Mutual Termination

What mutual termination is

Mutual termination, also called termination by mutual agreement (إنهاء العقد بالتراضي), is the ending of an employment relationship by the agreement of both parties together. The relationship does not end through a decision that one of them takes alone, and it does not end because a stated term has run out. The ending comes from an agreement between the employer and the worker, and the document that records it can be called a mutual termination agreement.

In the Saudi Labor Law (نظام العمل), agreement is the first of the cases listed in Article 74 of the Labor Law in which an employment contract ends. The same Article lists, as separate cases, the expiry of the term stated in a contract unless the contract has been expressly renewed, and the ending of an indefinite contract by the will of one party under Article 75 of the Labor Law. Resignation, which Royal Decree M/44 added to that list as item 3 bis, is a separate case as well.

So mutual termination stands as a distinct case in Article 74 of the Labor Law, alongside the endings that come from one party acting alone and the ending that comes from the expiry of a term.

The written consent that marks a mutual termination

What makes an ending a mutual termination, rather than a disguised termination, is that the worker’s consent is in writing. Article 74 of the Labor Law attaches this condition to the case expressly: the contract ends where the two parties agree to end it, provided that the worker’s consent is in writing.

An oral agreement does not meet the condition, and neither does consent inferred from the worker’s silence.

The writing is therefore not an administrative step added for good order. It is the feature that distinguishes this case from the other ways in which an employment contract ends.

Why parties turn to mutual termination

Mutual termination can be chosen in situations such as these:

• When both parties want an ending on a date that suits them, rather than on a date that a notice period imposes.
• When continuing serves neither party, and neither has an interest in a longer path to the same end.
• When the parties want an organised transition: an orderly handover, an agreed period and terms stated openly.

The notice period in the first situation is set by Article 75 of the Labor Law for an indefinite contract that one party ends for a legitimate reason. How fixed term and indefinite term contracts differ is explained in our guide to fixed term and indefinite term contracts.

What a mutual termination agreement should state

A mutual termination agreement records what the two parties have agreed about the ending. The document should state:

• The date on which the relationship ends, written out expressly.
• The entitlements that have been agreed, and how each of them was calculated. Paying what is owed to the worker when service ends is explained under settlement of entitlements.
• The handover arrangements, together with the exit clearance (إخلاء الطرف).
• Any obligations that remain after the ending, if there are any, with the period for which each one lasts.

What a mutual termination agreement cannot waive

Agreement settles how the relationship ends and when. It is not a tool for setting aside what the Labor Law grants the worker. Whatever the parties agree is measured against the Labor Law, and a term that contradicts its provisions has no effect, even when it has been signed.

The provision behind this is Article 8 of the Labor Law, which makes void any term that contradicts the provisions of the Labor Law. Article 8 of the Labor Law also makes void any release or settlement of the rights that arise for the worker under the Labor Law, where the release or settlement is made while the employment contract is in force, unless it is more favourable to the worker.

That is why the entitlements are written into a mutual termination agreement item by item rather than as a single lump sum. Set out in detail, they make it clear what each amount was paid for.

How mutual termination differs from resignation

Resignation is a decision taken by the worker alone, with a route, rules and an employer’s response that are specific to it. Mutual termination is an agreement between the two parties from the outset. Confusing the two is more than a matter of wording: each is a separate case among the endings of a contract in Article 74 of the Labor Law.

The route of resignation is set by Article 79 bis of the Labor Law, which Royal Decree M/44 added, and it is covered in our guide to resignation under Article 79 bis of the Labor Law. Agreement is listed in Article 74 of the Labor Law as a different case, so the steps set for resignation are not transferred to a mutual termination by analogy.

The definition of mutual termination sets out the difference between the two cases, not the procedure for carrying either one out. The steps for completing a mutual termination through the Qiwa platform (قوى) have their own sources.

Statutory references for mutual termination

The statutory statements above rest on the Saudi Labor Law as published by the Ministry of Human Resources and Social Development: Article 8 (the voidness of a term that contradicts the Labor Law, and of a release or settlement of the worker’s statutory rights made while the contract is in force unless it is more favourable to the worker), Article 74 (the cases in which an employment contract ends, including agreement with the worker’s written consent), Article 75 (written notice for an indefinite contract ended by one party for a legitimate reason) and Article 79 bis (resignation). Royal Decree M/44 of 1446H, in force since 19 February 2025, amended Articles 74 and 75 of the Labor Law and added Article 79 bis to it.

This is an explanation of the concept and of the statutory provisions cited, not legal advice.

Related terms

• Exit Interview
• Employee File
• Settlement of Entitlements
• Layoff
• End of Service Calculation