Saudi Labor Law: Renewal, resignation and termination of contract

There are two kinds of contracts as per Saudi Labor Law and the rules related to renewal, resignation, and termination vary depending upon the type of contract. 

Article 37 of Saudi Labor Law

Keep in mind that a contract with a Non-Saudi employee will always remain a fixed-term contract as per Article 37 of Saudi Labor Law.

• Expatriate Employees = Fixed Term Contract.
• Saudi Employees = Fixed-term + indefinite contract.

Fixed Term Contract

Every employee signs a fixed-term contract with his employer in Saudi Arabia.

Renewal of a fixed-term contract

If there is a renewal clause in the fixed-term contract, the contract will be renewed for the time period mentioned in the contract as per Article 55 (2) of Saudi Labor Law.

If there is no renewal clause in the fixed-term contract in Saudi Arabia;

• Non-Saudis: The contract will be renewed to the date of the Iqama expiry for expatriate employees as per Article 37 of Saudi Labor Law.
• Saudis: If the employer does not terminate a Saudi employee, the contract will be renewed and become an indefinite contract.

Resignation/Termination

1. An employee can resign or the employer can terminate a worker at the end of a fixed-term contract as specified under Article 74 of Saudi Labor Law by giving a sufficient notice period.
2. If any party of the contract wants to terminate the fixed-term contract before its completion, they will have to compensate the aggrieved party under Article 77 of Saudi Labor Law.

Indefinite Contract

Renewal of an Indefinite contract

For Saudi employees, a fixed-term contract becomes an indefinite contract under the following 2 conditions;

1. If there is no renewal clause in the fixed-term contract and the employer does not terminate the employee at the contract completion, it will become an indefinite contract in Saudi Arabia.
2. A fixed-term contract becomes an indefinite contract after 3 consecutive renewals, or after 4 years of service as per article 55 (2) of Saudi Labor Law.

Termination/Resignation

• The resignation or termination of an indefinite contract can be made with a 60-day notice period under Article 75 of Saudi Labor Law.
• If an employer terminates an indefinite contract, he will have to compensate the employee under Article 77 of Saudi Labor Law.
• Source: Saudi Labor Law