Explanation of Article 74 of the Saudi Labor Law

If you are an employee or employer in the Kingdom trying to understand when an employment contract may be lawfully terminated without the situation turning into wrongful dismissal or a compensation claim, Article 74 is the primary gateway. This article sets out the cases in which a contract ends automatically or by agreement of the parties. Understanding it will spare you many disputes down the line.

Quick Answer

Article 74 of the Labor Law issued by Royal Decree No. M/51 of 1426 AH sets out seven cases in which an employment contract is terminated: mutual written agreement of the parties; expiry of the term in a fixed-term contract; the wish of either party in an open-ended contract subject to the prescribed conditions; the worker reaching retirement age (60 for men and 55 for women unless otherwise agreed); force majeure; permanent closure of the establishment; or completion of the work for which the worker was engaged. Any termination outside these cases may be deemed wrongful dismissal.

Text of the Article and Case-by-Case Interpretation

An explanation of Article 74 of the Saudi Labor Law must begin with a careful reading of its seven paragraphs, because each paragraph carries a different practical condition:

1. Agreement of both parties to terminate the contract. The condition here is that the worker's consent must be in writing. A verbal agreement will not protect either party if a dispute is later brought before the Labor Court.

2. Expiry of the term specified in the contract. If the contract is fixed-term and the period lapses without express or implied renewal, the contract terminates automatically. Note, however, that if the worker continues performing work after the term ends with the employer's knowledge, the contract is deemed renewed for the same period under Article 55.

3. The wish of either party in open-ended contracts. The terminating party must give the notice provided for in Article 75 (60 days for monthly-salaried workers and 30 days for others) and must have legitimate grounds.

4. Reaching retirement age. The age is 60 for men and 55 for women, unless the parties agree to continue. This provision is more flexible than most people assume.

5. Force majeure. An external event that could not have been foreseen or resisted and that renders performance of the contract impossible.

6. Permanent closure of the establishment. Partial or temporary closure does not fall under this paragraph and is subject to other provisions.

7. Completion of the agreed work. This applies to project-specific contracts with a defined purpose.

Note: Article 74 identifies cases of lawful termination only. End-of-service entitlements and gratuities are governed by Articles 84, 85, and 87, and may be due or may lapse depending on the ground relied upon for termination.

A point many people overlook: termination under Article 74 does not necessarily extinguish the end-of-service gratuity. The opposite is true in most cases.

The Difference Between Article 74 and Articles 75, 77, and 80

This is the most common source of confusion. Article 74 addresses the grounds for termination. In contrast:

• Article 75 governs advance notice in open-ended contracts.
• Article 77 sets compensation for wrongful dismissal when a contract is terminated without a lawful ground (two months' wages per year of service in open-ended contracts, and the wages for the remaining period in fixed-term contracts, with a minimum of two months).
• Article 80 lists the cases in which the employer is entitled to terminate the contract without a gratuity and without notice (assault, forgery, unjustified absence, disclosure of secrets, etc.).
• Article 81 grants the worker the same right to leave employment while retaining entitlements in specified circumstances.

This means Article 74 is the general framework, while the other articles govern exceptions and penalties. If an employer terminates a contract relying on paragraph 3 of Article 74 (the wish to end an open-ended contract) but fails to observe the notice requirement or to have a legitimate ground, the worker may claim compensation under Article 77.

Practical takeaway: an employer's reliance on Article 74 does not automatically shield it from a wrongful-dismissal claim. Check the other articles before drafting a termination letter.

Common Mistakes When Applying Article 74

• Treating the expiry of a fixed-term contract as automatic termination without documentation. It is best practice to send a written notice at least 30 days before the end of the term to avoid an implied renewal.
• Relying on WhatsApp messages as a termination agreement. Labor courts treat such messages cautiously; the safest approach is a formally signed termination agreement or one executed through the Qiwa platform.
• Terminating a female worker's contract upon her reaching 55 without ascertaining her wishes. The Labor Law allows continuation by agreement, and forced termination may be treated as discrimination.
• Invoking "force majeure" for commercial reasons. A decline in profits or the loss of a major client does not constitute force majeure in the legal sense. Courts interpret this concept very narrowly.
• Failing to register the termination on the Qiwa platform and with the General Organization for Social Insurance within the prescribed deadlines, which exposes the establishment to administrative fines from the Ministry of Human Resources and Social Development.

Before signing any termination letter, ask yourself: which specific paragraph of Article 74 applies, and do I have written evidence to support it?

For more on end-of-service entitlements and how they are calculated, see End-of-Service Gratuity Guide or browse Employment Law Questions.