Article 76 of the Saudi Labor Law: Rights of Workers and Employers Upon Termination of an Indefinite Employment Contract and Compensation for the Notice Period

Article 76 is a fundamental component of the Saudi Labor Law. It specifies the necessary actions when a party terminating an indefinite employment contract fails to comply with the notice period outlined in Article 75. In such cases, the party responsible for the termination must compensate the other party for the notice period, with the possibility of agreeing on additional compensation.

Overview of the Saudi Labor Law: Legislative History and Goals in Regulating Employer-Worker Relationships

The Saudi Labor Law was issued on 23/08/1426 AH (27/09/2005 AD) and published on 25/09/1426 AH (28/10/2005 AD). This law is one of the most significant pieces of legislation as it was designed to regulate the relationship between employers and workers, achieve a balance between the two parties, and clarify the rights and duties of each. This ensures the development of the labor market and contributes to the national economic growth.

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Text of Article 76 of the Saudi Labor Law: Ensuring Rights and Specifying Notice Compensation

If the party terminating an indefinite employment contract fails to comply with the notice period specified in Article 75 of this law, they are obligated to pay the other party compensation equal to the worker’s wage for the notice period. This is unless the two parties agree on a greater amount.

Purpose of Article 76:

Article 76 of the Saudi Labor Law aims to enforce compliance with Article 75 by requiring compensation when the specified notice period is not observed. Its objectives include:

1. Protecting Workers:
   • Ensures that workers have sufficient time to manage their circumstances or find alternative employment if the employer terminates the contract without prior notice.
2. Protecting Employers:
   • Safeguards employers by granting them time to maintain stability and continuity in the workplace if the worker resigns without prior notice.
3. Mutual Agreement:
   • Allows both parties to agree on a higher compensation amount than the minimum stipulated by law.

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What Does Article 76 Cover?

Explanation of the Article:

Article 76 of the Saudi Labor Law clarifies that if the party terminating the contract fails to comply with the notice period stipulated in Article 75 of the same law (30 days if terminated by the worker and 60 days if terminated by the employer), they must compensate the other party. The compensation amount is equal to the worker’s wage for the notice period. Both parties may agree on a higher compensation amount, but they cannot agree on an amount less than the specified minimum.

Key Provisions Covered:

1. Notice Period: The requirement for advance notice as defined in Article 75.
2. Violation of Notice Period: Consequences of failing to adhere to the required notice duration.
3. Compensation: The obligation to pay an amount equal to the worker’s wage for the notice period.
4. Mutual Agreement: The possibility for both parties to agree on a higher compensation amount.

Significance of Article 76:

Article 76 is one of the foundational provisions regulating the termination of indefinite contracts in the Saudi Labor Law. Its importance lies in safeguarding the rights of both parties (worker and employer) during contract termination and maintaining balance between them. Its significance can be summarized as follows:

1. Protecting the Rights of the Affected Party:
   • The article ensures that the party harmed by contract termination without prior notice receives fair compensation, whether the affected party is the worker or the employer. This compensation equals the wage for the notice period or the remaining portion of it.
2. Encouraging Adherence to the Notice Period:
   • By imposing financial compensation for non-compliance with the notice period, the article encourages both parties to respect their contractual obligations, reducing instances of abrupt contract termination.
3. Minimizing Disputes:
   • The clarity of the text and the defined compensation mechanism reduce disputes between workers and employers, as rights and obligations become clear to both parties.

How to Calculate Compensation for Breach of the Notice Period:

1. Calculate the Worker’s Daily Wage:
   Divide the monthly salary by 30 days.
   • Example:
     If the monthly salary is 6,000 SAR, then:
     Daily Wage = 6,000 ÷ 30 = 200 SAR.
2. Calculate the Required Compensation:
   Multiply the remaining days of the notice period by the worker’s daily wage.
   • Example (Full Breach of 30-Day Notice):
     If the notice period is 30 days and no notice was given:
     Remaining Days = 30 days
     Compensation = 200 × 30 = 6,000 SAR.
3. Partial Compliance with the Notice Period:
   Subtract the days fulfilled from the total notice period, then multiply the remaining days by the daily wage.
   • Example (Partial Compliance):
     If the notice period is 30 days and only 10 days were fulfilled:
     Remaining Days = 30 – 10 = 20 days
     Compensation = 200 × 20 = 4,000 SAR.

Practical Examples of Applying Article 76 of the Saudi Labor Law:

1. Termination Without Notice by the Employer:
   • If the employer terminates an indefinite contract without providing the required notice period, they must compensate the worker with an amount equal to the worker’s wage for the notice period agreed upon.
2. Sudden Resignation by the Worker:
   • If the worker leaves the job without adhering to the notice period, they are obligated to compensate the employer with an amount equal to their wage for the notice period or the remaining portion of it.
3. Agreement on Higher Compensation:
   • The parties may agree in the initial contract to a higher compensation amount for breaching the notice period, provided both parties find this arrangement suitable.

What Are the Rights of Both Workers and Employers?

1. Worker’s Rights:
   • The worker has the right to demand compensation if the employer fails to comply with Article 75, which requires the employer to provide notice before terminating the contract.
   • The compensation is equal to the worker’s wage for the notice period. Both parties can agree on a higher compensation amount.
2. Employer’s Rights:
   • The employer has the right to demand compensation if the worker fails to comply with Article 75, which requires the worker to provide notice before resigning.
   • The compensation is equal to the worker’s wage for the notice period. Both parties can agree on a higher compensation amount.

Frequently Asked Questions:

Sources:

• Ministry of Human Resources and Social Development
• The Bureau of Experts at the Council of Ministers (Labor Law)
• The Executive Regulations of the Labor Law and its annexes