Article 77 Saudi Labor Law: Unfair Dismissal Compensation

An accountant has worked six years for a company under an indefinite contract, with a salary of SAR 8,000. One ordinary morning he is told the company “no longer needs his services”, with no written reason, and is asked to hand over the company property in his custody.

The direct answer: ending the contract without a valid reason entitles the worker to compensation under Article 77 of the Labor Law, unless the contract sets a different amount: 15 days' wage for each year of service in an indefinite contract, and the wage for the remaining period in a fixed-term contract, and in both cases no less than two months' wage. In the example the compensation is SAR 24,000, and this is on top of the end-of-service award and notice compensation if he was not given notice.

What is arbitrary (unfair) dismissal in Saudi Arabia?

The words “arbitrary dismissal” (al-fasl al-ta'assufi) do not appear in the Saudi Labor Law, but the law deals with the same idea under the name of ending the contract for an invalid reason. The idea is simple: an employer cannot end your contract whenever he wants without justification, and if he does, you are entitled to the compensation set out in Article 77.

In an indefinite contract, Article 75 requires the termination to be based on a valid reason and preceded by written notice. If the employer ends your contract without a valid reason, or relies on a reason not proved before the court, the termination is invalid even if he respected the notice period. In a fixed-term contract, ending it before its term without a legal reason is also an invalid termination.

The law does not give a closed list of valid reasons; the Labor Court decides in each case whether there was a real justification. The cases in which an employee may be dismissed without compensation or award are listed exhaustively in Article 80; they include assaulting the employer, long absence without excuse, and disclosing work secrets.

When is ending the contract not unfair dismissal?

Not every end of a contract by the employer is unfair dismissal. Article 74 lists cases in which the contract ends by its nature, and Article 77 compensation is not claimed, including:

• The end of a fixed-term contract without renewal.
• Both parties agreeing to end the contract, provided your consent is in writing.
• Reaching retirement age under the Social Insurance Law, unless the parties agree to continue.
• Force majeure that prevents the work from continuing.
• The worker's resignation, a case added to Article 74 by the 1446H amendments and governed by Article 79 bis.

Many people confuse this with notice. The employer respecting the notice period does not by itself make the termination valid; notice is one condition and a valid reason is another. So a worker may be entitled to notice compensation alone, Article 77 compensation alone, or both, depending on what the employer failed to do.

How is compensation calculated under Article 77?

The article starts with an important condition: if your contract sets a specific compensation for invalid termination, that comes first. If the contract says nothing, compensation is calculated as follows:

A worker on an indefinite contract served 6 years with a monthly wage of SAR 8,000. 15 days' wage is SAR 4,000, so the compensation is SAR 24,000.

A worker on a fixed-term contract with one month left, and a wage of SAR 7,000. The wage for the remaining period is only SAR 7,000, but the minimum is two months' wage, so he is entitled to SAR 14,000.

What if your contract sets an amount lower than two months' wage? The opening of Article 77 gives priority to the compensation fixed in the contract, while the two-month minimum in paragraph 3 is expressly tied to the compensation “referred to in paragraphs (1) and (2)”, that is, the amount the law calculates when the contract has no such clause. The text therefore does not expressly extend the two-month floor to an agreed amount. Read the compensation clause in your contract carefully, before signing and after dismissal, because it is applied first.

Compensation is calculated on the wage, and under the Labor Law “wage” means the actual wage (Article 2): the basic wage plus all other increases due to you for your effort, the risks you face, or under the contract or the work rules. The text expressly includes commissions, percentages of sales or profits, and allowances paid for effort or risk. So if your salary includes commissions or allowances of this kind, they form part of the wage on which compensation is calculated; what remains is proving the amounts, so gather the statements and payslips before you claim.

Is compensation all you are owed?

Article 77 compensation is a separate right and does not cancel your other rights on the end of the contract. A worker dismissed without a valid reason usually claims:

• The full end-of-service award under Article 84, because the employer ended the contract.
• Notice compensation if the employer did not give you written notice on time; for an indefinite contract with a monthly wage, the employer's notice is at least 60 days, and the compensation equals your wage for the notice period under Article 76.
• Unpaid wages and payment for unused leave balance.
• A service certificate showing your period of work and your last wage.

Article 88 requires the employer to pay your dues within one week of the end of the relationship if he ended the contract.

Is dismissal during the probation period unfair?

One of the most common questions is dismissal during probation. Paragraph 6 of Article 80 allows the employer to end the contract during this period without award or compensation. But probation itself has conditions: after the Labor Law amendments in force since February 2025, it must be stated expressly in the contract, its length must be clearly set, and its total must not exceed 180 days. If your contract has no probation clause, or the probation period has ended, it cannot be used as a basis for ending your contract.

If you are ill, Article 82 prevents your employer from ending your service because of illness before you have used up the sick leave periods set by the law.

What should you do if you are dismissed without a reason?

1. Ask for the dismissal decision in writing, and keep a copy of the contract, salary statements and correspondence.
2. Do not sign a final release or an acknowledgement of receiving all your rights before you are sure of the amounts.
3. File an amicable settlement request online with the Ministry of Human Resources and Social Development (HRSD); this stage is mandatory and the Labor Court will not hear the case before it.
4. If the settlement fails within 21 working days of the first session, a record of failed settlement is issued and the case moves to the competent Labor Court. The Ministry of Justice says the settlement department refers the case to the court, while the HRSD service page says the claimant may file a statement of claim under Ministry of Justice procedures; so check your case status on Najiz (the Ministry of Justice e-portal) and file the statement of claim if it has not been referred.

Do not delay your claim. Article 234 of the Labor Law provides that a labor case is not accepted more than 12 months after the end of the employment relationship, unless there is an excuse the court accepts or the employer admits the right.

This is general information based on the official Arabic texts of Saudi laws, which prevail over any translation. It is not legal advice for your specific case.

Practical solutions for both sides

If you are the dismissed employee:

• Ask for the dismissal decision and its reason in writing, and do not sign any paper that calls it a “resignation” instead of a dismissal.
• Keep your contract, your latest payslips and any message that proves the date the relationship ended.
• Calculate your rights: unpaid wages, end-of-service award, leave payment and compensation for invalid dismissal.
• File the amicable settlement request, and do not go beyond 12 months from the end of the relationship.

If you are the employer:

• Document the reason for termination and its evidence before taking the decision, not after.
• If the reason is one of the Article 80 cases, follow its procedures exactly, including written warning where required.
• Settle the employee's dues within the legal period to avoid additional claims.
• If your position looks weak, a written settlement is usually cheaper than a compensation judgment.

Compensation depends on the type of contract, the reason for termination and your documents. Send us on WhatsApp your contract, the dismissal decision and your latest payslip, and we will calculate your rights with you.