Article 77 of Saudi Labor Law is one of the most significant and frequently disputed provisions governing employment termination in Saudi Arabia. It addresses compensation payable when an employment contract is terminated without a lawful reason and no clear compensation clause exists in the contract itself. As a result, both employers and employees often rely on Article 77 to determine their legal and financial rights following termination.
This article provides a practical and legally grounded explanation of Article 77, including when it applies, how compensation is calculated, and its impact on employment disputes in Saudi Arabia.
This article forms part of our broader guide on theSaudi Labor Law, which provides a comprehensive overview of employment regulations applicable in Saudi Arabia.
What Is Article 77 of Saudi Labor Law?
Article 77 is a statutory rule that regulates compensation when an employment contract is terminated without a valid reason. It applies when the contract does not specify an agreed compensation mechanism for early termination.
The provision aims to:
- Protect employees from arbitrary termination
- Prevent unjustified financial loss for employers
- Provide a default compensation framework in the absence of contractual clarity
Article 77 applies to both Saudi and non-Saudi employees working in the private sector.
Article 77 forms part of the broader Saudi Labor Law framework. For a comprehensive overview, see Saudi Labor Law: A Complete Guide for Employers and Employees.
When Does Article 77 Apply?
Article 77 applies when all of the following conditions are met:
- The employment contract is terminated by either party
- The termination occurs without a lawful or contractual reason
- The contract does not include a clear compensation clause governing termination
If the contract specifies compensation consistent with Saudi Labor Law, Article 77 may not apply.
Situations Where Article 77 Does Not Apply
Article 77 does not apply in cases where:
- The contract expires naturally
- Termination occurs during a valid probation period
- Termination is based on serious misconduct as defined by law
- Both parties mutually agree to terminate the contract
- The contract includes a valid termination compensation clause
Understanding these distinctions is essential to avoid misapplication of Article 77.
Compensation Under Article 77
Compensation for Unlimited Contracts
For unlimited (indefinite) contracts, compensation under Article 77 is generally calculated based on:
- The employee’s last wage
- Length of service
Courts typically award compensation equivalent to a specified wage period for each year of service, subject to judicial assessment and contractual context.
Compensation for Fixed-Term Contracts
For fixed-term contracts, compensation may include:
- Wages for the remaining contract period
- Additional compensation assessed by the court
However, compensation may not exceed what the employee would have earned had the contract continued until expiry, unless otherwise justified.
How Courts Assess Article 77 Claims
Saudi labor courts assess Article 77 claims on a case-by-case basis. Judges typically consider:
- The wording of the employment contract
- The reason for termination
- Length of service
- Salary structure
- Whether termination caused disproportionate harm
Courts place significant weight on written contracts and documented evidence.
Article 77 vs Unlawful Termination
It is important to distinguish between:
- Article 77 compensation, and
- Compensation for unlawful termination
Unlawful termination claims may involve:
- Failure to provide notice
- Discriminatory or retaliatory termination
- Violation of statutory employee protections
In such cases, courts may award compensation beyond Article 77, depending on the circumstances.
Employer Perspective: Managing Article 77 Risks
Employers can mitigate Article 77 exposure by:
- Drafting clear employment contracts
- Including lawful termination compensation clauses
- Documenting performance and misconduct issues
- Following proper termination procedures
Failure to address these issues increases the likelihood of adverse court rulings.
Employee Perspective: Protecting Rights Under Article 77
Employees should:
- Review their employment contracts carefully
- Retain salary records and termination notices
- Act promptly when termination occurs
- Seek clarification on compensation entitlements
Timely legal action significantly improves claim outcomes.
Common Misconceptions About Article 77
- Article 77 does not allow termination without consequences
- Compensation is not automatic in every termination
- Courts retain discretion when assessing compensation
- Contractual terms may override Article 77 if lawful
Understanding these misconceptions helps both parties avoid unnecessary disputes.
Relationship Between Article 77 and End of Service Benefits
Article 77 compensation is separate from end of service benefits. An employee may be entitled to:
- Article 77 compensation
- End of service benefits
- Outstanding wages and entitlements
Each claim is assessed independently under Saudi Labor Law.
Frequently Asked Questions (FAQ)
Does Article 77 apply to all employees?
Article 77 applies to both Saudi and non-Saudi employees working in the private sector, subject to contractual and legal conditions.
Is compensation under Article 77 mandatory?
Compensation applies only when termination occurs without a lawful reason and no valid compensation clause exists in the contract.
Can employers limit Article 77 compensation by contract?
Yes. Employers may include a lawful and clear compensation mechanism in the contract, provided it complies with Saudi Labor Law.
Can employees claim both Article 77 and EOSB?
Yes. Article 77 compensation and end of service benefits are separate entitlements.
Labor disputes are typically resolved through labor courts, as discussed in employment dispute resolution in Saudi Arabia.
Conclusion
Article 77 of Saudi Labor Law plays a central role in regulating employment termination and compensation. Its application depends on contractual clarity, termination circumstances, and judicial assessment. Both employers and employees benefit from understanding the scope and limitations of Article 77 to manage risks and protect legal rights effectively.
For those seeking deeper insight into Saudi employment regulations, reviewing related legal analyses and specialized labor law articles can provide further clarity and practical guidance.
For professional legal advice on Saudi labor law matters, readers may consult experienced legal practitioners through specialized legal platforms such as Elite Law Firm.
