Understanding Article 77: Termination With Compensation in Saudi Arabia

 


In Saudi Arabia, employment relationships are governed by the Saudi Labor Law, which provides protection for both employers and employees. One of the most discussed—and sometimes misunderstood—provisions is Article 77, which addresses the termination of employment contracts with compensation.

Whether you’re an expat employee, a local worker, or an employer trying to understand your rights and responsibilities, this guide will help you understand the implications of Article 77, when it applies, how compensation is calculated, and how it affects job security in the Kingdom.

🔍 What Is Article 77 of the Saudi Labor Law?

Article 77 outlines the conditions under which an employment contract can be terminated by either party (employer or employee) without an illegal reason—as long as compensation is paid.

The clause exists to give both sides the freedom to terminate the contract early if fair monetary compensation is offered. It provides a mutual exit strategy when no serious violation of the contract has occurred but one party still wants to end the relationship.

Article 77 (Translation): “Unless otherwise agreed upon, if the contract is terminated for an invalid reason by either party, the party who has been harmed is entitled to compensation equivalent to 15 days' wage for each year of service (for indefinite contracts) or the remaining wage for the period of the contract (for fixed-term contracts).”

🧾 When Does Article 77 Apply?

Article 77 does not apply in cases involving:

  • Termination due to employee misconduct

  • Absence without valid reason

  • Fraud, theft, or abuse at work

  • Violations covered under Article 80 (which allows termination without benefits)

It does apply when:

  • The employer terminates the employee without a valid reason

  • The employee resigns without being mistreated or forced to do so

  • There is no serious breach of contract by either party

  • There’s no mutual agreement but one party wishes to terminate early

In essence, Article 77 is for "neutral" terminations where no party is at fault, but the contract ends early.

📄 Types of Employment Contracts Covered

  1. Indefinite (Open-ended) Contracts:

    • Article 77 allows termination by either party.

    • Compensation: 15 days' wage for each year of service.

  2. Fixed-Term Contracts:

    • Termination before the agreed period ends requires compensation.

    • Compensation: Full salary for the remaining duration of the contract unless otherwise agreed.

💰 How Is Compensation Calculated Under Article 77?

Let’s look at both contract types in more detail.

✅ For Indefinite Contracts:

  • Compensation = 15 days’ salary × number of years worked

📌 Example:

  • Monthly salary: SAR 6,000

  • Service: 3 years

  • Compensation:
    15 days × 3 years = 45 days’ worth of salary
    SAR 6,000 ÷ 30 × 45 = SAR 9,000

✅ For Fixed-Term Contracts:

  • Compensation = Salary for the remaining contract period

📌 Example:

  • Monthly salary: SAR 8,000

  • Contract duration: 2 years (24 months)

  • Terminated after 10 months (14 months remaining)

  • Compensation: 14 × SAR 8,000 = SAR 112,000

⚖️ Benefits of Article 77 (for Employees)

  • Ensures fair compensation even if termination is not the employee’s fault.

  • Encourages employers to think twice before ending a contract.

  • Adds a layer of financial protection during job loss.

  • Prevents exploitation by enforcing legal compensation.

⚖️ Benefits of Article 77 (for Employers)

  • Allows employers to legally terminate contracts without invoking Article 80 or fabricating disciplinary cases.

  • Keeps the termination process clear and regulated.

  • Encourages peaceful separation with pre-agreed terms.

❗ Common Misunderstandings About Article 77

❌ “Employers can terminate you anytime without reason.”

➡️ Not true. While Article 77 allows termination, it requires compensation, which can be costly for employers.

❌ “If I resign, I still get compensation under Article 77.”

➡️ Only if your resignation fits the conditions (e.g., employer breached terms, or you’re resigning without mutual agreement and it was pre-agreed in your contract).

❌ “Article 77 overrides Article 80.”

➡️ Not always. If the employer claims Article 80 (termination without compensation for valid reasons), then Article 77 does not apply.

📝 What Should Be Included in Your Employment Contract?

To protect yourself as an employee or employer:

  • Clearly state termination clauses

  • Include compensation terms in case of early termination

  • Specify contract type (fixed-term or indefinite)

  • Keep records of performance and conduct

These will help determine which Article applies in case of disputes.

🔄 Real-Life Scenario:

Fatima, a private school teacher, had a 2-year contract. After 6 months, the school terminated her without any misconduct. She had no disciplinary record, and the reason given was “budget issues.”

She filed a complaint through the MHRSD (Ministry of Human Resources and Social Development) portal. The case was reviewed, and because there was no violation on her part, she was awarded compensation under Article 77 — 18 months of salary for the remaining contract period.

📣 How to File a Complaint if You’re Wrongfully Terminated

If you believe your termination falls under Article 77 and you did not receive fair compensation:

  1. Call 19911 – Ministry’s support hotline

  2. File a complaint on the MHRSD portal

  3. Attend a friendly settlement hearing

  4. If unresolved, take your case to Labor Court with:

    • Contract copy

    • Salary records

    • Termination letter

    • Communication history

🌐 Digital Protection for Expats

Saudi Arabia’s labor system has become more digitized. Platforms like:

  • Absher

  • Qiwa

  • Mudad

… help workers check their contract validity, Iqama status, wage protection, and even file complaints.

If your employer terminates you without compensation or justification, these tools help ensure your rights under Article 77 are protected.

✅ Conclusion

Article 77 plays a crucial role in providing flexibility to both employers and employees in Saudi Arabia. While it allows termination of contracts, it also mandates compensation for the affected party. Whether you're a long-term expat, a new employee, or a business owner, understanding this law helps ensure a fair and transparent employment relationship.

It’s important to keep detailed records and understand your contract terms. If you ever face unjust termination, know that Article 77 ensures you’re not left empty-handed.

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