The main legislation governing employment in the Kingdom is the Labor Law issued by Royal Decree No M/51, dated 23/08/1426H (corresponding to 26 September 2005) as amended (the “Labor Law”). The Labor Law is supplemented by its Implementing Regulations and Ministerial Decisions and Resolutions.

Generally speaking, the Labor Law does not distinguish between blue-collar and white-collar workers’ rights and benefits (other than with respect to working hours and breaks; they do not apply to persons occupying high positions of authority in management and policy, if such positions grant the persons occupying them authority over employees).

The Labor Law provides that the employment contract be in duplicate: one copy is to be retained by each party. However, a contract shall be deemed to exist even if not written. In this case, the employee must establish the contract, and their entitlements arising therefrom, by all methods of proof. Either party may, at any time, demand that the contract be in writing. The law also provides that Arabic shall be the language in employment contracts.

Having said that, electronic employment contracts are mandatory; an employee hired since January 2022 cannot be on-boarded without one, and employers must transition existing employees onto e-contracts; failure to do so could result in fines up to SAR1,000 per employee. Electronic contracts should be prepared by the employer on its Qiwa portal using Qiwa’s standard language in Arabic only, or in dual format (English and Arabic side-by-side). The employer must complete the placeholders for items such as days of probation, annual leave, salary, benefits, etc. Where there is no Qiwa clause, an employer can manually add a clause (using its own language). The employee should create and login to his/her Qiwa portal to accept, reject or request modification of the terms of the contract using the available reasons in the drop-down menu.

The Labor Law recognises the following types of contracts.

• Definite term – foreign national employees must be employed on a definite-term contract. Saudi and Gulf Cooperation Council (GCC) country nationals can be employed on either a definite- or indefinite-term contract. If a Saudi (or other GCC-country) national is employed on a definite-term contract, it can become indefinite by force of law. The key differences between the two types of contracts are termination and compensation for unlawful termination.
• Indefinite – as mentioned above, only Saudi and other GCC country nationals can be employed on an indefinite-term contract.
• Part-time – a part-time work contract must be in writing and of a definite term, with the work hours stipulated therein; these should not exceed half the standard work hours adopted by the employer, regardless of whether the work is performed on a daily basis or on specific days of the week.
• Flexible – this type of employment was introduced in May 2020 (in response to COVID-19). The Ministry of Human Resources and Social Development (MHRSD) announced that the intention of flexible work is to create job opportunities for job seekers and provide jobs for Saudi nationals wishing to increase their income by establishing a flexible contractual relation for hourly wages.
• Training – a training contract should commit an employer to train and qualify a person (other than its employees) for a specific profession. The training /qualification contract must:
1. be in writing;
2. indicate the profession for which the training is contracted;
3. indicate the duration of training and successive stages; and
4. stipulate the allowance to be paid to the trainee in each stage (which should not be on a piecemeal basis or based on productivity).

Working Hours

Employees on a definite- or indefinite-term contract may not work for more than eight hours a day if the employer uses the daily work criterion, or for more than 48 hours a week if the employer uses the weekly criterion. The actual working time – eg, 9:00am to 5:00pm – is not defined in the law. During the month of Ramadan, the actual working hours for Muslims are reduced to a maximum of six hours a day or 36 hours a week. The weekly criterion assumes a six-day work week, with Friday being the day of rest. After proper notification to the competent labour office, the employer may replace Friday for some of its employees with any other day of the week. The weekly rest day may not be compensated by cash.

Flexible Arrangements

See the response 1.2 Employment Contracts regarding part-time and flexible work contracts. In entities where work is done in shifts, an employer may, with the MHRSD’s approval, increase the number of working hours to more than eight hours a day, or 48 hours a week, provided that the average working hours in three weeks shall not be more or less than eight hours a day or 48 hours a week.

Overtime

Overtime is compensated on the basis of the employee’s hourly (gross) wage, plus 50% of their hourly basic salary. Recent amendments to the Labor Law, which will come into effect in February 2025 (the “Amendments”), introduce the option for the parties to agree to paid time off instead of compensation. It is expected that the new/amended Implementing Regulations that will be issued next year will elaborate on this provision.

