Unlawful Termination Compensation

What unlawful termination compensation is

Unlawful termination compensation (التعويض عن الإنهاء غير المشروع) is a sum of money due to the injured party when an employment contract is ended for a reason that is not legitimate. Its source is Article 77 of the Saudi Labor Law (نظام العمل). The article speaks of the injured party, which can be either party to the contract.

Article 77 of the Labor Law applies unless the contract itself fixes a sum for that case. Where it applies, it sets three measures: for a contract of indefinite duration, the wage for 15 days for each year of the worker’s service; for a fixed term contract, the wage for the remaining period of the contract; and in both cases a floor of not less than two months’ wage. How those measures sit beside notice and pay in lieu of notice is set out in our guide to the notice period and terminating an employment contract.

The amount, though, is the last question in this area. The question that comes before it is when the entitlement arises at all, and that is the question on which the definition turns.

Unlawful termination compensation turns on a characterisation Article 77 of the Labor Law does not make

Article 77 of the Labor Law prices an event. It states what is paid if a contract is ended for a reason that is not legitimate, but it does not define a legitimate reason and does not list one. Whether a termination was unlawful is therefore a condition that must be met before the article applies, not a result that can be drawn out of it.

In the articles we reviewed, what the text settles on this point comes to three things. Article 75 of the Labor Law requires that ending a contract of indefinite duration rest on a legitimate reason. Article 80 of the Labor Law lists nine cases in which the employer may rescind the contract without an award, notice or compensation. Beyond those, we found no provision in the articles we reviewed that lists the legitimate reasons for ending a contract. Assessing a particular case falls to the labour courts, after the amicable settlement stage, and not to a glossary definition.

Article 80 of the Labor Law: the cases with no unlawful termination compensation, and their condition

Article 80 of the Labor Law opens with a prohibition, not a permission. The employer may not rescind the contract without an award, notice or compensation except in the cases it lists, and only on condition that the worker is given the opportunity to state their objections to the rescission. That condition sits inside the article. Quoting the cases without it turns a qualified prohibition into a plain permission, which misstates the article. The cases are:

1. An assault by the worker on the employer, the responsible manager, a superior or a subordinate, during the work or because of it.
2. A failure to perform the essential obligations arising from the contract, or to obey lawful orders, or a deliberate disregard of the workplace safety instructions that the employer has posted in a visible place, despite a written warning.
3. Proven bad conduct, or an act offending honour or honesty.
4. A deliberate act or omission by the worker intended to cause the employer material loss, provided the employer notifies the competent authorities of the incident within 24 hours of learning of it.
5. Proof that the worker resorted to forgery to obtain the job.
6. The worker is appointed on probation.
7. Absence without a legitimate reason for more than 30 days in one contract year, or for more than 15 consecutive days, provided the dismissal is preceded by a written warning from the employer after 20 days of absence in the first case and 10 days in the second.
8. Proof that the worker exploited their position unlawfully to obtain personal gain.
9. Proof that the worker disclosed the industrial or commercial secrets of the work.

Three of these cases depend on a step the employer must take: the written warning in the second, the notification to the competent authorities within 24 hours in the fourth, and the written warning after 20 or 10 days of absence in the seventh. The last two of those steps also carry a time limit. Each step is written into the case as a condition, so where it was not taken, the case as the article describes it is not made out, even when the underlying facts are proven. The full text of both articles, with their conditions, is examined in our guide to Articles 80 and 81 of the Labor Law.

Unlawful termination compensation and the worker’s exit under Article 81 of the Labor Law

Article 80 of the Labor Law has a counterpart that runs the other way. Article 81 of the Labor Law allows the worker to leave the work without notice while retaining all their statutory rights in any of seven cases:

1. The employer fails to meet its essential contractual or statutory obligations toward the worker.
2. Proof that the employer or its representative deceived the worker at the time of contracting as to the terms and conditions of the work.
3. The employer assigns the worker, without their consent, work materially different from the agreed work, contrary to Article 60 of the Labor Law.
4. An assault marked by violence, or conduct offending public decency, by the employer, a member of the employer’s family or the responsible manager, against the worker or a member of the worker’s family.
5. Treatment by the employer or the responsible manager marked by cruelty, injustice or insult.
6. A grave danger at the workplace threatening the worker’s safety or health, provided the employer knew of it and took no step indicating its removal.
7. The employer or its representative, by its conduct and in particular by unjust treatment or by breaching the terms of the contract, drove the worker into appearing to be the party that ended the contract.

The seventh case bears directly on unlawful termination compensation. It addresses the situation in which the form of the event is a resignation but its substance is the worker being pushed into one. Looking at the resignation letter alone means missing the event this case describes. A worker who leaves under Article 81 of the Labor Law is also not treated as having made a plain resignation when the reduction in Article 85 of the Labor Law is applied to the end of service award, a calculation covered under end of service calculation.

