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Faisal A. Siddiqui

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Wrongful Termination and End‑of‑service Disputes in Saudi Arabia: What Employers and Employees Must Know

By Faisal A. Siddiqui

– posted 2 hours ago

Wrongful termination and end‑of‑service disputes in Saudi Arabia have surged in volume and complexity since the Kingdom began its latest wave of labour‑law reforms, and in my experience the trend shows no sign of slowing. The Saudi Labour Law, issued under Royal Decree No. M/51, now provides employees with a clearer statutory path to compensation under Article 77, while simultaneously imposing stricter procedural obligations on employers who wish to terminate contracts lawfully. At Faisal A. Siddiqui Law Firm, we regularly advise both multinational employers and individual employees on how to navigate this landscape, from the initial MHRSD complaint through mediation and, where necessary, to contested proceedings before the labour courts via the Najiz platform.

This guide sets out the practical steps, statutory calculations and procedural timelines that every party to an employment relationship in the Kingdom should understand.

Executive Summary: Key Takeaways for Employers and Employees

Before diving into the detail, the following points capture the essentials:

Article 77 creates a right to compensation whenever a contract is terminated without a legitimate legal reason. The compensation is assessed by the labour court and may cover actual loss, moral damages and the remaining contract value.
End‑of‑service benefits are a statutory entitlement calculated under Articles 84 and 85 of the Labour Law. The formula is based on length of service and final wage, and it applies regardless of the reason for termination, subject to limited exceptions under Article 80.
MHRSD mediation is mandatory before a labour‑court case can be filed. The Ministry of Human Resources and Social Development operates an online complaint and conciliation service that must be exhausted first.
Labour‑court claims are filed electronically through the Najiz portal administered by the Ministry of Justice. Many straightforward cases settle during the MHRSD mediation stage within a matter of weeks.
Both Saudi nationals and expatriate workers enjoy the same statutory protections under the Labour Law. Immigration consequences of termination are separate from the labour‑law entitlements discussed here.

Quick Statutory Overview: Relevant Saudi Labour Law Provisions

The Saudi Labour Law, enacted by Royal Decree No. M/51, is the primary statute governing employment relationships in the private sector. Several articles are critical to wrongful termination and end‑of‑service disputes in Saudi Arabia, and I set them out below with a brief explanation of when each applies.

Article	When It Applies	Primary Remedy
Article 74	Lists the legitimate grounds on which a contract may come to an end, including expiry, mutual consent, force majeure and retirement age.	No compensation if termination falls within a recognised ground; disputes arise when the employer claims one of these grounds but the employee contests its applicability.
Article 77	Applies whenever a party terminates the contract for a reason not recognised as legitimate under the Law. Covers both employer‑initiated and employee‑initiated breaches.	Compensation assessed by the court, for a fixed‑term contract this is typically the wages for the remaining term; for an indefinite‑term contract, at least fifteen days’ wages per year of service.
Article 80	Permits the employer to dismiss an employee without notice, severance or compensation in narrowly defined circumstances, such as assault, dishonesty or repeated wilful neglect after written warning.	If the employer proves the grounds, the employee forfeits the right to notice pay and may lose some end‑of‑service entitlements. If the grounds are not proven, dismissal is treated as wrongful.
Article 81	Allows the employee to resign and still claim full end‑of‑service benefits where the employer has committed a material breach, such as failing to pay wages, fraud in contract terms or endangering the worker’s safety.	Employee retains full end‑of‑service benefits and may pursue Article 77 compensation in addition.
Articles 84–85	Govern the calculation of end‑of‑service benefits payable on any termination, whether initiated by the employer, by the employee (resignation) or by expiry of a fixed‑term contract.	A defined formula based on half a month’s wage for each of the first five years, then one month’s wage for each subsequent year, calculated on the employee’s final wage.

The Implementing Regulations issued by MHRSD supplement the Labour Law with procedural detail on disciplinary procedures, notice requirements and dispute‑resolution mechanics. Both the Labour Law and its Implementing Regulations are publicly available through the Bureau of Experts and MHRSD portals.

How Article 77 Is Applied: The Commission’s Assessment Factors

When a labour court considers an Article 77 claim, it weighs several factors. In my experience, the most significant are the type of contract (fixed‑term versus indefinite), the documented reason for termination, the employee’s length of service, and any evidence of actual financial loss or moral harm suffered by the terminated party. For a fixed‑term contract, the starting point is the wages the employee would have earned for the remainder of the term. For an indefinite‑term contract, the minimum compensation is fifteen days’ wages for each completed year of service. The court retains discretion to award higher amounts where the evidence of bad faith, retaliation or procedural abuse is compelling.

What Counts as Wrongful or Unlawful Termination?