Minimum Wage

Generally speaking, the minimum wage for a Saudi national employee is:

• at least SAR4,000 per month to count as one Saudi national in their employer’s Saudisation;
• SAR3,000–SAR4,000 per month to count as half a Saudi national in their employer’s Saudisation; or
• at least SAR3,000 per month for part-time employees to count as half a Saudi national in their employer’s Saudisation.

A Saudi national employee who receives less than SAR3,000 per month shall not count in their employer’s Saudisation. If a Saudi national has more than one employer (eg, has two part-time jobs), they will only count in one of their employer’s Saudisation efforts.

There is a higher minimum wage for certain nationalised professions (ie, professions that are exclusively or partially reserved for Saudi nationals):

• legal professions – for a Saudi national to count as one Saudi national in their employer’s Saudisation, they must earn at least SAR5,500 per month if they hold a bachelor’s degree or equivalent;
• finance and accounting professions – for a Saudi national to count as one Saudi national in their employer’s Saudisation, they must earn at least SAR6,000 per month if they hold a bachelor’s degree or equivalent, or at least SAR4,500 per month if they hold a diploma or equivalent degree; and
• pharmacist and related professions – for a Saudi national to count as one Saudi national in their employer’s Saudisation, they must earn at least SAR7,000 per month.

Generally speaking, there is no minimum wage for foreign national employees.

Bonuses

There are no statutory requirements to provide bonuses/commissions, nor are they regulated, meaning the terms and conditions can be set at the employer’s discretion.

Government Intervention

The MHRSD, in co-ordination with local banks, implements a wage protection system that monitors employers’ payments of their employees’ salaries, in Saudi Riyals, into a local bank account opened in the employee’s name. The amount paid into an employee’s bank account must correspond to the amount registered with the MHRSD and the General Organization for Social Insurance (GOSI). If the employer does not pay an employee their monthly salary, or there is a shortfall in the salary registered with GOSI, the MHRSD will ask the employer to clarify the inconsistency. The employer must provide an explanation, which the MHRSD will send to the employee through their Absher account for confirmation.

Types of Leave

The types of leave in Saudi Arabia are as follows.

• Annual leave – an employee is entitled to 21 (calendar) days of paid annual leave, to be increased to 30 (calendar) days once they complete five continuous years of service. Longer periods may be agreed and are usual in practice. The employee should enjoy their leave in the year it is due but may, with the employer’s permission, carry over annual leave to the following year. An employee is only entitled to compensation in lieu of unused annual leave on termination (not during employment). The employer may set the dates of an employee’s annual leave and postpone them in accordance with the Labor Law.
• Public holidays – there are four days for Eid Al-Fitr and four days for Eid Al-Adha, as well as Founding Day (22 February) and National Day (23 September). The Eid Al-Fitr and Eid-Al-Adha holidays are religious holidays that are fixed by the government each year based on the lunar calendar, not the Gregorian calendar, and so cannot be confirmed with any certainty until the sighting of the moon at the end of Ramadan.

• Sick leave – the statutory sick leave during a single year (beginning from the date of the first sick leave), whether intermittent or continuous, is as follows:
1. fully paid sick leave for the first 30 (calendar) days;
2. 75% paid sick leave for the next 60 (calendar) days; and
3. unpaid sick leave for the next 30 (calendar) days.
• Maternity leave – statutory maternity leave is ten weeks. However, the Amendments increase this to 12 weeks, to be distributed at the discretion of the pregnant employee so long as she begins her maternity leave no later than four weeks before her expected delivery date (as determined by a medical report). The female employee may extend her leave by another month without pay. If the newborn is sick or has special needs that requires the mother’s presence (as determined by a medical report), she may extend her maternity leave by one month with full pay and by another month without pay. An employer is not permitted to terminate a female employee during pregnancy or during her maternity leave.
• Paternity leave – a male employee is entitled to three days paid leave in case of the birth of his child. The Amendments specify that these days must be taken within seven days following the delivery (previously, the law was silent on when these days could be availed).
• Bereavement leave – an employee is entitled to five days paid leave in the event of the death of their ascendant or descendant (starting from the date of death). The Amendments introduce three days fully paid bereavement leave for a sibling’s death. A male employee is entitled to five days paid leave in case of the death of his wife. A Muslim female employee is entitled to four months and ten days paid leave from the date of her husband’s death. She may extend the leave without pay if she was pregnant at the time of her husband’s death until she delivers the child. If the child was born prior to the death, she may not use the remaining leave. A non-Muslim female employee is entitled to 15 days paid leave in the event of the death of her husband.

