Employment relationships in Saudi Arabia are governed by the Saudi Labor Law, a comprehensive legal framework that defines the rights and responsibilities of both employers and employees. Among its many provisions, Article 74 stands out as one of the most important because it specifically addresses the lawful circumstances under which an employment contract can be terminated.
This article is crucial because it provides clarity for both workers and employers, helping them understand the conditions that justify the end of a contractual relationship. Whether you are an employee seeking to protect your rights or an employer looking to comply with the law, understanding Article 74 is essential.
In this guide, we will explore the exact text of Article 74, explain each of the situations in which a contract can be legally terminated, and highlight the implications for both employees and employers.
The Text of Article 74 of the Saudi Labor Law
Article 74 states that an employment contract may be terminated in any of the following situations:
- By mutual agreement between the parties, provided the worker consents in writing.
- Upon the expiration of the contract term, unless it has been renewed in accordance with the law.
- At the request of either party in the case of an open-ended contract.
- When the employee reaches the retirement age, unless both parties agree to continue working.
- In cases of force majeure.
- If the establishment is permanently closed.
- If the activity in which the employee works is terminated, unless agreed otherwise.
- In any other case stipulated by another law.
Explanation of the Eight Termination Cases
1. Mutual Agreement Between the Parties
The first case allows both the employer and employee to end the contract before its expiration date, as long as there is written consent from the employee. This written consent serves as legal proof and protects both sides from future disputes.
For example, if an employee decides to resign early due to personal reasons, and the employer agrees, the contract can be terminated smoothly through mutual agreement.
2. Expiration of the Contract Term
In fixed-term contracts, the employment relationship automatically ends once the agreed period expires. However, both parties may decide to renew the contract for another fixed term. Renewal can be repeated multiple times, but once the contract reaches four consecutive years of renewals, it may automatically be treated as an open-ended contract under Saudi law.
This provision ensures flexibility while maintaining legal certainty for both employers and employees.
3. Termination of Open-Ended Contracts
Saudi citizens often have open-ended contracts, unlike non-Saudis, who are usually employed on fixed-term contracts due to residency regulations. An open-ended contract can be terminated by either party, provided there is a valid reason and sufficient notice.
Situations where a contract becomes open-ended include:
- When no end date is specified in the contract.
- When both parties continue working after the contract’s expiration without renewal.
- When a contract is renewed consecutively three times or extends beyond four years.
- When both parties agree to make the contract indefinite.
This provision offers flexibility while ensuring that the rights of the employee are safeguarded.
. Reaching Retirement Age
Reaching the age of 60 years is considered a legitimate reason for ending the employment relationship. However, the law also provides exceptions:
- If both parties agree, the employee may continue working after the retirement age.
- If the employment contract specifies a period that extends beyond retirement age, the contract remains valid.
This ensures that experienced workers can continue contributing when their expertise is invaluable to the employer.
5. Force Majeure
Force majeure refers to unexpected events beyond the control of both parties, such as natural disasters, wars, or pandemics, that make it impossible to continue the employment relationship.
For instance, if a factory is destroyed by a fire or flood, the employer may legally terminate the contracts of affected workers under this provision.
6. Permanent Closure of the Establishment
If an employer is forced to shut down the business entirely, the employment contracts of all workers will be terminated. Common reasons for closure include:
- Bankruptcy or liquidation of the company.
- Revocation of business licenses.
- A government decision ordering permanent closure.
In such cases, employees are generally entitled to end-of-service benefits and other statutory rights.
7. Termination of the Specific Activity
Even if the business continues, a worker’s contract may end if the specific department or activity they are employed in is permanently shut down.
For example, if a company decides to stop operating a particular division—such as a production line or a service branch—contracts tied to that activity may be terminated.
8. Other Legal Provisions
Finally, Article 74 allows for termination under any other circumstances provided by another law. This ensures that the Labor Law remains adaptable and consistent with broader Saudi legal frameworks.
Why Article 74 Matters
Article 74 is a cornerstone of Saudi employment law because it strikes a balance between protecting employees’ rights and giving employers the flexibility they need to manage their workforce.
For employees, it ensures transparency and legal protection in cases of contract termination. For employers, it provides clear guidance on when and how contracts can end without exposing themselves to legal disputes.
Ultimately, understanding Article 74 helps create a more stable, fair, and efficient labor market in Saudi Arabia.
Conclusion
Article 74 of the Saudi Labor Law defines eight lawful circumstances for ending an employment contract. By clarifying situations such as mutual agreement, contract expiration, retirement, force majeure, and closure of the business, it protects both employees and employers.
Every worker and employer should familiarize themselves with this article to understand their rights and obligations. In case of disputes, consulting a professional labor lawyer can provide valuable assistance and ensure compliance with the law.
If you are considering resignation or want to understand your rights when ending an employment contract in Saudi Arabia, use the SNDK platform now to know your rights clearly and easily. The platform is user-friendly and allows you to manage your legal procedures quickly and safely.
FAQ
- What are the legal cases for terminating an employment contract under Article 74 of the Saudi Labor Law?
- Cases include: mutual agreement, contract expiration, termination of indefinite-term contracts, reaching retirement age, force majeure, permanent closure of the establishment, termination of the specific activity, and any other cases stipulated by Saudi law.
- How can an employee legally resign in Saudi Arabia?
- Employees can resign by providing written notice to their employer according to the contract and Saudi Labor Law, taking into account the notice period for fixed-term or indefinite-term contracts.
- Can a fixed-term contract become an indefinite-term contract after renewal?
- Yes, if the contract is renewed three consecutive times or the original term plus renewals exceeds four years and both parties continue working, it automatically becomes an indefinite-term contract.
- What are the employee’s rights upon reaching retirement age?
- Upon reaching 60 years, the contract normally ends unless both parties agree to continue. Employees retain all their rights, including end-of-service benefits under Saudi Labor Law.
- How does the permanent closure of the establishment affect the employment contract?
- If the establishment closes permanently, all employment contracts end legally, and employees are entitled to all statutory benefits and payments.
- What is force majeure and how does it apply to employment contracts?
- Force majeure refers to unexpected events beyond the control of both parties, such as natural disasters or major crises, that make it impossible to continue the contract legally.
- Can an employment contract be terminated if the employee’s activity is closed?
- Yes, if the employer discontinues the department or activity the employee works in, the contract tied to that activity ends, with all legal rights of the employee preserved.
- Are there other cases stipulated by law for contract termination?
- Yes, other Saudi regulations may specify additional termination cases, such as laws in private sectors, education, or healthcare, which must be followed