Substitute Contract

What a substitute contract means

A substitute contract, also called a replacement contract (العقد البديل), is an employment contract concluded to take the place of an earlier contract between the same two parties, whether it is signed when existing terms are amended or when the parties contract again after a term has ended.

The label describes the function the contract performs. It is not a fifth type of contract. The types of contract and their approved models are one matter, and the fact that a contract takes the place of an earlier one is another.

Supersession is built into the models a substitute contract uses

Article 52 of the Saudi Labor Law (نظام العمل), as amended by Royal Decree M/44, provides for a unified model for each type of employment contract, and Article 18 of the Implementing Regulation (اللائحة التنفيذية) adopts those models in its Annex 5. The models carry a clause stating that the contract supersedes all earlier agreements and contracts between the parties, oral or written, if any. In the temporary or casual, seasonal and part time models that clause is marked mandatory, but the permanent model carries the same sentence, without that mark, in its clause on the applicable law.

Supersession is therefore not wording that the parties add by choice. In every model it sits in the clause on the applicable law, which subjects the contract to the Labor Law and the Implementing Regulation.

A substitute contract uses one of four approved models

The models adopted by Article 18 of the Implementing Regulation in its annex are four, not one: the permanent employment contract, the casual or temporary employment contract, the seasonal employment contract and the part time employment contract. Each carries a separate set of mandatory clauses. The seasonal model, for example, includes a clause marked mandatory in the Hajj season that requires medical insurance cover for all seasonal workers for the duration of their presence.

Choosing the designation when a substitute contract is drafted is choosing a particular model with its mandatory clauses, not writing a name in a heading. Anyone who moves the clauses of one model under another designation leaves out mandatory clauses of the model they actually chose.

A further boundary applies here. The work regulation is not where the term of the contract, its renewal or the effect of either on the worker’s rights is decided. Article 13 of the Labor Law allows the work regulation to add conditions that do not conflict with the law, and Article 67 of the Labor Law confines disciplinary penalties to those set in the Labor Law or in the work regulation. The term and its renewal are governed by Articles 55 and 56 of the Labor Law.

The particulars of a substitute contract under Article 52 of the Labor Law

Article 52 of the Labor Law, subject to Article 37 of the Labor Law, sets a unified model for each type of contract containing as a minimum nine particulars: the employer’s name and place; the worker’s name and nationality; what is needed to establish the worker’s identity; the worker’s address of residence; the agreed wage, including benefits and allowances; the type and place of work; the date of joining; the term of the contract, if it is fixed term; and the basic rights and obligations of each party.

Under Article 52 of the Labor Law the contract must follow that model, and the parties may add further clauses provided they do not conflict with the Labor Law, the Implementing Regulation and the decisions issued under it. Two of the nine are easy to miss in an internal template: the fourth, the worker’s address of residence, and the ninth, the basic rights and obligations of each party, which was added by Royal Decree M/44.

What Articles 55 and 56 of the Labor Law count for a substitute contract

Under Article 55 of the Labor Law a fixed term contract ends when its term expires, and if both parties continue to perform it, it becomes a contract for an indefinite term, subject to Article 37 of the Labor Law for workers who are not Saudi. Where the contract contains a renewal clause, Article 55 of the Labor Law provides that it renews for the agreed term, and that once the renewals reach three consecutive times, or the original term together with the renewals reaches four years, whichever is the shorter, and the parties continue, the contract converts into one for an indefinite term.

“Whichever is the shorter” means that the limit reached first is not the same in every case, and the length of the original term decides which one it is:

• An original term of six months. Three renewals bring the total to 6 × 4 = 24 months, which is under four years, so the limit on the number of renewals is the shorter and is reached first.
• An original term of twelve months. Three renewals bring the total to 12 × 4 = 48 months, which is exactly four years, so both limits are reached at the same point.
• An original term of eighteen months. The original term is 18 months, the first renewal takes the total to 36 and the second to 54 months. The four year mark of 48 months therefore falls within the second renewal, before three renewals are complete, so the four year limit is the shorter here and is reached first.

Article 56 of the Labor Law treats every renewal period as a continuation of the original period when the worker’s rights that depend on length of service are calculated. Neither article makes its count depend on whether a fresh document is signed: Article 55 of the Labor Law counts renewals and the total term, and Article 56 of the Labor Law counts every renewal period towards the rights that depend on length of service. In the sources we reviewed, we found no provision under which signing a new document restarts either the count towards conversion or the count of service.

The conversion rules, worked through renewal by renewal, have their own sources, covered in our guide to fixed term and indefinite term contracts. Where an organisation uses a first period before a permanent hire, the same limits are worked through under temp to hire.

