Fixed-Term vs. Indefinite-Term Contracts
Employment contracts are the legal foundation of the working relationship between an employer and an employee. In Saudi Arabia, the Labor Law provides clear guidelines on how contracts should be drafted, renewed, and terminated. These rules are essential for ensuring fairness, transparency, and legal protection for both employers and workers.
This article explains the main types of employment contracts under Saudi law, focusing on the difference between fixed-term and indefinite-term contracts, based on the relevant articles of the Saudi Labor Law (Articles 50, 52, 55, 56, 57, and 74). It also highlights the rights and obligations of both parties and the situations where contracts may end.
Article 50: Definition of the Employment Contract
According to Article 50, an employment contract is a binding agreement between an employer and a worker. Under this contract, the worker agrees to perform duties under the supervision or management of the employer in exchange for wages.
This simple definition shows that an employment contract is not just a written agreement; it also defines the working relationship itself. The employee must comply with the employer’s instructions, while the employer is obliged to provide wages and other agreed benefits.
Article 52: Standardized Contract Model
The Ministry of Human Resources provides a unified contract model to ensure transparency and protect the rights of both parties. The model includes:
- Employer’s name and address
- Employee’s name, nationality, ID details, and residence address
- Agreed wage, benefits, and allowances
- Type of work and workplace
- Employment start date and duration (if fixed-term)
- Basic rights and obligations of both parties
Employers and employees are free to add additional clauses, provided they do not conflict with the Labor Law or its regulations. This standardized approach ensures clarity and prevents disputes.
Article 55: Duration and Renewal of Contracts
Article 55 sets clear rules for how employment contracts end or transform:
- Fixed-term contracts end when their period expires. If both parties continue working after expiry without renewal, the contract automatically becomes indefinite-term (except for non-Saudi employees, who remain subject to special rules in Article 37).
- If a fixed-term contract includes a renewal clause, it renews for the same period.
- If the contract is renewed three consecutive times, or if the original term plus renewals reaches four years (whichever is shorter), and the work continues, the contract automatically becomes indefinite-term.
This provision ensures stability for employees while also giving employers the option to use fixed-term contracts when necessary.
Article 56: Service Duration
Article 56 states that whenever a contract is renewed for a fixed period, the renewed term is added to the original contract when calculating service duration.
This means the worker’s rights, such as end-of-service benefits, are calculated based on the total time spent working, not just one contract term. This protects employees from losing benefits due to renewals.
Article 57: Contracts for Specific Work
If the contract is signed to complete a specific task or project, it ends once the work is finished. For example, if a worker is hired to complete the construction of a building, the contract ends automatically upon completion.
This type of contract gives flexibility to employers while ensuring that employees know their rights until the task is completed.
Article 74: Cases of Contract Termination
Article 74 outlines the situations in which an employment contract may end:
- Mutual agreement between both parties (with written consent from the worker).
- Expiry of the contract’s fixed term, unless renewed under Article 55.
- Termination by either party in indefinite-term contracts, following Article 75.
- Resignation by the worker.
- Reaching retirement age under the Social Insurance Law, unless both sides agree to continue working.
- Force majeure (unexpected and uncontrollable events).
- Permanent closure of the business.
- Termination of the activity in which the worker was employed.
- A final court judgment ending the contract in bankruptcy proceedings.
- Any other case specified by law.
This article ensures that termination is legally structured, preventing sudden or unfair dismissals.
Comparison: Fixed-Term vs. Indefinite-Term Contracts
Aspect | Fixed-Term Contract | Indefinite-Term Contract
Definition | Contract with a clear start and end date. | Contract without a specified end date.
Termination | Ends automatically when the term expires, unless renewed. | Continues until terminated by either party under Article 75.
Renewal | Can be renewed if both parties agree; after 3 renewals or 4 years, it becomes indefinite. | No need for renewal; continues as long as both parties wish.
Stability | Provides temporary stability for the worker. | Provides long-term job security.
Common Use | Seasonal or project-based jobs, probationary employment, or temporary needs. | Permanent positions, ongoing roles, or cases where continuity is essential.
Termination Rights | Employer can simply let the contract expire. | Requires notice and valid reasons to end the contract.
Key Takeaways
- Fixed-term contracts provide flexibility but can transform into indefinite-term contracts if continuously renewed.
- Indefinite-term contracts provide stronger job security but require notice and valid justification for termination.
- Employers must use the standardized contract model and respect the rights of workers as outlined in the Labor Law.
- Employees should carefully review their contracts to understand their duration, renewal clauses, and termination rights.
If you are an employee in Saudi Arabia and want to understand your rights under the Saudi Labor Law when signing an employment contract or resigning, use the SNDK platform. It’s user-friendly, helps you check contract terms, service duration, entitlements, and submit resignations legally in compliance with Saudi Labor Law.
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Frequently Asked Questions (FAQ)
Q: What is the difference between fixed-term and indefinite-term contracts under the Saudi Labor Law?
A: Fixed-term contracts in Saudi Arabia have a clear end date and end automatically when the term expires or the work is completed. Indefinite-term contracts continue until either party terminates with proper notice according to Saudi Labor Law.
Q: Can I resign immediately from a fixed-term contract in Saudi Arabia?
A: You must comply with the contract and the notice period specified under Saudi Labor Law. Early resignation may require compensation to the employer unless there is a valid reason.
Q: How can I calculate my entitlements under Saudi Labor Law when the contract ends?
A: All benefits, including end-of-service award and accrued leave, are calculated based on total service duration, including renewals, according to Saudi Labor Law. Sandak platform can simplify this calculation.
Q: Can the employer refuse my resignation in Saudi Arabia?
A: For indefinite-term contracts, if you provide the required notice as per Saudi Labor Law, your resignation is legal and cannot be refused.