Legitimate reasons for terminating an indefinite-term employment contract

What are the legitimate grounds for terminating an open-ended employment contract? This type of contract is regulated by...Types of contractsThe relationship between the worker and the employer, and it clarifies the obligations and rights of each party.

Perhaps there was a need to end this relationship before achieving its desired goal. How legitimate is this termination? And what are the regulations governing it?

The Saudi Labor Law has set aside clauses explaining the reasons for the legitimate termination of an indefinite-term contract, which requires us to highlight the most prominent of these reasons, while reviewing the rights of each worker and employer when terminating the contract.

 Abdulaziz bin Yasser Al-Anzi Law Firm

Definition of an open-ended employment contract under Saudi law

Open-ended employment contractIt is a contract that has no specific end date, where the employee continues to perform his job duties for the employer for an open period, until one of the parties expresses his desire to terminate the relationship, provided that the legally prescribed notice period of 30 to 60 days is observed.

One of the advantages of this type of contract is that it is a suitable option for those who wish to obtain real job stability and an opportunity for long-term career planning within the establishment.

The contract also provides flexibility in terminating the employment relationship when needed, while guaranteeing the rights of each party, especially since this type of contract is granted after the employee has proven his competence during the period of employment with a fixed-term contract.

Legal grounds for terminating an indefinite-term contract

An open-ended employment contract can be legally terminated under controls that ensure a balance between the interests of the worker and the employer. There are three cases which we explain as follows:

The normal procedure is termination with prior notice.

Either party has the right to terminate the contract at any time, provided that the other party is notified in writing before the termination date by the legally approved period, which is no less than 30 days, unless the two parties agree on a longer period in the contract.

Termination for a legitimate reason

The requirement of prior notice shall not apply to legitimate reasons for termination of the contract, in the event that one of the parties breaches its principal obligations arising from the contract or the system. In this case, the other party may terminate the contract without the need for a grace period or notice, provided that the reason for termination is documented.

Examples of the above include: a worker being absent from work for long periods without justification, an employer refusing to pay wages due for a period exceeding the permissible limit, or forcing a worker to work in an environment that threatens his safety.

Termination of the contract by mutual agreement

This is the case where both parties agree to terminate the contract amicably, whether through a separate agreement or a signed document. In such a case, the contract terminates immediately or on the agreed date, without the need for additional procedures or adherence to a notice period. The legal procedures for terminating an open-ended contract ensure that the right to terminate is not abused and provide appropriate compensation to anyone harmed by arbitrary termination.

Conditions for terminating an open-ended employment contract

Article 75 of the Saudi Labor Law stipulates a set of conditions that must be met when terminating an indefinite-term employment contract, in order to guarantee the interests of all parties, and these are as follows:

1. Legitimate reasons are provided for terminating the contract.
2. Notifying the other party in writing of your desire to terminate the contract.
3. Notify the other party at least 60 days in advance for workers with monthly wages, and 30 days for the rest of the wage categories.
4. The notification must be delivered in any of the approved official forms.
5. Adherence to legal procedures for terminating the contract is essential to ensure the protection of the rights of both parties and to promote a stable and fair working environment.

Legitimate reasons for terminating an indefinite-term employment contract

There are other legitimate reasons besides those mentioned in the previous paragraph in which an open-ended employment contract may be terminated without any compensatory liability towards either party, and these can be summarized as follows:

1. Termination of the employment contract by written notice, in accordance with Articles 75 and77 of the work system.
2. Force majeure such as bankruptcy of the establishment, its permanent closure, or any other circumstance.
3. Disciplinary reasons include assaulting the employer or colleagues, breaching the essential obligations stipulated in the employment contract, repeated absence without legitimate justification, committing dishonorable or untrustworthy conduct, or providing incorrect data or documents when contracting or during service.

These legitimate reasons serve as a clear legal framework that regulates how an employment contract is terminated, balances the rights of the worker and the employer, and reduces the occurrence of labor disputes.

What is the difference between lawful termination and arbitrary dismissal?

Legitimate termination is the termination of the employment relationship by the employer based on a clear and specific legal reason in the Labor Law, and is done in accordance with the prescribed legal procedures as we explained previously.

Legitimate termination is characterized as a preventive measure that protects the interests of the establishment and regulates the employment relationship within it, and does not entail any compensatory liability towards the employer.