A termination is considered wrongful whenever the employer ends the employment relationship for a reason that does not fall within the lawful grounds enumerated in the Labour Law, principally Articles 74 and 80. In practice, the most common scenarios I encounter include:

Termination without documented cause. The employer simply ends the contract and provides no written justification, or provides a vague reason that does not map to any statutory ground.
Constructive dismissal. The employer makes working conditions so intolerable, through demotions, pay cuts or harassment, that the employee has no realistic choice but to resign. Article 81 recognises this as equivalent to wrongful termination.
Retaliation. Termination following an employee’s complaint to MHRSD, a report of safety violations or the exercise of a statutory right (such as maternity leave).
Procedural failures. Even where a legitimate ground exists, dismissal may be treated as wrongful if the employer failed to issue a written warning, conduct a proper investigation or observe the required notice period.
Discrimination. Termination based on nationality, disability or gender where the law protects the employee’s status.

The critical distinction is between termination for cause, which requires the employer to prove one of the narrow grounds in Article 80, and termination without legitimate reason, which triggers Article 77 compensation. The burden of proof rests heavily on the employer.

Employer Perspective: Lawful Grounds and Procedural Checklist

For employers, the best defence against a wrongful termination claim is a disciplined, documented process. I advise HR teams to follow this checklist before every termination:

Issue written warnings. At least one written warning for each alleged infraction, with the employee’s acknowledgement of receipt.
Conduct a formal investigation. Document witness statements, gather evidence and allow the employee to respond in writing.
Confirm the statutory ground. Map the facts to a specific Article 80 sub‑paragraph and record this in the termination letter.
Observe contractual and statutory notice. Unless Article 80 applies, provide the notice period specified in the contract or, where the contract is silent, a minimum of sixty days for monthly‑paid employees.
Calculate all final entitlements. Prepare a settlement statement covering unpaid wages, accrued leave and end‑of‑service benefits before the exit interview.
Obtain internal approvals. Ensure sign‑off from senior management and, where applicable, review by legal counsel.

End‑of‑Service Benefits in Saudi Arabia: Calculation and Worked Examples

End‑of‑service benefit calculation is one of the most frequently contested elements of wrongful termination and end‑of‑service disputes in Saudi Arabia. The formula set out in Articles 84 and 85 of the Labour Law is straightforward in principle but often misapplied in practice.

The statutory formula works as follows:

First five years of service: half a month’s wage for each completed year.
Years beyond five: one full month’s wage for each additional completed year.
Basis of calculation: the employee’s last wage, inclusive of all allowances and fixed benefits that form part of the contractual salary.

Where the employee resigns (rather than being terminated), Articles 85 adjusts the entitlement downwards: the employee receives one‑third of the benefit if service is between two and five years, and two‑thirds if service is between five and ten years. Full entitlement applies after ten or more years of service.

Scenario	Formula Applied	Example Calculation (SAR)
Employee terminated after 3 years; final monthly wage SAR 10,000	3 years × (10,000 ÷ 2) = SAR 15,000	SAR 15,000
Employee terminated after 8 years; final monthly wage SAR 12,000	First 5 years: 5 × (12,000 ÷ 2) = SAR 30,000 Next 3 years: 3 × 12,000 = SAR 36,000	SAR 66,000
Employee resigns after 4 years; final monthly wage SAR 8,000	Full benefit: 4 × (8,000 ÷ 2) = SAR 16,000 Resignation factor (2–5 years): one‑third	SAR 5,333
Employee resigns after 12 years; final monthly wage SAR 15,000	First 5 years: 5 × (15,000 ÷ 2) = SAR 37,500 Next 7 years: 7 × 15,000 = SAR 105,000 Total: SAR 142,500 Resignation factor (10+ years): full entitlement	SAR 142,500

These calculations assume complete years of service. For partial years, the benefit is pro‑rated. In my practice, disputes most frequently arise over what constitutes the “last wage”, employers sometimes attempt to exclude housing allowances, transportation allowances or commission payments. The position under the law is that all contractually agreed components of the wage should be included unless the contract expressly and lawfully excludes them, and any exclusion clause must itself comply with the Labour Law.

Notice Pay, Unpaid Wages, Leave and Other Monetary Entitlements

End‑of‑service benefits are only one element of a terminated employee’s claims. The following entitlements commonly stack on top of the end‑of‑service indemnity:

Entitlement	Calculating Basis
Notice pay	Wages for the contractual or statutory notice period (typically 60 days for monthly‑paid employees). Payable where the employer terminates without serving proper notice.
Unpaid wages	All outstanding salary, overtime and bonuses accrued up to the date of termination.
Accrued annual leave	Cash equivalent of unused leave days, calculated at the daily wage rate.
Article 77 compensation	Separate from end‑of‑service. Assessed by the court based on actual loss, remaining contract term or, for indefinite contracts, at least 15 days’ wages per year of service.
Repatriation costs (expatriates)	Employer bears the cost of repatriation unless the employee transfers to another employer within the Kingdom.

