When an employer ends an employment contract for an unlawful reason, the Labor Law issued by Royal Decree M/51, as amended by Royal Decree M/44 of 1446H, effective 19 February 2025 sets a clear compensation rule in Article 77. This page explains when the article applies, how the amount is computed for each contract type, and how it differs from Article 80 and notice pay — keeping in mind that whether a termination reason was lawful is for the Labor Court to decide.

What Article 77 provides

A dismissal becomes a compensation claim where the employer terminates the contract for an unlawful reason or without observing the rules of the Law and the contract. Article 77 provides that, where the contract does not specify a compensation amount for unlawful termination, the compensation is:

  • Indefinite-term contract: 15 days' wage for each year of service.
  • Fixed-term contract: the wage for the remaining period of the contract.
  • In both cases: no less than two months' wage.

Compensation by contract type

| Contract type | Compensation where the contract is silent | Minimum | | --- | --- | --- | | Indefinite term | 15 days' wage per year of service | Two months' wage | | Fixed term | Wage of the remaining contract period | Two months' wage |

Illustrative examples of the statutory formula

These examples illustrate the mechanics of the text only; in any dispute the final assessment rests with the Labor Court after examining the facts:

  • Indefinite contract, 6 full years of service, monthly wage SAR 6,000: 15 days' wage equals 3,000, so the formula gives 6 years × 3,000 = SAR 18,000.
  • Indefinite contract, 1 year of service, monthly wage SAR 6,000: 15 days' wage for one year = 3,000, which is below two months' wage (12,000), so the floor applies: SAR 12,000.
  • Fixed-term contract with 6 months remaining, monthly wage SAR 8,000: compensation is the remaining period's wage: 6 × 8,000 = SAR 48,000.

Article 77 versus Article 80

Confusing the two articles is a common error. Article 80 is the gateway for dismissal for grave cause without an award, notice, or compensation — limited to defined cases such as assault, material breach of obligations, violating safety instructions after a warning, or absence under the statutory conditions, with the worker able to object. Writing "dismissed under Article 80" is not enough on its own: the employer must prove the incident and the ground must actually fit the case, and the burden of proof lies with the employer. Article 77, by contrast, governs compensation where the termination reason is unlawful.

Compensation does not cancel other entitlements

Article 77 compensation stands apart from other rights and does not cancel claims to unpaid wages, unused leave allowance, or the end-of-service award where due. After a termination without lawful cause, entitlements are usually reviewed in this order: outstanding wages, notice period or notice pay, the end-of-service award, leave allowance, Article 77 compensation, a service certificate, and the final settlement. Article 88 requires the employer to settle the worker's dues within one week of the relationship ending where the employer terminated the contract. For a line-by-line end-of-service figure, see the end-of-service calculator.

Notice pay is one thing; Article 77 is another

The notice period and unlawful-termination compensation should not be conflated. In an indefinite-term contract paid monthly, the notice period is 30 days when the worker terminates and 60 days when the employer does, and a party that skips the notice owes a sum equal to the wage for that period or its remainder. A worker may be owed notice pay alone, or notice pay together with Article 77 compensation, depending on the reason for termination and how it was carried out.

The statutory path for a claim

The Law provides a staged route: the claim begins with amicable settlement at the Ministry of Human Resources and Social Development — the first stage for narrowing the dispute before court. If no settlement is reached, the case is referred to the Labor Court within 21 working days of the first session, and the statement of claim is filed through Najiz under the judicial services, entering the parties, the requests, and attaching the documents: the employment contract, payslips, the termination decision or evidence of it, and any relevant correspondence. For more labor topics, see the labor section.

When do you need a licensed lawyer?

Article 77's text is clear, but its application turns on a core factual question: was the termination reason lawful? That question is decided by the court after weighing the facts and the evidence. Engaging a licensed lawyer becomes a practical need in situations such as: a contractual compensation clause whose effect needs assessment, an employer relying on Article 80 while the underlying incident is disputed, a claim entangled with multiple entitlements and conflicting documents, or the need to draft the requests and be represented before the Labor Court. This content is general legal information, not an assessment of any specific case.