• Hajj leave – an employee is entitled to paid leave of not less than ten days and not more than 15 days, including the Eid Al-Adha holiday, to perform Hajj once during their service if they have not performed it before, provided they have been employed for at least two continuous years. The employer may determine the number of employees who shall be given this leave annually in accordance with work requirements.
• Study/exam leave – an employee whose enrolment or on-going education in an educational institution has been accepted by the employer has the right to fully paid leave to sit for an examination for an unrepeated year. Days of leave shall be based on the actual number of examination days. If the exam is for a repeated year, the employee shall be entitled to unpaid leave to sit for the exam. Without prejudice to the employer’s right to impose a disciplinary penalty, the employee may be denied their wage if it is proven that they did not sit the exam.

An employer may:

• request documents supporting the above-mentioned cases; and
• not terminate an employee (as determined by the supporting documents) before the employee avails the statutory leave, which may be combined with annual leave.

An employee may not work for another employer while enjoying any of their leave. If the employer proves otherwise, it may deprive the employee of their wages for the duration of the leave or recover any wages previously paid to them.

Confidentiality

There is a positive obligation on employees to keep confidential all technical, trade and industrial secrets related to their employer that could damage their employer’s interests. The Labor Law provides that if the work assigned to an employee grants them access to business secrets, the employer may in the contract require the employee not to disclose its secrets upon expiration of the contract, to protect its legitimate interests. For this condition to be valid, it shall be in writing and specific in terms of time, place and type of work. There is no minimum or maximum duration, but a duration should be included. Also, the narrower the scope/place, the greater the enforceability.

Non-Disparagement

The Labor Law provides that an employer must treat its employees with respect and refrain from actions or utterances that infringe on dignity and religion. On termination, an employer must give the employee, upon request and free of charge, a certificate of work experience, indicating the commencement and termination dates, profession and last wage received. The employer may not include in said certificate any remarks that are prejudicial to the employee’s reputation or likely to limit their employment chances.

The General Authority for Competition views non-competes as restrictive, violating the Competition Law but being acceptable in the context of employment. The Labor Law provides that for a non-compete provision to be enforceable, it must (i) be in writing (ideally in the employment contract itself) and specific in terms of (ii) time (the duration must not exceed two years from the date of termination) and (iii) place and (iv) type of work. The narrower the scope, the more likely the enforceability of the non-compete – eg, a particular city or region in Saudi Arabia, in exceptional circumstances. Clauses restricting an employee, particularly on an international scale (eg, in relation to a region such as the Middle East, or the world), are highly unlikely to be enforced, possibly even on a local level. For example, a labour court would be unlikely to enforce a non-compete against a Saudi national that would prevent them from working in their home country in an industry that they are specialised in. The Labor Law does not address consideration to waive a non-compete, and any such provision would likely be actionable independently.

It can be difficult to obtain effective injunctive relief from Saudi courts, which makes it challenging to prevent continued breaches; thus, oftentimes, the only available remedy is damages. In general, only damages and losses that are actual, quantifiable and direct are compensable; if the employer cannot evidence such a loss, the claim against the employee is unlikely to be successful. Indirect or consequential damages, such as loss of anticipated profits, are not ordinarily recoverable under Shariah. While liquidated damages clauses may be enforced, a court would have discretion not to do so if it were convinced that the liquidated damages were substantially out of line with the direct damages likely to have been suffered by the beneficiary of the clause. However, the new Civil Transactions Law (CTL) appears to expand the traditional scope of recoverable damages; it explicitly recognises lost profits as recoverable compensation, but it does not explain the circumstances under which they would be awarded. As such, it is unclear whether the CTL deviates from past practice and permits somewhat speculative future profits, or whether it is simply a restatement of the traditional approach to damages. Given that Saudi courts have somewhat wide discretion in interpreting legislative directives, it is not possible at present to opine as to whether the CTL significantly expands the scope of recoverable damages.

