Saturday, 31 May 2014

Fixed Term and Indefinite Contract under Saudi Labor Law

Fixed Term Contract
I have already explained in one article about the matters to consider while signing a contract in Saudi Arabia. Almost all of us sign a fixed term contract when we come to Saudi Arabia. People who come here on free visa and search for job also sign a fixed term contract. Fixed term contract is terminated at the end of the term of the contract. It also means that your employer cannot terminate you within the term of the contract except as provided in Article 80 of Saudi Labor Law. If he wants to terminate you, he will have to indemnify you for that. Amount of indemnity is established in the Article 77 of Saudi Labor Law. In case of fixed term contract, employer or employee whoever terminates the contract due to invalid reasons, would be required to compensate the other party with the salaries of the remainder period of the contract. The sum of compensation to be paid to aggrieved party cannot be less than 2 month salary.

Termination of Fixed Term Contract
Let’s say you signed first fixed term contract with the employer for one year in June 2014. After completing seven months, your employer terminates you in January 2015 based on unfair reason. If he does so, he will have to give you salaries for the remainder period of 5 months as well as End of Service Benefits for the full year (not 7 months). Similarly, if employee resigns before completing his fixed term contract, he will also have to compensate his employer with 5 months salary as per Article 77 of Saudi Labor Law.

If your employer wants to terminate you at the end of the contract, he just have to give you notice as mentioned in the contract or one month notice if it is not mentioned in the contract. Similarly, you also cannot leave your employer till the end of the contract by giving same notice period.

Renewal of Employment Contract
  • If there is no clause in the initial contract for the renewal and your employer does not terminate you at the end of the fixed term contract, this contract becomes indefinite contract. There is no need to sign the extension of contract in writing. Source: Article 55 (1) of Saudi Labor Law.
  • If the initial fixed term contract contains a clause for the renewal of the contract for the same term or any specified term, it will be renewed for that period only. It becomes a Fixed Term Contract in this case. Source: Article 55 (2) of Saudi Labor Law.
  • However, if it is renewed for two consecutive times or the total period of fixed term contract and renewal equals to 3 or more years, the contract becomes an indefinite contract. Source: Article 55 (2) of Saudi Labor Law.

Treatment of Indefinite Contract
The treatment of indefinite contract is different from the fixed term contract. An indefinite contract is deemed to expire at the date of the expiry of Iqama. Unlike fixed term contract, in case of indefinite contract, both parties have every right to terminate the contract with the notice at any point of time. The details of notice period as revised on 01/01/1437 by the Ministry of Labor is given below. Employer is not obliged to pay you benefits till the expiry date of Iqama. He will pay you all the benefits only for the period you have actually worked. Source: Article 75 of Saudi Labor Law.

Notice Period in case of Indefinite Contract
  1. A 60 days’ notice period is required for the employees who get monthly salary and 30 days’ notice period is required for other workers. Source: Article 75 of Saudi Labor Law (01/01/1437 changes in SLL are taken into account)
  2. If any of the party does not give such notice period, they will have to pay the amount equivalent to the wages of such period to the other party. Source: Article 76 of Saudi Labor Law. I have explained the notice period in more detail in this article. "Notice Period Under Saudi Labor Law"


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