Compensation for Fixed-Term Contract Termination depends on why the employment relationship ended, which party terminated it, how much time remained under the contract, and whether the contract contains a specific compensation clause. Ending a fixed-term contract early does not automatically mean that the employee is entitled to every salary payment remaining until the original expiry date.
The Saudi Labor Law distinguishes between a contract ending upon expiry of its agreed term and a contract being terminated earlier without a lawful reason. Article 77 addresses compensation where termination occurs for an unlawful reason.
7 Cases That Affect Fixed-Term Contract Compensation
Before calculating Compensation for Fixed-Term Contract Termination, the first step is identifying how the employment relationship ended. A contract may simply expire, be terminated early, or end under a statutory provision that changes whether compensation is payable.
| Situation | Main Effect |
|---|---|
| Contract reaches its agreed expiry date | The contract ends upon expiry unless renewed |
| Early termination for an unlawful reason | Article 77 compensation may apply |
| Contract contains a compensation clause | The clause should be reviewed before using the remaining-term calculation |
| No compensation clause exists | Remaining-term wages become the basis of calculation where Article 77 applies |
| Article 80 applies | The employer may terminate without compensation if the statutory requirements are satisfied |
| Article 81 applies | The employee may leave without notice while retaining statutory rights if its conditions are met |
| Termination during probation | The probation rules apply and termination compensation is generally not due under those provisions |
Article 55 provides that a fixed-term contract ordinarily ends when its agreed term expires, while Article 74 identifies other grounds on which the employment relationship may end. For that reason, not every ending of an employment contract is a dismissal that triggers Article 77.
What Does Article 77 Say About Fixed-Term Contract Compensation?
Article 77 is the central provision when Compensation for Fixed-Term Contract Termination is claimed because an employment contract was ended for an unlawful reason. Its application differs depending on whether the contract already contains an agreed compensation clause.
Where no specific compensation is stated in the contract, the injured party under a fixed-term contract may be entitled to wages corresponding to the remaining contractual period. The statutory calculation under Article 77 is also subject to the minimum compensation prescribed by the provision.
Article 77 of the Saudi Labor Law therefore provides the starting point for assessing unlawful termination compensation, while other provisions may change the outcome depending on the reason for termination and the party that ended the contract.
If the Contract Specifies Compensation
A contractual compensation clause means that the calculation should not begin automatically by multiplying monthly wages by the number of months remaining.
The wording of the clause should first be examined to determine when it applies, which party it covers, and how it interacts with the mandatory provisions of Saudi Labor Law.
For this reason, there is no universal rule that every fixed-term employee is automatically entitled to all remaining salaries whenever a contract ends early.
If the Contract Does Not Specify Compensation
Where the contract contains no specific compensation clause and Article 77 applies, compensation for a fixed-term contract is based on wages for the remaining contractual period.
For example, if six months remain under the contract, those six months form the starting point for calculating the amount, subject to the statutory minimum.
The Ministry of Justice Labor Calculator reflects the same approach by distinguishing compensation for unlawful termination and using the remaining period of a fixed-term contract when calculating employment entitlements.
How Is Compensation for Fixed-Term Contract Termination Calculated?
The calculation begins only after confirming that the termination falls within Article 77. The remaining contractual period and the wage used for calculation are then identified, while any contractual compensation provision must also be considered.
Where an employment contract is terminated before its expiry, compensation should not be calculated from the remaining months alone. The legal basis and reason for termination must first be established.
Calculating the Remaining Contract Term
The remaining term is the period between the employee’s actual final date of employment and the contractual expiry date.
If the contract was due to expire on June 30 but employment ended six months earlier, that remaining period becomes the basis for calculating remaining contract term compensation where Article 77 applies and no contractual compensation amount has been agreed.
The Ministry of Justice labor calculator follows the same basic logic when calculating compensation for unlawful termination of a fixed-term contract.
Which Wage Is Used in the Calculation?
Saudi Labor Law uses the concept of the employee’s actual wage, which may be broader than the basic salary alone.
The relevant wage may include the basic wage together with other amounts that form part of the employee’s wage under the employment contract, workplace regulations, and applicable provisions of the Labor Law.
Accordingly, fixed-term contract compensation should not automatically be calculated using basic salary alone, particularly where allowances, commissions, or other recurring wage components apply.
Example of Remaining-Term Compensation
Assume an employee’s relevant monthly wage is SAR 10,000 and six months remain under the fixed-term contract. The contract is terminated for an unlawful reason and does not contain an agreed compensation amount.
The initial calculation would be:
SAR 10,000 × 6 months = SAR 60,000
If only one month remained, the direct remaining-term calculation would produce SAR 10,000. However, Article 77 provides a minimum for compensation calculated under this statutory rule equivalent to two months’ wages, making the amount SAR 20,000 in this example.
Where the dispute concerns the wage figure, the termination reason, or the evidence supporting the claim, review by a labor lawyer in Jeddah can help identify the relevant elements before a claim is filed.
Is Compensation Two Months’ Wages or the Remaining Contract Term?
For a fixed-term contract, two months’ wages are not the standard compensation amount in every case.
If Article 77 applies and there is no contractual compensation provision, wages for the remaining contractual term form the basis of the calculation. The two-month amount operates as the statutory minimum under that calculation.
If five months remain, the five-month period forms the basis. If only one month remains, compensation calculated under the statutory rule does not fall below the prescribed two-month minimum.