While the Labor Law does not address non-solicitation clauses or the criteria for an enforceable non-solicitation clause, the requirements for an enforceable non-compete (and confidentiality) provision could apply by analogy – ie, that it (i) be in writing (ideally in the employment contract) and be specific in terms of (ii) time (no minimum or maximum, but a term should be included), (iii) place and (4) type of work. See 2.1 Non-Competes regarding damages recoverable for breach of a restrictive covenant.

In Saudi Arabia, the primary data privacy law that applies in the employment sphere is the relatively new Personal Data Protection Law (PDPL), which was promulgated in 2021 and came into effect in September 2023 following several amendments. Controllers had a “grace period” of one Hijri year to comply with the new rules, ending in September 2024. While the PDPL generally applies to all entities processing personal data within Saudi Arabia, its implications for the employment sphere are particularly significant.

General Data Protection Principles

The general data protection principles under the PDPL are as follows:

• purpose limitation – personal data should only be processed for the purpose for which it was initially collected, subject to the data subject’s consent to any change to those purposes, or unless one of the circumstances set out in the following applies;
• relevance – personal data collected from employees must be appropriate and limited to the minimum necessary to achieve the purpose of its collection;
• accurate, complete and up-to-date – employers should not process personal data without verifying its accuracy, completeness, timeliness and relevance to the underlying purpose;
• fairness and transparency – the method by which personal data is collected must be direct, transparent, and secure and not entail deception, misleading actions or blackmail; and
• kept for no longer than is necessary – once personal data is no longer necessary to achieve the purpose, the employer must cease its collection and delete the data previously collected (subject to a right to retain it where a legal justification exists for a specific period or, if the personal data closely relates to a judicial proceeding, until such proceeding has concluded).

Key Employer Obligations

Generally, the obligations of employers as controllers under the PDPL when processing the personal data of their employees include the following, amongst others.

• Privacy policy: Employers must adopt and present a privacy policy to job candidates and staff. This policy should be reviewed by the employees before their personal data is collected, and it should outline the specific ways and purposes for which their data will be used.
• Data subject rights: Employees have the right to access, rectify, erase and restrict the processing of their personal data. They may also have the right to object to certain types of processing, such as profiling.
• Data security: Employers must implement all necessary organisational, administrative and technical measures and means to ensure that personal data is adequately protected. This includes measures to prevent data breaches and to respond effectively to incidents when they occur.
• Destruction of personal data: Controllers must destroy personal data as soon as the underlying purpose for collection ceases to exist, but such data may be retained if it is anonymised in accordance with the conditions set out in the PDPL’s Implementing Regulations.

Specific Considerations for Employers

Specific considerations for employers include the following.

• Employee monitoring – employers must have a clear and transparent policy regarding employee monitoring, including the use of surveillance systems, email monitoring and internet usage monitoring. Such monitoring should comply with the PDPL and any applicable laws.
• Record of processing – without prejudice to the requirements relating to personal data destruction, controllers must maintain a record of processing activities – to be made available to the Saudi Data & AI Authority (SDAIA) upon request – and must include the purpose of the processing, the entities to which personal data was or will be disclosed, or was or will be transferred if outside of Saudi Arabia, and the expected retention period.
• Data breach reporting – employers must notify the competent authority, the SDAIA, when they become aware that personal data has been leaked, damaged or illegally accessed. The PDPL also specifies the instances when employees must also be informed of a security breach affecting their personal data.
• Cross-border data transfers – if an employer transfers employee data to a country outside Saudi Arabia, they must ensure that the transfer complies with the PDPL’s requirements. The transfer of personal data outside the Kingdom is permitted only in limited circumstances, namely:
1. to implement an obligation under an agreement to which the Kingdom is a party;
2. to serve the interest of the Kingdom;
3. to implement an obligation to which the data subject is a party; and
4. to achieve other purposes as provided for under the PDPL’s implementing regulations.