What a substitute contract does not do

Practical errors can arise here, because signing a new document can be taken as a fresh start. Each point below rests on a statutory text:

1. It does not restart service. Continuous service, as defined in Article 2 of the Labor Law, is the worker’s uninterrupted service with the same employer or their legal successor, counted from the date service began, and Article 56 of the Labor Law counts each renewal period as a continuation of the original period for rights that depend on length of service. A qualification applies where the earlier contract ended and a gap passed before the parties contracted again. In the sources we reviewed, we found no provision that settles whether service runs across that gap.
2. It does not reset the term of a worker who is not Saudi to the work permit. Article 37 of the Labor Law requires the contract of a worker who is not Saudi to be written and for a fixed term. If the contract does not state a term, Article 37 of the Labor Law makes the term one year from the date on which the worker actually starts work, and if work continues after that, the contract is deemed renewed for a like period. This is the riskiest point to survive in an old template: before 19 February 2025 the default term was the duration of the work permit, and a template that still says so today states a superseded rule.
3. It does not carry a new probation period without conditions. Article 53 of the Labor Law, as amended by Royal Decree M/44, applies probation only where the contract states it expressly and specifies its duration, caps the total at 180 days in all cases, and allows either party to end the contract during it. The former allowance for a contract to give the right to end it to only one of the parties has been removed, so it has no place in a template. Article 19 of the Implementing Regulation leaves the Eid al Fitr and Eid al Adha holidays, the National Day holiday, the Founding Day holiday and sick leave out of the count. Article 54 of the Labor Law bars placing a worker on probation more than once with the same employer, unless both parties agree in writing and the new probation is for another profession or job, or at least six months have passed since the earlier relationship with that employer ended.
4. It does not cancel a right that arose before it. Article 8 of the Labor Law makes void any term that contradicts the Labor Law, and also any release or settlement of the worker’s rights under it given during the life of the employment contract, unless it is more favourable to the worker.
5. It does not change the nature of the work without consent. Article 60 of the Labor Law bars assigning the worker work that is materially different from the agreed work without the worker’s written consent, except in cases of necessity arising from exceptional circumstances, and for no more than 30 days a year.

A substitute contract still has to be documented

Article 51 of the Labor Law requires the contract to be written in two copies, one for each party, and requires it to be documented in accordance with the relevant statutory provisions and as the Implementing Regulation specifies. A contract that takes the place of an earlier one is subject to that duty like any other. The written contract and its required particulars are covered in our guide to writing and attesting the Saudi employment contract.

The practical consequence is that a new document signed only inside the organisation records what the two parties have agreed; it does not by itself change what is recorded about them outside the organisation. In the sources we reviewed, we found no text setting out how a contract documented on a platform is replaced there by another, the steps involved or what is required.

The language and calendar of a substitute contract

Every contract that takes the place of an earlier one settles again two questions that can pass unnoticed:

• Language. Article 9 of the Labor Law makes Arabic mandatory in employment contracts. Another language may be used alongside it, and where the two texts differ, the Arabic text alone governs.
• Calendar. Under Article 10 of the Labor Law, periods and dates are calculated on the Hijri calendar unless the employment contract or the work regulation provides otherwise. A contract that runs on the Gregorian calendar has to say so.

Who decides the effect of a substitute contract in a dispute

How a substitute contract affects the characterisation of the relationship in a dispute is decided by the labour courts, not by an internal template. In a labour dispute the Ministry of Human Resources and Social Development first handles amicable settlement, and where no settlement is reached the case is referred to the labour courts under the Ministry of Justice. The question whether a particular replacement document counts as a renewal for the purposes of Article 55 of the Labor Law falls within the same characterisation, so no internal template settles it either.

A substitute contract is also not the only way to amend a contract. The provisions we reviewed do not make it the sole form an amendment can take, so it cannot be said that every amendment requires a substitute contract. Where a worker sits in the scope of the Labor Law in the first place is covered under employment status.

The provisions relied on are those of the Saudi Labor Law as published by the Ministry of Human Resources and Social Development: Article 2 (continuous service), Article 8 (void terms and releases), Article 9 (language), Article 10 (calendar), Article 13 (the work regulation), Article 37 (the contracts of workers who are not Saudi), Article 51 (form and documentation), Article 52 (the unified model and its particulars), Article 53 (probation and its ceiling), Article 54 (repeating probation), Article 55 (the end of a fixed term contract and its conversion), Article 56 (renewal periods counted towards service), Article 60 (no material change of duties) and Article 67 (disciplinary penalties); together with Article 18 (the unified contract models) and Article 19 (the probation count) of the Implementing Regulation, issued by Ministerial Decision No. 115921 of 19/8/1446H. Royal Decree M/44 of 1446H, in force since 19 February 2025, amended Articles 37, 51, 52 and 53 of the Labor Law, and amended Article 2 of the Labor Law without changing its definition of continuous service. That decree did not amend Articles 54, 55 or 60 of the Labor Law.

Before a substitute contract is signed

The question to ask before drafting is what exactly is meant to change, and whether it is something the parties may change by agreement at all. A clause that conflicts with the law does not become valid because a new document is signed, and a valid clause does not need anything that arose before it to be cancelled in order to work.

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

Related terms

• Temp to Hire
• Employment Status
• Employee File
• Schedule of Violations and Penalties