Labour Law

Compensation for Termination of Employment Contract for an Unlawful Reason

Pursuant to the established Sharia and legal principle that contracts must be honoured, and their terms observed, neither party (whether employer or employee) may unilaterally terminate an employment contract for an unlawful reason, as this would constitute a violation of the Labour Law. Consequently, the party affected by termination is entitled to compensation.

In this regard, Article (77) of the Labour Law provides the following: “Unless the contract includes specific compensation for its termination by either party for an unlawful reason, the party affected by termination is entitled to compensation as follows:

1-For indefinite term contracts: an amount equivalent to fifteen days’ wage for each year of the worker’s service.

2-For fixed-term contracts: the Wage for the remainder of the contract term.
It should be noted that the compensation referred to in paragraphs (1) and (2) of this article shall not be less than the workers wage for the two months —if no agreement exists in the employment contract regarding compensation for termination for an unlawful reason.
It is also noteworthy that the Labour Law does not prevent parties from agreeing in the employment contract, to compensation for termination for an unlawful reason in an amount less than the workers wage for the two months.