In accordance with the Data Transfer Regulations, the other additional circumstances whereby local entities can transfer personal data outside the Kingdom are as follows: (i) if conducting processing operations enables the controller to carry out its activities, including central management operations; (ii) if that results in the provision of a service or benefit to the personal data subject; and (iii) if the purpose is to conduct scientific research and studies.

When transferring or disclosing personal data outside of the Kingdom, the following conditions must be satisfied:

• the transfer/disclosure has to not adversely affect the national security or vital interests of the Kingdom;
• an “appropriate” level of protection of personal data shall be in place outside the Kingdom in the country where the recipient is located, according to the assessment to be conducted by the competent authorities; and
• personal data transfer or disclosure has to be limited to the minimum amount of personal data required to fulfil the purpose for which the transfer is being made.

In any case, and in addition to the foregoing, in the absence of an appropriate level of data protection, companies will have to conduct a Schrems II-style assessment and implement an appropriate safeguard, as described by the Data Transfer Regulations (including binding common rules, standard contractual clauses and certifications of compliance with the PDPL).

There are detailed rules governing the employment of foreign nationals (ie, individuals not from a GCC country), who comprise a large segment of the labour force. As a general rule, foreign nationals may not come or be brought to Saudi Arabia to work unless the prior approval of the MHRSD has been obtained and a work permit and residence permit (iqama) has been issued, assuming the foreign national employee has met the following conditions:

• entered the country legally;
• possesses vocational skills or educational capabilities needed in the Kingdom that are either lacking or insufficiently available;
• has a contract with a local employer authorised to do business in the Kingdom; and
• is under the sponsorship of their employer.

A foreign national can only work for, be employed, sponsored for work/residency permit purposes and paid by their employer/sponsor, who must be one and the same entity licensed to do business in Saudi Arabia. They cannot work for a third party or on their own account.

The MHRSD applies a sophisticated system called Nitaqat, which imposes varying Saudisation percentages on local private entities by reference to their economic activity(ies) – ie, International Standard Industrial Classification of All Economic Activities (ISIC)4-licensed activities and the number of employees. Where an entity employs five or fewer employees, at least one would have to be a Saudi national. Where an entity employs six or more employees, it would need to adhere to the relevant Saudisation percentages of its Nitaq activity(ies). Where an entity has multiple Nitaq activities, the MHRSD will apply the one with the highest Saudisation percentages. The Nitaqat system was updated in December 2021. The key feature is the requirement to increase an entity’s Saudisation percentage year on year to stay in the relevant Nitaqat colour category. The firm expects the MHRSD to announce the new Nitaqat system (which will come into effect in 2025) in the coming months (likely towards the end of the year).

Each entity receives a rating (red, low green, medium green, high green or platinum) depending on the level of Saudisation achieved. Those receiving the red rating are subject to penalties, including not only the loss of the right to recruit additional foreign personnel but also the possible loss of the ability to renew existing visas and work permits, or to prevent their employees from transferring their employment to employers in the green or platinum categories. While the low green category is technically compliant, the entity would be unable to apply for new visas to hire additional foreign nationals, or to change a foreign national’s iqama profession, so medium green or higher should be the target.

A number of positions are reserved for Saudi nationals (either exclusively or partially; this applies in addition to the foregoing Nitaqat requirements). For example, only Saudi nationals can be the head of human resources or receptionists, secretaries, translators, customer service workers or security guards. Some professions/sectors that are partially nationalised include, but are not limited to, legal, consulting, finance and accounting, telecommunications and IT, advertising, marketing, sales, medical devices and pharmacist.

A foreign national residing in the Kingdom may not act as an independent (self-employed) freelancer/contractor. The Labor Law prescribes that foreign nationals must be employed, sponsored, work for and be paid by their employer/sponsor, who must be one and the same entity licensed to do business in Saudi Arabia; they may not work for a third party or on their own account.

Local entities may receive services from properly licensed local entities that employ foreign nationals, but in such cases the contract should be with the employing entity and not the individual; moreover, the foreign national should hold an Ajeer certificate to document any temporary work carried out on the receiving party’s premises.

