What compensation is due when an employment contract is ended for an illegitimate reason?

What the article says

Article 77 deals with one situation: one party ends the employment contract for a reason that is not legitimate. It starts with what the parties agreed. If the contract specifies compensation for this situation, that amount is the reference. If it does not, the article gives the harmed party compensation according to the type of contract:

• Open-ended (indefinite-term) contract: fifteen days' wage for each year of the worker's service.
• Fixed-term contract: the wage for the remaining term of the contract.
• In both cases: the compensation may not be less than two months of the worker's wage.

"Unless the contract specifies compensation for its termination by either party for an illegitimate reason, the party harmed by the termination is entitled to compensation as follows:

1. fifteen days' wage for each year of the worker's service, if the contract is for an indefinite term;
2. the wage for the remaining term of the contract, if the contract is for a fixed term;
3. the compensation referred to in paragraphs (1) and (2) of this Article must not be less than the worker's wage for two months."

Article 77, Saudi Labor Law, in the wording issued by Royal Decree M/46 dated 5/6/1436H (25 March 2015). Unofficial working translation for awareness only; the official text is the Arabic published by the Bureau of Experts at the Council of Ministers.

"Wage" here means the actual wage. Article 2 of the Law defines "wage" as "the actual wage": the basic wage plus the other increases listed in the definition, such as commissions, and allowances due for effort made or risks faced at work. A month counts as thirty days unless the contract or the work regulations say otherwise.

Who it applies to

It applies to employment contracts governed by the Labor Law. Note that the text gives compensation to "the harmed party". That can be the worker, when the employer ends the contract for an illegitimate reason, or the employer, when the worker does. In both cases the amount is calculated on the worker's wage.

The article does not itself define an "illegitimate reason". The cases in which an employer may end the contract without compensation are listed in Article 80, and the cases in which a worker may leave while keeping all rights are listed in Article 81. Whether the reason in a particular termination was legitimate is for the body competent to hear the dispute, and a general explainer cannot answer it.

This explainer covers the private sector under the Labor Law. It does not cover civil servants or military personnel, who have their own systems. Article 7 also excludes some groups from the Law, among them domestic workers and the players and coaches of sports clubs, and the Minister issues special regulations for some of these groups. For part-time workers, the Law applies only as far as occupational safety and health, work injuries and what the Minister decides are concerned (Article 5).

A hypothetical example with round numbers

The figures below are hypothetical and for illustration only; they do not describe a real case. Assume an actual wage of SAR 6,000 a month, so a day's wage is SAR 200 on a thirty-day month, and a contract that sets no compensation amount. The floor in this example is two months' wage, SAR 12,000.

• Open-ended contract, six full years of service: 15 days' wage per year is SAR 3,000, so six years give SAR 18,000, which is above the floor.
• Open-ended contract, two years of service: the formula gives SAR 6,000, below the floor, so the compensation becomes SAR 12,000.
• Fixed-term contract with five months remaining: the wage for the remaining term is SAR 30,000.
• Fixed-term contract with one month remaining: the formula gives SAR 6,000, raised to the SAR 12,000 floor.

We used complete years because the article speaks of "each year of the worker's service" and, unlike Article 84 on the end-of-service award, sets no express rule for parts of a year.

Common misconceptions

• "Only the worker can claim it." The text gives it to the harmed party, worker or employer.
• "It is always two months." Two months is the floor for compensation calculated under paragraphs (1) and (2). It can be higher, depending on the length of service or the remaining term.
• "It replaces the end-of-service award." Article 77 does not say so. The award is governed by Articles 84 to 88, with its own conditions.
• "The 2025 amendments changed it." The amendments under Royal Decree M/44 did not touch Article 77. Its current text dates from 1436H (2015).
• "It is calculated on the basic wage only." Under the Article 2 definition, "wage" in the Law means the actual wage, unless the Law says otherwise in a specific provision.

Related articles

• Article 75: the notice period in an open-ended contract, followed by Article 76 on the amount due when the notice period is not observed.
• Article 80: termination by the employer without award, notice or compensation.
• Article 81: leaving work without notice while keeping all rights.
• Articles 84 to 88: the end-of-service award and the deadline to settle entitlements.
• Article 234: a claim to a right under the Labor Law or the employment contract is not accepted before the labor courts once twelve months have passed from the end of the employment relationship, unless the claimant presents an excuse the court accepts or the other party acknowledges the right.

Official source

The full text of the Labor Law and its amendments is published on the Bureau of Experts at the Council of Ministers portal. The Arabic text published there is the official reference.