As for arbitrary dismissal, it is the termination of an employment contract by the employer without a legitimate reason or for a reason that is not legally valid, or without observing the prescribed legal procedures.

It is verifiedarbitrary dismissalIn multiple forms, most notably: terminating the contract based solely on personal opinion or for reasons unrelated to work, dismissing the worker out of revenge, bias or discrimination, terminating without adhering to the legal notice period for terminating the contract, forcing the worker to leave work or waive his rights, or terminating the contract based on a malicious claim or an unproven violation.

Arbitrary dismissal has legal consequences, the most important of which is the worker’s right to claim fair compensation before the Labor Court, where it is assessed according to the damage he suffered as a result of the dismissal.

Among the legal consequences is the worker's right to obtain all his other legal rights, such as end-of-service bonus, leave balance, etc. In some cases, dismissal is considered invalid if it is not based on a legitimate reason, and therefore the worker is reinstated to his job.

Compensation due upon termination of an open-ended employment contract

The employee is entitled to compensation upon termination of an indefinite-term employment contract in the following cases:

1. An employer terminating a contract without a legally legitimate reason such as discrimination or retaliation.
2. The employer terminated the contract without adhering to the required notice period.
3. Termination of the contract by the employer without a legitimate reason during the probationary period.

It should be noted that failing to calculate these compensations or refusing to pay them is a legal violation that may expose the establishment to financial penalties, in addition to the costly labor disputes that may result from it.

Employee rights upon termination of an open-ended contract

Below, we briefly explain the rights of the worker upon termination of an open-ended contract, as follows:

1. He must be notified of the termination of the contract officially at least 60 days in advance if the worker is paid monthly, or 30 days if otherwise.
2. Obtaining compensation equivalent to two months' wages if the employer fails to provide notice within the legal notice period for terminating the contract.
3. To receive fair compensation, the amount of which will be determined by the labor committee based on length of service, circumstances of termination, and resulting damages.
4. The right to appeal to the labor courts within one year from the date of termination of the contract, to claim any of his previous rights if the employer refuses to pay them.

Employer's rights upon termination of an open-ended contract

The Saudi labor law guarantees clear rights for the employer in the event of termination of an indefinite-term employment contract, especially in cases where the worker fails to fulfill his obligations. The most prominent of these rights are as follows:

1. Claiming fair compensation before the competent authority if the worker terminates the contract without a legitimate reason or without notifying the employer.
2. The compensation for the employer is estimated based on the actual damage he suffered as a result of the sudden termination of the contract, as well as on the length of the worker’s service and the nature of his work.
3. The compensation is also estimated at the amount of compensation costs incurred for terminating the service of a resigning employee, especially in jobs that are sensitive or require specialized and rare expertise.
4. The right to terminate the contract without notice and without end-of-service gratuity in the event of assaulting the employer, breaching essential contractual obligations, submitting forged documents, impersonating someone, or being absent without a legitimate excuse.
5. The right to recover actual training costs if the worker enrolls in a course at the employer's expense by written agreement, and then leaves work of his own accord before a period equal to the duration of the training.
6. The right to prevent an employee from working in a competing field after the contract expires for a period not exceeding two years, provided there is a written agreement and that the nature of the employee's work allows access to the establishment's trade secrets.

The role of the employment contract lawyer in protecting the rights of both parties in the employment relationship.

An employment contracts lawyer is a lawyer who specializes in drafting and reviewing employment contracts and ensuring their compliance with local and international laws. They also provide legal advice to individuals and companies and defend their rights in the event of labor disputes.

The importance of hiring a specialized lawyer lies in drafting comprehensive contracts that clearly define the rights and obligations of both the employee and the employer, providing legal advice when needed, and negotiating on behalf of the client to ensure the best terms, especially regarding wages, benefits, and contract termination conditions.

The lawyer protects the employee from being subjected to arbitrary dismissal, ensures that the contract is free of any arbitrary clauses, and helps him understand his rights during the trial period and upon resignation.

The lawyer also provides legal services to companies, including auditing new employee contracts, ensuring compliance with laws and legislative updates, to protect the company from fines and penalties, and managing and resolving employee disputes amicably or legally.

To make the most of the aforementioned legal services, it is recommended to choose a lawyer with extensive experience and a good reputation, as well as integrity, transparency, and the ability to communicate clearly to ensure that the proceedings are conducted clearly and accurately.

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