A foreign national who is sponsored by a local entity but working for another, or acting as an independent contractor, would violate labour and immigration regulations and create a risk for all parties. If discovered, the foreign national could be arrested and held until deported, and the lending and receiving entities could be subject to a fine up to SAR25,000 (per foreign national employee) and banned from recruiting foreigners for a period of one year. Furthermore, the entities’ responsible manager could be deported if they are a foreign national. Fines are fairly common; the latter two sanctions are seldom ‒ if ever ‒ imposed in practice.

In the lead up to the lockdown measures during COVID-19, the MHRSD issued guidelines regarding remote work stating that private sector employers must have a technical system that follows the following standards:

• it enables the institution to manage the productivity of remote workers and supervise assigned functions; and
• the remote employee must have the authority to perform duties of work.

The guidelines also clarify that employers must determine the parameters of their remote work, including the working hours and the method of supervising productivity. Employees could come to the workplace and perform their duties on the employer’s dedicated devices, or on personal devices to which cybersecurity regulations apply.

An employer must provide private medical insurance for all its employees and their dependents, and contribute towards GCC-country national employees’ social insurance, regardless of whether they work on-site, remotely or in a mobile manner (there are no statutory social insurance obligations for foreign national employees).

An employee may, subject to the employer’s approval, take unpaid leave for a duration to be agreed upon by the two parties. The employment contract shall be deemed suspended for the duration of the leave if in excess of 20 days, unless both parties agree otherwise. During this time, the employee’s service will be considered continuous.

Working from home has become fairly common in many industries where this arrangement is possible, particularly post-COVID-19. Generally speaking, desk sharing, coworking and digital nomadic work are not particularly common in Saudi Arabia yet.

Work councils, unions and employee representatives having the power to collectively bargain with employers are not permitted in Saudi Arabia.

Work councils, unions and employee representatives having the power to collectively bargain with employers are not permitted in Saudi Arabia.

Work councils, unions and employee representatives having the power to collectively bargain with employers are not permitted in Saudi Arabia.

The Labor Law does not recognise an “at-will” employment relationship. The law recognises definite- and indefinite-term contracts, and the rules governing termination differ depending on the type of contract.

Definite-Term Contracts

Definite-term contracts are terminable:

• by non-renewal (parties can agree on the non-renewal notice period);
• for any of the reasons listed in Article 74 of the Labor Law (such as mutual agreement, retirement, firm wind-up, cessation of the activity the employee is involved in or employer bankruptcy);
• for cause by the employer for any of the reasons listed in Article 80 of the Labor Law; or
• for cause by the employee for any of the reasons listed in Article 81 of the Labor Law.

The Amendments:

• define “resignation” as the employee’s written notice of their desire, without coercion, to terminate a definite-term employment contract without conditions or stipulations, and the employer’s acceptance thereof;
• include resignation as a legitimate reason to terminate (other legitimate reasons are mutual termination, retirement, force majeure, cessation of the activity the employee is involved in, etc) – this means an employee on a definite-term contract will no longer have to compensate an employer, provided that the new provisions described in the following are adhered to; and
• regulate the resignation process – resignation will be deemed accepted if the employer does not respond within 30 days. An employer may defer acceptance of the resignation by up to 60 days, if the business needs require this, through a written explanation to the employee that must be communicated before the expiration of the above-mentioned 30-day period. The employment contract will end with the employer’s resignation acceptance, lapse of the 30-day period or after the deferral period mentioned in the foregoing. An employee can withdraw their resignation within seven days from the date of submission unless the employer has already accepted their resignation.

Indefinite-Term Contracts

Indefinite-term contracts are terminable:

• with at least 60-days’ prior written notice – unless the contract provides for a longer notice period – for a “legitimate reason”, or through payment in lieu of the notice (see the following);
• for any of the reasons listed in Article 74 of the Labor Law (such as mutual agreement, resignation, retirement, firm wind-up, cessation of the activity the employee is involved in or employer bankruptcy);
• for cause by the employer for any of the reasons listed in Article 80 of the Labor Law; or
• for cause by the employee for any of the reasons listed in Article 81 of the Labor Law.