It is important to recognise that Article 77 compensation is in addition to end‑of‑service benefits. These are distinct statutory entitlements, and one does not subsume the other. An employee who is wrongfully dismissed is entitled to claim both.

Procedural Roadmap: From MHRSD Complaint to Najiz Labour Court

Understanding the dispute‑resolution process is essential for anyone involved in wrongful termination and end‑of‑service disputes in Saudi Arabia. The system is structured in sequential stages, and failure to follow the correct order can result in delays or jurisdictional objections.

Stage	Action Required	Typical Duration
1. Preserve evidence	Immediately gather and secure all employment documents, contract, payslips, warnings, correspondence, attendance records and screenshots of relevant messages.	Immediately upon termination
2. Lodge complaint with MHRSD	File a complaint electronically through the MHRSD labour‑relations platform. The complaint should set out the facts, the articles breached and the amounts claimed.	Filing is immediate; acknowledgement typically within days
3. Mediation / conciliation	MHRSD convenes a conciliation session between the parties. A settlement may be reached and recorded as an enforceable agreement.	Up to 21 days from complaint registration
4. File at Labour Court via Najiz	If mediation fails or the employer does not engage, the employee (or employer) escalates the dispute to the Labour Court through the Najiz electronic portal administered by the Ministry of Justice.	Case registration is electronic; first hearing is scheduled by the court
5. Hearing and judgment	The Labour Court examines evidence, hears witnesses and issues a judgment. Appeals may be filed to the appellate circuit.	Several weeks to months, depending on complexity and court schedule
6. Enforcement	Enforceable judgments can be executed through the Enforcement Court, including wage‑attachment orders against the employer.	Variable; the Enforcement Court has its own procedural timelines

The shift to electronic filing via Najiz has significantly improved access and transparency. From what I am seeing in practice, straightforward wage and end‑of‑service claims that fail at mediation are typically heard and decided within a few months of filing. Complex Article 77 compensation claims, particularly those involving moral damages or contested facts, may take longer.

Evidence Checklist for Employees

If you believe you have been wrongfully terminated, secure the following documents before filing any complaint:

Employment contract (original and any amendments)
Payslips and bank statements showing salary credits for at least the last twelve months
Termination letter or any written communication from the employer regarding dismissal
Warning letters and disciplinary records
Attendance and leave records
WhatsApp, email and SMS correspondence relevant to the termination
Exit clearance forms (if issued) and any settlement offers
Witness details, names and contact information of colleagues who can corroborate the facts

Defending Employers: Evidence and Mitigation Steps

Employers facing a wrongful termination claim should immediately assemble a defence file containing:

Complete HR file for the employee, contract, job description, performance reviews and salary history
Disciplinary records, all warnings, investigation notes and the employee’s responses
Witness statements from managers and colleagues with direct knowledge of the alleged misconduct or performance issues
Payroll records showing all amounts paid, including final settlement calculations
Internal policy documents, the company’s disciplinary code, grievance procedure and termination policy, demonstrating that due process was followed

In my view, employers who maintain meticulous real‑time HR documentation are far better positioned to defend claims than those who reconstruct records after the fact.

Remedies and Typical Awards: Article 77 Compensation and Court Outcomes

The range of remedies available in wrongful termination and end‑of‑service disputes in Saudi Arabia includes:

Unpaid wages and notice pay, quantifiable and usually undisputed once payroll records are produced.
Full end‑of‑service benefits, calculated strictly under Articles 84–85 as shown above.
Article 77 compensation, the court has discretion within the statutory framework. For fixed‑term contracts, the benchmark is the remaining contract value. For indefinite‑term contracts, the minimum is fifteen days’ wages per year of service, but the court may award more where aggravating factors are present.
Moral damages, available in cases involving reputational harm, humiliation or bad‑faith conduct. Awards are at the court’s discretion and tend to be conservative by international standards.
Reinstatement, while theoretically available, reinstatement orders are rare in Saudi labour‑court practice. The overwhelming majority of successful claims result in monetary awards rather than a return to employment.

I always caution clients that reported award ranges are indicative and that each case turns on its own facts. The ILO’s country‑level labour standards database and the Ministry of Justice’s published judgments provide useful reference points, but they are not substitutes for case‑specific legal advice.

Practical Templates and Next Steps: Employee and Employer Checklists

Below are concise action checklists I recommend to clients in the immediate aftermath of a termination dispute.

Employee checklist:

Request written reasons for your dismissal from the employer (if not already provided).
Gather and securely store all evidence listed in the evidence checklist above.
Calculate your estimated end‑of‑service benefit using the Articles 84–85 formula.
Lodge a formal complaint with MHRSD through the electronic labour‑relations platform.
Attend the mediation session and, if no settlement is reached, instruct legal counsel to file a labour‑court case via Najiz.

