Saudi Labor Law Article 77: Compensation Rules for Employment Termination

Q: What is Article 80 in the Saudi Labor Law?

Article 80 allows an employer to terminate an employee without end-of-service benefits or compensation if the employee commits serious violations such as gross misconduct, dishonesty, or repeated breaches of work duties, subject to strict legal conditions.

Q: What is Article 81 in the Saudi Labor Law?

Article 81 gives an employee the right to leave work immediately without notice if the employer commits serious violations, such as failure to pay wages, unsafe working conditions, or breach of contractual obligations.

Q: What is Article 74 of the Saudi Labor Law?

Article 74 outlines the legal ways an employment contract may end , including mutual agreement, contract expiry, force majeure, retirement, or permanent closure of the business.

Q: What is Article 77 of the Saudi Labor Law?

Article 75 governs termination of unlimited-term contracts , requiring proper notice periods and compliance with labor law procedures before ending the employment relationship.

Q: What is the age limit under Saudi Labor Law?

The minimum working age under Saudi Labor Law is generally 15 years , with restrictions on hazardous work, while employment of minors is subject to special regulatory protections.

Q: How is end-of-service benefit calculated under Saudi Labor Law?

End-of-service benefits are calculated based on years of service and last basic wage , with different rules applying depending on whether the employee resigns or is terminated.

Article 77 of the Saudi Labor Law is one of the most significant and frequently disputed provisions governing employment termination in Saudi Arabia. It regulates financial compensation when an employment contract is terminated without a lawful reason, and it applies to both employers and employees.

Despite its importance, Article 77 is often misunderstood. Many parties assume that compensation follows a fixed formula, while in reality it depends heavily on contract terms, circumstances of termination, and judicial discretion.

At Atayyar Legal Company, we regularly advise employers and employees on disputes arising under Article 77, including compensation calculations, contract interpretation, and labor court proceedings.

What Is Article 77 of the Saudi Labor Law?

Article 77 addresses situations where an employment contract is terminated without a valid statutory reason by either party. Instead of reinstatement, the law provides for financial compensation to the affected party.

The article serves two primary purposes:

To protect employees from arbitrary termination
To protect employers from open-ended liability by allowing compensation instead of reinstatement

Article 77 applies only when termination does not fall under the lawful grounds specified elsewhere in the Labor Law.

comprehensive Saudi labor law legal services for employees and employers facing termination disputes

When Does Article 77 Apply?

Employer-Initiated Termination

Article 77 applies when an employer terminates an employee without a lawful cause, such as:

Termination without misconduct
Termination unrelated to performance violations
Termination not justified under disciplinary provisions

In such cases, compensation may be owed even if the employer believes the decision was commercially justified.

Employee-Initiated Termination

Article 77 also applies when an employee resigns without a legally recognized reason, such as:

Early resignation from a fixed-term contract
Leaving employment without grounds permitted under the Labor Law

In these situations, the employer may be entitled to compensation, depending on the contract terms.

Article 81 of Saudi Labor Law explaining employee rights in cases of contract termination

Fixed-Term vs Unlimited Contracts

The type of contract significantly affects how Article 77 is applied:

Fixed-term contracts: Compensation may be linked to the remaining duration of the contract
Unlimited contracts: Compensation may be assessed based on length of service and salary

This distinction is critical and often determines the scale of financial exposure.

How Is Compensation Calculated Under Article 77?

There is no automatic or universal formula under Article 77. Compensation is assessed based on several keyfactors.

Key Factors Affecting Compensation

Monthly salary
Length of service
Remaining contract duration (for fixed-term contracts)
Specific compensation clauses in the employment contract
Circumstances surrounding termination

Is Compensation Automatically Calculated?

No. Saudi labor courts evaluate each case individually. Contract wording plays a central role, but courts retain discretion to assess fairness and proportionality.

Because of this, relying on assumptions or informal calculations often leads to disputes.

Employee Rights Under Article 77

Employees terminated without lawful cause may have the right to:

Financial compensation instead of reinstatement
Challenge the employer’s compensation assessment
Seek judicial review before Saudi labor courts

Practical Employee Example

An employee working under an unlimited contract is terminated without documented misconduct. Even if the employer claims restructuring, the court may assess compensation based on salary and years of service if termination lacks legal justification.

Employer Risks Under Article 77

For employers, Article 77 carries significant financial and legal risks if mishandled.

Common risks include:

Paying excessive compensation due to poorly drafted contracts
Misclassifying lawful and unlawful termination
Failing to document reasons for termination

Practical Employer Example

An employer terminates a fixed-term contract early without legal review. The court may award compensation based on the remaining contract value, resulting in substantial financial exposure.

legal options and dispute resolution procedures for employment termination cases in Saudi Arabia

Difference Between Article 77 and Article 81

Article 77 is often confused with Article 81, but they serve entirely different purposes.

Article 77: Compensation for termination without lawful reason
Article 81: Immediate termination by the employee without notice due to employer misconduct

Understanding this distinction is essential.
You may review a detailed explanation on Article 81 of the Saudi Labor Law for clarity on employee-initiated termination without notice.

Do Saudi Labor Courts Automatically Apply Article 77?

No. Courts do not apply Article 77 mechanically.

Judges consider:

Contractual clauses
Evidence of termination reasons
Conduct of both parties
Compliance with labor procedures

This judicial discretion makes legal preparation and documentation critical.

When Should You Seek Legal Advice?

Legal advice is strongly recommended:

Before terminating an employee
Before accepting or rejecting compensation demands
When drafting or reviewing employment contracts
During labor disputes or court proceedings

Atayyar Legal Company provides legal advisory and dispute resolution services related to Article 77, helping clients minimize risk and protect their legal position under Saudi labor law.

Need to Estimate Compensation Under Article 77?

For an estimated calculation based on salary, contract type, and service period, you may refer to our Article 77 Compensation Calculation Guide, which provides a structured overview before seeking legal review.

Final Legal Note

Compensation under Article 77 is never one-size-fits-all. Outcomes depend on facts, contract wording, and judicial discretion. A professional legal review often prevents costly disputes and ensures compliance with Saudi labor regulations.

Frequently Asked Questions – Saudi Labor Law

What is Article 80 in the Saudi Labor Law?

Article 80 allows an employer to terminate an employee without end-of-service benefits or compensation if the employee commits serious violations such as gross misconduct, dishonesty, or repeated breaches of work duties, subject to strict legal conditions.

What is Article 81 in the Saudi Labor Law?

Article 81 gives an employee the right to leave work immediately without notice if the employer commits serious violations, such as failure to pay wages, unsafe working conditions, or breach of contractual obligations.

What is Article 74 of the Saudi Labor Law?

Article 74 outlines the legal ways an employment contract may end, including mutual agreement, contract expiry, force majeure, retirement, or permanent closure of the business.

What is Article 77 of the Saudi Labor Law?

Article 75 governs termination of unlimited-term contracts, requiring proper notice periods and compliance with labor law procedures before ending the employment relationship.

What is the Saudi Labor Law contact number?

Labor-related complaints and inquiries in Saudi Arabia are handled through the Ministry of Human Resources and Social Development (MHRSD) via official digital channels and labor courts, rather than a single universal hotline for legal disputes.

What is the age limit under Saudi Labor Law?

The minimum working age under Saudi Labor Law is generally 15 years, with restrictions on hazardous work, while employment of minors is subject to special regulatory protections.

How is end-of-service benefit calculated under Saudi Labor Law?

End-of-service benefits are calculated based on years of service and last basic wage, with different rules applying depending on whether the employee resigns or is terminated.

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