When I first joined the Arab News family, I was keen to take the pulse of the people around me about the legal topics that concerned them and significantly affected their lives. One of the most controversial issues was labor rights and contracts.
Saudi labor law is to a large extent employee friendly, although it can be a bit complex. The main reason most employees consult it is to obtain information about terminating an employment contract, and how to calculate the end-of-service benefit.
Employment contracts are either fixed term or indefinite. Non-Saudi employees must have a fixed-term contract; if the term is not specified in the contract, it ends automatically when the employee’s work permit expires.
Obviously, fixed-term contracts expire naturally, but they may be renewed for an agreed period. If a contract is renewed three times, it automatically becomes an indefinite contract.
A fixed-term contract may also be terminated at any time by mutual consent, in writing, while ensuring that all financial rights are fulfilled. Of course, force majeure and reaching retirement age may also be reasons for termination. I strongly advise employees to avoid unpleasant surprises by ensuring that the text of the contract explicitly provides for a notice period, and specifies the intention to renew or not.
An indefinite contract may be terminated for any legitimate reason, which must be explained to the other party in writing at least two months in advance. The penalty for failure by either party to give due notice — payment of the salary equivalent for the relevant period — is substantial, to protect the interests of both parties.
When a contract is broken for an unlawful reason, the other party is entitled to compensation of a half-month’s salary for each year of service of the employee, plus the salary of the remaining period of the contract, where applicable. The minimum compensation is two months’ salary. I recommend including the amount of compensation in the contract to ensure that both parties are committed and obliged.
The law clearly states the circumstances in which an employee is entitled to terminate his contract without notice, while retaining his statutory rights. These include failure by the employer to fulfill his contractual duties and responsibilities; if assigned tasks are completely different from those agreed upon; a significant risk to the employee’s safety, of which the employer is fully aware; and physical or verbal abuse, humiliating treatment and indignity.
Finally, end-of-service benefit — which is based on the employee’s final salary. When a fixed-term contract expires, the employee is entitled to a half-month’s salary for each of the first five years of employment, and one month’s salary for each of the following years. If the employee resigns, he is entitled to one-third of the end-of-service benefit, provided he has completed two consecutive years of employment; after five years he is entitled to two-thirds of the benefit, and after 10 years he receives the full amount. An employee is also entitled to the full end-of-service benefit in the event of force majeure; if he terminates his contract within six months of getting married; or, in the case of a new mother, within three months of the baby’s birth. This protects employees from an employer’s use of their status as an excuse for dismissal.
If an employee is paid commission, or any addition to a regular salary, the two parties may agree to exclude these amounts from the end-of-service calculation. The Ministry of Labor and Social Development, through its online portal, provides a free calculator for the end-of-service benefit after users submit the amount of salary, term of service and type of contract.
There have been cases recently of delay and procrastination in settling employees’ rights and entitlements. The law explicitly states that this process must be completed within a week of the end of a contract if it is terminated by the employer, and within two weeks if terminated by the employee.
• Dimah Talal Alsharif is a Saudi legal consultant, head of the health law department at the law firm of Majed Garoub and a member of the International Association of Lawyers. Twitter: @dimah_alsharif