Employer checklist:

Review the termination decision against the grounds listed in Articles 74 and 80 before communicating it to the employee.
Prepare a final settlement statement covering all statutory entitlements, wages, leave, notice pay and end‑of‑service.
Issue a clear, written termination letter citing the specific statutory or contractual ground.
Cooperate with the MHRSD mediation process promptly, failure to attend can weigh against the employer at the court stage.
If the dispute escalates, instruct legal counsel and assemble the defence file described above.

Comparison Table: Enforcement Routes and Obligations by Termination Type

When Termination Occurs	Employer Obligations / Reporting	Typical Employee Remedy and Route
Termination by employer without lawful reason	Pay notice period wages, all unpaid wages and full end‑of‑service benefits; participate in MHRSD mediation in good faith.	File MHRSD complaint → if unresolved, file at Labour Court (Najiz) for Article 77 compensation and unpaid entitlements.
Termination for gross misconduct (Article 80)	Documented investigation and disciplinary record required; the dismissal may stand if due process was followed and the statutory ground is proven.	Employee may still claim unpaid wages and contest the dismissal if due process was absent; remedy is limited where the employer’s Article 80 defence is upheld.
Employee resignation without employer fault	Employer pays end‑of‑service benefits as adjusted under Article 85 for resignation; follows contractual notice obligations.	Employee may forfeit a portion of end‑of‑service benefits depending on length of service; disputes arise if employer withholds clearance or final pay.
Employee resignation under Article 81 (employer breach)	Employer liable for full end‑of‑service benefits plus potential Article 77 compensation.	File MHRSD complaint citing the employer’s material breach → escalate to Labour Court if mediation fails.

Conclusion

Wrongful termination and end‑of‑service disputes in Saudi Arabia require careful attention to statutory detail, disciplined documentation and a clear understanding of the procedural pathway from MHRSD mediation to the Najiz labour courts. Whether you are an employee seeking to recover what you are owed or an employer defending a contested dismissal, the outcome often depends on preparation and timing rather than the merits alone. In my view, early legal advice, ideally before the termination is communicated, remains the single most effective way to protect your position. The statutory framework under Royal Decree No.

M/51, supported by the MHRSD Implementing Regulations and the Ministry of Justice’s electronic filing infrastructure, provides robust mechanisms for resolution, but only for those who know how to use them.

Need Legal Advice?

For specialist advice on this topic, contact Faisal A. Siddiqui at Faisal A. Siddiqui Law Firm.

Sources

FAQs

What is Article 77 of the Saudi Labour Law and when does it apply?

Article 77 of the Labour Law (Royal Decree No. M/51) applies whenever either party terminates an employment contract without a legitimate legal reason. The harmed party, whether employer or employee, is entitled to compensation assessed by the labour court. For fixed‑term contracts, the benchmark is the remaining contract value; for indefinite‑term contracts, the minimum is fifteen days’ wages per completed year of service.

How do I calculate my end‑of‑service benefit in Saudi Arabia?

End‑of‑service benefits are calculated under Articles 84 and 85 of the Labour Law. The formula is: half a month’s final wage for each of the first five years of service, plus one full month’s final wage for each additional year. Where the employee resigns, the total is reduced according to length of service, one‑third for two to five years, two‑thirds for five to ten years, and full entitlement after ten years.

What are my first steps if I believe I have been wrongfully dismissed?

Preserve all employment documents immediately, your contract, payslips, correspondence and the termination letter. Request written reasons for your dismissal from the employer. Then lodge a complaint with MHRSD through their electronic platform. If mediation does not resolve the dispute, you can file a labour‑court case through the Najiz portal operated by the Ministry of Justice.

Can an employer deduct end‑of‑service pay for misconduct?

An employer may dismiss an employee without severance only in the limited circumstances defined in Article 80, such as proven dishonesty, assault or wilful neglect following a written warning. Even then, the employer must follow proper investigative and disciplinary procedures. Any dispute over a deduction or denial of end‑of‑service benefits is ultimately decided by the labour court.

How long does a labour dispute usually take from MHRSD complaint to Labour Court judgment?

MHRSD mediation typically concludes within approximately twenty‑one days. If the case proceeds to the Labour Court via Najiz, straightforward claims are often heard and decided within a few months. Complex cases involving contested Article 77 compensation or moral damages may take longer. The Ministry of Justice has invested heavily in electronic case management to reduce backlogs.

Can foreign (expatriate) workers bring Article 77 claims?

Yes. The Saudi Labour Law applies to all employees working in the Kingdom, regardless of nationality. Expatriate workers are entitled to the same Article 77 compensation and end‑of‑service benefits as Saudi nationals. Any immigration consequences arising from termination, such as visa cancellation or exit requirements, are governed by separate regulations and do not diminish the employee’s labour‑law entitlements.