Termination of Employment Contract in Saudi Arabia

1. Grounds for termination

The KSA Labour Law does not set out a list of reasons permitting an employer to terminate an employee’s employment, save that Article 80 of the KSA Labour Law sets out an exhaustive list of gross misconduct reasons for which an employer may terminate employment without notice or the payment of end of service gratuity. These include where the employee fails to perform essential work duties or obey orders and where the employee is absent from work without valid reason for more than 20 non-consecutive days or ten consecutive days in a year.

2. Dismissals

KSA Labor Law does not currently provide for the concept of redundancy. The KSA courts have recognized an employer’s right to reorganize its business and restructure resulting in the elimination of roles. However, a high burden of proof is applied and the employer’s business decision is scrutinized very closely. Proposed amendments to the KSA Labour Law appear to indicate that a company shutdown or the removal of an employee’s role could, in future, be treated as valid reasons for termination.

3. Severance payment

On termination of employment for any reason other than gross misconduct, an employee is entitled to an end of service gratuity, a form of severance pay calculated by reference to final salary and linked to length of service. In addition, an employee whose employment is terminated may make a claim to a Labour Committee claiming that the termination has been unfair (i.e. not for a valid reason) entitling him to compensation (calculated on a case-by-case basis and not, as the law currently stands, by reference to any statutory formula) and possibly reinstatement. There are no anti-discrimination provisions in the KSA Labour Law; however, the Labour Committee will scrutinise the reason for termination where this is challenged by an employee and it is possible that a discriminatory reason could be held to be invalid. A proposed amendment to the KSA Labour Law, is to set out a formula for calculating compensation for an unjustified termination of a fixed term and unlimited term contract. New civil and criminal procedure rules have also been approved in November 2013 and pursuant to these rules, labour disputes will now be dealt with by specialist Labour Courts and not committees.


For more information, please contact L&E Global.
This information was contributed by Abdulaziz A. Al-Bosaily Law Office in association with Clyde & Co.
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