Thursday, 7 August 2014

Completion of Contract under Saudi Labor Law

There are a lot of confusions among the expatriates regarding the completion of their contract. We are writing this article to remove these confusions regarding completion of contract from the minds of expatriates. In this article, I will be providing in detail the circumstances when a contract deems to be completed and hence terminated. Saudi Labor Law uses the words of termination even in the case of completion of contract but we shall be using the word completion for better understanding of our fellow expatriates.

Completion / Termination of the Contract
According to Article 74 of the Saudi Labor Law, a contract deems to be completed / terminated in the following cases.
  1. If both parties agree to terminate the contract and employee has given his consent in writing, the contract is treated to be terminated or completed. When an employee resigns and employer accepts his resignation, this is an example of this kind of completion or termination of the contract.
  2. If the term mentioned in the contract is expired, the contract is treated to be terminated or completed. However, if employee continues to work even after the completion of initial period of contract, this contract becomes an indefinite contract under Saudi Labor Law. Similarly, if both the parties agree to extend the term of the contract, it is extended.

  • If employee resigns or employer terminates the employee and the nature of the contract is indefinite term contract, the contract is treated to be terminated or completed. However, it is important to mention here that proper notice period needs to be given in such situations.
  • If employee reaches the retirement age, the contract is treated to be terminated or completed unless both parties agree otherwise. In order to know about the retirement age in Saudi Arabia, please read this article. “Retirement Age in Saudi Arabia
  • Natural events like death, insane mind of the employee or any other event causing the employee to become unfit for the job, terminate the contract.
  • There are some events in which employer can terminate the contract even without giving notice, these cases have been discussed in this link "Termination without Notice Period under Saudi Labor Law"

  • Termination of Contract due to Invalid Reasons - Article 77 of Saudi Labor Law talk about the compensation in case of termination of contract due to invalid reasons. Before going into details, it is important to understand what is valid and invalid reason for termination of contract, we have already published an article upon this subject which can be read in this link “Completion of Contract under Saudi Labor Law”. According to Amended Article 77, if one party terminates the contact due to an invalid or illegal reason, aggrieved party will be entitled to compensate other party in the following manner;
    1. If this issue has already been addressed in the contract, the contract will apply.
    2. 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 months salary.
    3. In case of termination due to invalid reason in indefinite contract, aggrieved party is entitled to 15 days wages for each year of service. The sum of compensation to be paid to aggrieved party cannot be less than 2 months’ salary.
    4. In order to better understand the concept of Fixed Term Contract and Indefinite Contract, read into this link “Fixed Term and Indefinite Contract under Saudi Labor Law


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