Saudi Labor Law Employment MOL Saudi Arabia

Understanding Employment Contract Termination: A Comprehensive Guide

M. AMEENLast Updated: August 23, 2023

Introduction to Employment Contracts and Termination

Employment contracts provide the basis for the employer-employee relationship, outlining the rights, responsibilities, and obligations of both parties. However, there may come a time when these agreements need to be terminated, and this process is governed by several legal provisions.

Mutual Agreement: A Simple Way to Terminate Employment Contracts

One of the most straightforward ways an employment contract can be terminated is through mutual agreement. Both the employer and employee must agree to the termination, with the employee’s consent captured in writing. This ensures a clear and voluntary decision by both parties.

Termination of Time-Bound Employment Contracts

In cases where the contract is time-bound, the employment contract will naturally expire at the end of the specified term. The contract could continue if it is expressly renewed following the labor law provisions; otherwise, it remains valid only for the agreed-upon term.

The Complexities of Terminating Indefinite Employment Contracts

Contracts of indefinite duration introduce further complexity. These can be terminated based on the will of either party, as per Article (75) of the labor law. However, proper notice must be provided, and a legitimate reason for termination must be cited in writing. For contracts terminated without observing the necessary notice period, the terminating party must compensate the other party for the notice period, equivalent to the worker’s wages for the same period, unless a more significant amount has been agreed upon.

Retirement Age and Employment Contract Termination

Another potential case for contract termination arises when the worker reaches retirement age, as specified by the social insurance law. However, if both parties consent to continue the employment relationship beyond this age, the contract remains in effect.

Other Circumstances Leading to Contract Termination

Several other circumstances can lead to contract termination, such as force majeure, the complete shutdown of the establishment, ending the activity the worker is employed in (unless otherwise agreed), or any other situation stipulated by another law.

Job-Specific and Employer-Specific Contracts: Unique Termination Cases

If the employment contract is for the performance of a specific job, it naturally concludes upon the completion of the agreed-upon work. Similarly, if an employment contract is related to a particular employer, it will not expire upon the employer’s death unless their person was specifically considered when forming the contract. Conversely, the contract does expire upon the worker’s death or if they are medically certified as unable to perform their work.

Rights of the Worker During the Notice Period

During the termination notice period, if initiated by the employer, the worker has the right to take time off (one full day or eight hours during the week) to seek new employment, while still being entitled to their regular wage for that time. This provision enables the worker to transition smoothly to new opportunities.

Compensation Considerations in Unlawful Termination

Finally, it’s important to note that unless the contract specifies otherwise, unlawful termination warrants compensation. If the contract is of indefinite term, the affected party deserves wages of fifteen days for each year of service. For contracts of a limited term, the remaining term’s wage should be paid as compensation. These compensations should not be less than two months’ wages, ensuring fair remuneration for the affected party.

Conclusion

In conclusion, understanding the scenarios under which an employment contract can be terminated and the associated rights and responsibilities of both parties can help ensure a fair and lawful conclusion to the contractual relationship.

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