Ways a contract ends that do not give rise to unlawful termination compensation

Article 74 of the Labor Law lists the ways an employment contract ends: agreement of the parties to end it; expiry of the stated term unless the contract has been expressly renewed; the will of one party in a contract of indefinite duration under Article 75 of the Labor Law; resignation; the worker reaching retirement age under the Social Insurance Law, unless the parties agree to continue; force majeure; permanent closure of the establishment; the end of the activity in which the worker works, unless otherwise agreed; a decision, or a final judgment, of the competent court ending the worker’s contract in bankruptcy proceedings opened under the Bankruptcy Law; and any other case that another law provides for. The endings below are taken from that list or are bounded by it:

1. Expiry of a fixed term contract. Article 74(2) of the Labor Law makes the end of the stated term a ground on which the contract ends, unless it has been expressly renewed. The contract runs out; nobody terminates it. How a fixed term contract differs from one of indefinite duration is covered in our guide to fixed term and indefinite contracts.
2. Termination during probation. Article 53 of the Labor Law allows either party to end the contract during the probation period, and Article 54 of the Labor Law provides that where the contract is ended during that period, neither party is entitled to compensation, and the worker accrues no end of service award for it.
3. The cases in Article 80 of the Labor Law, where one of them is present and its condition has been met, that condition being that the worker was given the opportunity to state objections to the rescission. As set out above, the condition is part of the article.
4. Resignation under Article 79 bis of the Labor Law. The contract ends when the resignation is accepted, when 30 days pass with no reply from the employer, or when a deferral of acceptance expires. The worker may withdraw it within seven days of submitting it, unless the employer has accepted it first. The full procedure is in our guide to resignation under Article 79 bis of the Labor Law.
5. Agreement to end the contract under Article 74(1) of the Labor Law, on condition that the worker’s consent is in writing. Oral consent does not establish this ending.

The list describes ways a contract ends, not defences raised after the event. An employer who ends a contract first and then looks for a label to put on the ending is working in the wrong direction.

Unlawful termination compensation and the notice period are separate entitlements

The notice period in Article 75 of the Labor Law applies only to a contract of indefinite duration ended for a legitimate reason, and since the amendment made by Royal Decree M/44 it differs between the two parties. Where the wage is paid monthly, the notice is at least 30 days when the worker ends the contract and at least 60 days when the employer does. Where the wage is not paid monthly, it is at least 30 days from either party. A fixed term contract has no notice period under that article. It ends when its term expires, and ending it before then without a legitimate reason calls for unlawful termination compensation under Article 77 of the Labor Law, not for a notice period. A template that still prints 60 days for both parties places a heavier obligation on the worker than the law now in force does.

A third rule in the notice period can be overlooked. Where the employer gave the notice, Article 78 of the Labor Law entitles the worker to be absent for one full day a week, or eight hours during the week, to look for other work, with pay. The worker chooses the day or the hours, on condition of telling the employer at least one day beforehand.

The notice period is a period of time, not compensation. What is paid for failing to observe it is a separate entitlement under Article 76 of the Labor Law: a sum equal to the worker’s wage for the notice period, unless the parties agreed on more. That sum is a separate item from unlawful termination compensation under Article 77 of the Labor Law: the first turns on the notice that was not observed, the second on the reason for ending the contract. Whether both are due in a particular case falls to the labour courts. The entry on layoff keeps the two apart in the same way.

A contract clause on unlawful termination compensation is examined alongside Article 8 of the Labor Law

Article 77 of the Labor Law applies unless the contract fixes another sum. Article 8 of the Labor Law provides that any term contradicting the Labor Law is void, and so is any release or settlement of the rights arising to the worker under it during the life of the employment contract, unless it is more favourable to the worker.

A figure written into a contract therefore does not take the clause outside that test. Whether a particular clause stands is a question for the competent authority, not one an internal template can decide.

Who decides whether a termination gives rise to unlawful termination compensation

Whether a particular termination was lawful or unlawful is the characterisation that comes before unlawful termination compensation, and it falls to the labour courts. In the articles we reviewed, we found no provision that lists the legitimate reasons for ending a contract outside the cases in Article 80 of the Labor Law.

• The lawfulness of a particular termination. It is a characterisation of the facts, and it falls to the labour courts. A worker’s claim goes first to the amicable settlement service, and from there to the court where no settlement is reached, as our guide to amicable settlement and the labour court describes.
• The amount of the compensation. It is set by Article 77 of the Labor Law: the wage for 15 days for each year of service under a contract of indefinite duration, the wage for the remaining period under a fixed term contract, and not less than two months’ wage in either case.

Before a termination decision that may carry unlawful termination compensation

The question that comes before every calculation is this: under which way of ending a contract does the case fall, and what in the file proves it. The amount is the last thing settled in this area, not the first. Where the parties disagree, the amicable settlement service of the Ministry of Human Resources and Social Development is the way in before the courts.

The provisions relied on are those of the Saudi Labor Law as published by the Ministry of Human Resources and Social Development: Article 8 (void terms, releases and settlements), Articles 53 and 54 (ending a contract during probation), Article 60 (no material change of duties, cited in the third case of Article 81), Article 74 (the ways a contract ends), Article 75 (notice), Article 76 (pay in lieu of notice), Article 77 (the measures of compensation), Article 78 (paid time to look for work during notice), Article 79 bis (resignation), Article 80 (rescission without award, notice or compensation), Article 81 (leaving without notice with rights retained) and Article 85 (the reduction of the award on resignation). Royal Decree M/44 of 1446H amended Articles 53, 74 and 75 of the Labor Law and added Article 79 bis. That decree did not amend Articles 54, 60, 76, 77, 78, 80 or 81 of the Labor Law.

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

Related terms

• Layoff
• Trade Secret
• Demotion
• Outplacement
• Exit Interview