The term “legitimate reason” is not defined in the Labor Law so is therefore determined on a case-by-case basis. Since the Saudi labour courts have no system of binding precedent or case reporting, it is often difficult to predict with certainty whether a legitimate reason for termination may exist in a given case. However, it is clearly intended to be a less stringent standard than “cause”. Employment contracts sometimes cite specific examples of legitimate reasons for termination, but these will not necessarily be considered binding by a labour court.

The Amendments retain the position that only Saudi (and other GCC-country) nationals can be employed on an indefinite-term contract, and termination must be for a legitimate reason; however, they still do not define “legitimate reason” in the context of terminating an indefinite-term contract.

The Amendments also change the notice period for an employee on an indefinite-term contract who is paid on a monthly basis. The Amendments provide that if termination is initiated by the employee, they must notify the employer in writing at least 30 days prior to their last day; if initiated by the employer, they must notify the employee in writing at least 60 days prior to their last day.

Collective Dismissals

There is no legal rule regarding the selection criteria for employees whose employment agreements will be terminated. However, the recommended best practice would be to use a selection process that is fair, objective and supported by a business case.

The Saudi Labor Law lists several legitimate reasons to terminate an employment relationship, such as mutual agreement, retirement, firm wind-up or cessation of the activity the employee is involved in. If a terminated employee files a dispute for unlawful termination, the labour courts may ask the employer whether:

• an existing/new employee takes on some of the terminated employee’s roles (albeit with a different title); and
• the employer could have reallocated the employee in its retained business, if any.

Having said that, the Saudi labour courts have no system of binding precedent, and no case reporting system, so it is often difficult to predict with certainty whether the termination would amount to “cessation of the activity they are involved in”.

The Minister of the MHRSD issued Ministerial Resolution No 50945, dated 01/05/1438H (corresponding to 29 January 2017), which prohibits huge, large or medium-sized entities to collectively dismiss Saudi nationals for any reason (other than bankruptcy or final closure) without giving a prior notice to the concerned labour office at least 60 days prior to the effective date of the dismissal decision. The Resolution defines “collective dismissal” as termination of the services of a group of Saudi workers, without any wrongful act on their part and for reasons attributed to the employer, at a rate of 1% of the workers at the entity or a total of ten employees, whichever is higher, within a period of one year as of the date of the last dismissal.

As mentioned in the foregoing, the Saudi Labor Law does not recognise at-will employment terminable by giving notice. In a definite-term contract, parties can agree a non-renewal notice period. In an indefinite-term contract, notice for a legitimate reason cannot be less than 60 days (which will become 30 days’ notice if the employee is terminating once the Amendments come into force). The party terminating an indefinite-term contract can pay the other in lieu of the notice period.

Definition of “Cause”

Article 80 of the Labor Law sets out the reasons an employer may terminate an employee without notice or an end-of-service award, provided it has given the employee the chance to object to any allegations. For example, the employee:

• during or by reason of the work, assaults the employer, the manager in charge or any of their superiors or subordinates;
• fails to perform their essential obligations arising from the labour contract or to obey legitimate orders or, despite written warnings, deliberately fails to observe instructions related to safety at work, and of workers, posted by the employer in a prominent place;
• commits misconduct or an act infringing on honesty or integrity;
• deliberately commits any act or default with the intent to cause material loss to the employer, provided the employer reports the incident to the appropriate authorities within 24 hours of becoming aware of such occurrence;
• resorts to forgery to obtain the job;
• is hired on probation;
• is absent without valid reason for more than 30 days in one contractual year or for more than 15 consecutive days, provided that the dismissal is preceded by a written warning to the employee if they are absent for 20 days in the former scenario, or for ten days in the latter scenario;
• unlawfully takes advantage of their position for personal gain; or
• discloses work-related industrial or commercial secrets.

A specific process should be followed to effectively terminate, and the employee may be entitled to an end-of-service award and compensation for unlawful termination (see 9.1 Litigation).

It is common for an employer to provide an employee with written termination notice, or with notice of its intention not to renew a definite-term contract. Similarly, employees usually provide their employer with written resignation. Mutual termination agreements are fairly common. It is strongly advised that an employer request all terminated employees to sign a final release whereby the employee:

• confirms receipt of all their entitlements (including an end-of-service award if they are entitled to one); and

• releases the employer and its affiliates of any claims or liability.