Where the contract contains its own compensation clause, however, that clause must be examined before determining the amount.
When Might an Employee Not Receive Article 77 Compensation?
Compensation for Fixed-Term Contract Termination does not arise merely because the employment relationship has ended. The termination must fall within circumstances to which Article 77 applies.
A fixed-term contract ending on its agreed expiry date is one example. Article 74 also covers other grounds for termination, including written agreement between the parties and other statutory circumstances.
Article 80 of the Saudi Labor Law identifies circumstances in which an employer may terminate an employment contract without an award, notice, or compensation if the statutory requirements are satisfied and the employee is given an opportunity to state objections to the termination.
Termination during probation is also governed by specific provisions. The validity and terms of the probation period therefore need to be checked before applying the Article 77 compensation formula.
Does an Employee Pay Compensation for Ending a Fixed-Term Contract?
Article 77 refers to the injured party, so its compensation mechanism is not limited in principle to termination initiated by the employer. A compensation issue may also arise where an employee unlawfully ends a fixed-term contract before its agreed expiry.
However, an employee leaving employment can fall into several different legal categories. It may be a resignation, termination during probation, or termination of the employment contract by the employee on a statutory ground.
Article 79 bis regulates resignation under a fixed-term contract. Among its provisions, a resignation request is deemed accepted if 30 days pass without a response from the employer. Acceptance may also be postponed, subject to the statutory conditions, for no more than 60 days, while the employment contract remains in force during the resignation-request period.
By contrast, Article 81 of the Saudi Labor Law allows an employee to leave work without notice while retaining statutory rights when one of the specified conditions is satisfied. This does not automatically mean that Article 77 compensation is payable in every Article 81 case; the reason for termination, evidence, and surrounding facts remain relevant.
Is Termination Compensation Different From End-of-Service Benefits?
Yes. Compensation for Fixed-Term Contract Termination and end-of-service benefits are separate rights with different legal bases and methods of calculation.
Article 77 compensation concerns termination for an unlawful reason. End-of-service benefits are governed by separate Labor Law provisions. Depending on the circumstances, other amounts may also be due, including unpaid wages and accrued leave pay.
This distinction is reflected in the Ministry of Justice Labor Calculator, which separately addresses end-of-service benefits, unpaid wages, leave pay, and compensation for unlawful termination.
Each entitlement should therefore be calculated independently before determining the total amount of an employment claim.
How to Claim Compensation for Fixed-Term Contract Termination
A claim should begin by identifying why the employment relationship ended and the compensation being sought, then matching each element of the claim with supporting evidence.
The employment contract establishes the agreed term and contractual conditions. A termination notice may establish how and when the relationship ended, while wage records may affect the amount claimed.
Relevant documents may include:
- The employment contract and any amendments.
- Any contractual compensation clause.
- The termination notice or other evidence of termination.
- Evidence of the employee’s wage.
- The employee’s final working date.
- Correspondence relating to the reason for termination.
- Warnings, investigation records, or other documents relied upon by either party.
Once the file is prepared, employment disputes generally begin through the amicable settlement process administered by the Saudi Ministry of Human Resources and Social Development. If settlement is not reached, the dispute may proceed through the labor court process in accordance with the applicable procedures.
Where entitlement or the amount of Compensation for Fixed-Term Contract Termination is disputed, reviewing the contract, termination documents, wage components, and remaining contractual period helps establish the appropriate basis of the claim before proceedings begin.
Frequently Asked Questions About Fixed-Term Contract Termination Compensation
How much is compensation for terminating a fixed-term contract in Saudi Arabia?
If the contract contains no specific compensation clause and termination is for an unlawful reason, Article 77 uses wages for the remaining contractual term as the basis of compensation, subject to the statutory minimum of two months’ wages.
Is the compensation two months’ wages or the remaining contract period?
Two months’ wages are not a fixed amount for every case. Where Article 77 applies to a fixed-term contract without an agreed compensation clause, the remaining contractual term is the basis of calculation, with two months’ wages operating as the statutory minimum.
Which wage is used to calculate Article 77 compensation?
Saudi Labor Law uses the concept of actual wage, which may include the basic wage and other wage components that qualify under the contract, workplace regulations, and the Labor Law. The basic salary alone should therefore not automatically be used in every case.
Is an employee entitled to the remaining contract wages if the company dismisses them?
Not in every dismissal. The reason for termination must first be examined. If Article 77 applies and the contract contains no specific compensation provision, wages for the remaining contractual period form the basis of the compensation calculation.
Can an employee owe compensation if they terminate the contract?
Potentially, where the employee ends the contract for an unlawful reason and the other party is legally considered the injured party. The result may differ where the relationship ends through resignation, Article 81, probation, or another statutory ground.
How do I claim compensation for termination of a fixed-term contract?
Collect the employment contract, termination evidence, wage records, expiry date, and documents supporting the stated reason for termination. Employment disputes generally begin through the amicable settlement process before proceeding to the labor court if settlement is not achieved.
Compensation for Fixed-Term Contract Termination: 7 Cases depends on more than the number of months left under the contract. The reason for termination, the compensation clause, the employee’s wage, the remaining contractual term, and any applicable statutory exception can all affect the final position.
Reviewing the employment contract, termination notice, and wage components before making a claim helps identify what may be recoverable and what will need to be proven.
BMS Legal provides employment-dispute support as a law firm in Jeddah by reviewing the contract, relevant documents, and the circumstances of termination before identifying the available legal options.