What is article 77 Saudi labor law — Article 77 is one of the most important provisions in the Saudi Labor Law because it clearly defines the rules for financial compensation when an employment contract ends without a valid reason. This article was amended by Royal Decree No.
Understanding Article 77 is essential for anyone working or hiring in Saudi Arabia, as it explains how compensation is calculated for fixed-term and indefinite-term contracts, the minimum limits that must be paid, and the agreements that can be set in advance.
المحتويات
What is Article 77 Saudi Labor Law?
Article 77 of the Saudi Labor Law was amended by Royal Decree No. (M/46) dated 5/6/1436 AH, and now reads as follows:
If the employment contract does not specify the compensation amount due to the party harmed by the termination initiated by the other party, the compensation shall be determined as follows:
- For indefinite-term contracts: The harmed party is entitled to compensation equal to 15 days’ wages for each year the employee worked for the employer.
- For fixed-term contracts: The harmed party is entitled to wages for the remaining period until the agreed contract end date.
In all cases, the compensation amount must not be less than two months’ wages of the employee.
Explanation of Article 77 of the Labor Law
Article 77 of the Saudi Labor Law focuses on protecting the employee’s right to receive financial compensation if they are dismissed without a valid reason. It ensures fair treatment for employees affected by unfair termination, whether or not the compensation amount is specified in the employment contract.
- If the employment contract clearly states the compensation amount in case of unfair termination, the employer must pay that full amount.
- If the contract does not specify compensation, it is calculated as follows:
- For indefinite-term contracts: The employee is entitled to compensation equal to 15 days’ wages for each year of service.
- For fixed-term contracts: The employee is entitled to the wages of all remaining months until the contract’s end date.
- In all cases, the compensation must not be less than two months’ wages.
Additionally, Article 77 allows both parties (the employer and employee) to agree in advance on the compensation amount in the event of termination without a valid reason, provided it is not less than the minimum amounts specified in the article.
Read also: What Employee Should Know About Article 85 Saudi Labor Law?
5 Advantages and Disadvantages of Article 77 of the Saudi Labor Law
Although the primary goal of labor regulations in Saudi Arabia is to protect rights and ensure fairness, Article 77 has sparked significant debate among both supporters and critics.
Disadvantages
Increase in unfair dismissals: Some employers may use this article to terminate employees without justifiable reasons while paying only minimal compensation.
- Compensation not proportional to service length: It can be unfair to long-serving employees compared to new hires, as the compensation may not reflect years of dedication.
- Gaps in calculation: For example, a new employee with a long fixed-term contract might receive higher compensation than an older employee with a shorter contract despite having served longer.
Advantages
- Clear compensation rules: Predefined compensation provides clarity and protects employees from subjective or unfair evaluations.
- Flexibility for employers: Employers can replace underperforming employees while still offering fair compensation, improving overall productivity and workforce quality.
Check out: Understanding Legal Saudi Labor Law working hours
What Is The Difference Between Article 77 and Article 80 of the Saudi Labor Law?
Although both Article 77 and Article 80 of the Saudi Labor Law address employees’ financial rights when an employment relationship ends, there are key differences between them:
- Entitlement Scope:
Article 77 grants compensation to the party harmed whether the employee or the employer while Article 80 specifically covers the employee’s right to end-of-service benefits only. - Termination Conditions:
Under Article 77, the employer can terminate the contract and pay compensation without providing reasons or obtaining the employee’s consent. In contrast, Article 80 does not allow termination without a valid reason, requires notifying the employee beforehand, and gives the employee the right to challenge the termination decision. - Job Security:
Article 77 can reduce job security as it gives the employer broad termination power, while Article 80 strengthens job stability by protecting employees from dismissal unless there is a legitimate violation of laws or contractual obligations. - Compensation vs. End-of-Service Benefits:
Article 77 relates to compensation for unjustified termination at any time, whereas Article 80 primarily covers end-of-service benefits and only grants additional compensation in specific cases, such as during the probation period. - Notice Requirement:
Article 77 does not require any notice period before termination. Article 80, however, obliges the employer to give the employee at least two months’ notice before ending the contract. - Length of Service Impact:
Under Article 77, the employee is entitled to compensation regardless of service length or remaining contract period (with a minimum of two months’ wages). In Article 80, the employee must have served more than two years to qualify for end-of-service benefits.
Learn about: A Comprehensive Guide: Saudi Labor Law Resignation Benefits
Conclusion
Understanding what is article 77 Saudi labor law is crucial for both employees and employers. It provides clear rules for financial compensation when employment ends without a valid reason. For reliable support and expert guidance in applying Article 77 Saudi Labor Law, you can consult Etqan Law Firm, which specializes in labor law and can help protect your rights and maintain business compliance.
The Etqan Al Mutamayza Law Firm can provide the necessary support. You can contact their team
through the following mobile numbers: 056113776, 0541110440, 504315333
Alternatively, you can visit our branches:
- Jeddah: Al-Aziziyah District–Mohammed bin Abdulaziz Street (Tahlia)
- Riyadh: King Abdulaziz Street – In front of Kingdom
- Dammam: Al-Ashri’a Street, Al-Badeea, Dammam 32415.
FAQ
How does Article 77 affect businesses?
Article 77 impacts businesses by giving them flexibility to terminate employment contracts with compensation rather than needing to prove a “valid reason.”
This can help companies restructure, reduce costs, or replace underperforming staff. However, it also increases financial risk because employers must pay compensation (at least two months’ wages or more depending on service length) and may face reputational challenges if terminations appear unfair.
What is Article 77 resignation?
“Article 77 resignation” refers to when an employee resigns or ends the contract under Article 77 of the Saudi Labor Law, usually to claim compensation if the termination terms in the contract allow it or if the employer’s action triggers compensation rights. In simple terms, it’s an employee leaving while applying the same compensation principles set in Article 77.