2 months’ salary of the employee.

FAQs

Can an employer deduct Iqama Fee and Insurance cost after Resignation?

• As per Article 40 (1) of the Saudi Labor Law, it is the responsibility of the employer to pay for the iqama renewal of iqama issuance fee.
• As per Article 144 of the Saudi Labor Law, it is the responsibility of the employer to provide health care and insurance to each employee.

Therefore, the employer can deduct neither the iqama fee nor the health insurance cost from the salary after the resignation. All the deductions which an employer can make from your salary are covered in these two articles;

• Salary Deduction Rules in Saudi Labor Law.
• Article 77 of Saudi Labor Law (explained above).

Labor Court Cases under Article 77

There have been several cases where the labor court issues a decision in the favor of an employee to get the full compensation as per Article 77 of Saudi Labor Law. We have listed some of them below;

• Aug 2021: Saudi Hospital to pay SR 300,000 to a terminated doctor.