This mitigates the risk of an employee filing a claim and a labour court hearing a claim.

Disability

In the case of temporary disability arising from a work injury, the employee is entitled to financial aid equal to their full wage for 60 days, and then to 75% of the wage for the entire duration of their treatment. If the treatment lasts for one year, or if it is medically determined that the employee’s chances of recovery are low or that they are not physically fit to work, their injury shall be deemed a “total disability”. The contract may be terminated, and the employee shall be compensated for the injury. The employer may not recover the payments made to the injured employee during that year.

Female Employees

An employer shall not terminate or threaten a female employee with termination when the employee is pregnant or on maternity leave, including when she is ill due to either of the foregoing reasons, provided that said illness is duly proven through an approved medical report and that her absence does not exceed 180 consecutive or non-consecutive days per year. A female employee shall forfeit her entitlements if she works for another employer during her authorised leave. In such event, the original employer may deprive her of her wage for the duration of the leave or recover any payments made to her.

If termination is unlawful (in other words, not in line with the termination methods mentioned previously), the aggrieved party would be entitled to compensation, the amount of which depends on the type of employment contract the employee is on. Unless the contract provides for a specific indemnity, (i) employees on definite-term contracts are entitled to an amount equal to the employee’s wage for the remainder of the term of the contract, or to two months’ wages, whichever is greater; and (ii) employees on indefinite-term contracts are entitled to an amount equal to 15 days of the employee’s wage for each year of employment, or to two months’ wages, whichever is greater.

If an employee filed a claim for unlawful termination on discrimination grounds in the Labor Courts, the Labor Courts would award them compensation in additional to a statutory end-of-service award, salary until the last day of service, pay in lieu of unused annual leave and any other approved unpaid expenses.

Unless their contract provides for a specific indemnity, if an employee is on a definite-term contract, they would be entitled to their (gross) wage for the remaining period of service, or to two months’ (gross) wages, whichever is greater. If they are on an indefinite-term contract, they would be entitled to 15 days’ (gross) wages for each year of service, or to two months’ (gross) wages, whichever is greater.

If it is discovered that an employer discriminates between employees/applicants in terms of work conditions and controls, when hiring or advertising, in terms of wages between men and women performing work of equal value, or in any other manner that nullifies or prejudices equal opportunity, they could be fined up to SAR3,000 per discrimination case.

If an employee wants to file a defamation claim in the general courts, they would need to substantiate it through documentation/witnesses, which would be challenging – the burden of proof would be on the employee, as they would also have to prove damages (actual, direct and quantifiable). Unlike many other jurisdictions, discrimination claims are currently uncommon in Saudi Arabia.

The standard procedure for labour court hearings is to conduct them virtually. However, there are exceptions to this rule. If a judge deems it necessary to obtain a witness statement, the hearing may be held in person. The Ministry of Justice sends a text message to the registered mobile of the employer’s representative, the employee and/or their respective lawyers in the proceedings with details of each hearing, including the case number, parties involved in the case, date and time, and a link to the hearing via Zoom.

Labour disputes, which had previously been adjudicated by the MHRSD, are now adjudicated by labour courts. These courts operate under the auspices of and in collaboration with judges appointed by the Ministry of Justice. The Labor Law is applied in all cases.

Generally speaking, class actions are not permitted in Saudi Arabia unless they arise in the context of a commercial arrangement under commercial court law or a securities dispute.

While alternative means of dispute resolution, such as arbitration, are permitted, they are seldom if ever resorted to in practice in the context of a labour dispute.

A prevailing party can apply to the court to recover attorney’s fees. The court has discretion to accept or reject this request, based on whether:

• the request is made by the claimant, in which case they are unlikely to be awarded to the defendant unless the claim was proven to be without merit;
• the dispute does not require judicial consideration, but the claimant was forced to file a claim because the respondent was stalling; and
• the claimant can prove they incurred attorneys’ fees.

If the prevailing party is the claimant, they may recover court filing fees. If each party has partially won, costs are distributed on a pro rata basis.