Your employer may not be aware of this rule. If the Passport Department will not approve a transfer of your iqama considering this situation, then ask your employer for something called a secondment letter after you find a job offer. This would allow the transfer to another employer for the remainder of the period of your iqama.
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As in any other country in the world, this country is no different. What your general manager is doing is workplace harassment. Gather the evidence, paperwork and witnesses and take it to the owner of the company. If you are not satisfied with the result, and the situation is not corrected, take your case to Labor Office. Article 81/7 of the Labor Law explicitly stipulates that in such a case where the employer acts in a way as to oblige the worker to resign, the employer is considered to have terminated the contract and the employee may stop work while preserving all his contractual and legal rights.
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Giving you a notice in this way, where their contract with you does not allow them, is a sheer breach of contract. According to the law, they must pay you to the last day of your contract, meaning end of July 2011.
You deserve your salary, vacation time (or financial compensation for unclaimed vacation time) and your ESB. As to a local release, that is their prerogative.
You cannot compel them to release you locally. If they do not provide the release, you will have to leave the country for a year before returning.
Under Saudi law, a worker is always considered to be working under contract, whether it is a written and signed piece of paper or not. Without a contract from your employer, the law provides the terms of your tenure of work in Saudi Arabia. As long as you are residing and working legally in Saudi Arabia, you are considered to be working under contract.
I would consider you to be working under the contractual obligations of the law. For example, your work tenure ends at the expiration date of your work/residency visa (iqama). You can resign under the protection of the law by providing at least 30 days notice prior to the expiration date of your iqama.
Regarding a forged contract: There is a Labor Office in your area should you encounter any situation where you feel injustice has occurred.
The Labor Ministry also provides useful information on its website: http://mol.gov.sa.
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