When an employee terminates a limited (fixed-term) contract early in Saudi Arabia - especially without a legal justification - they trigger a dual legal outcome.
This includes compensation liability owed to the employer under Article 77, while still retaining a statutory right to proportional End of Service Benefit (EOSB) under Article 85.
This guide provides a clear explanation of both the financial liability and the EOSB entitlement, supported by a real-world example.
The Framework of Limited Contracts and Unlawful Termination
A limited-term contract is designed to end exactly at the end of its term.
When an employee resigns before this date without legitimate cause, the termination is considered unlawful.
Legitimate Justification (Article 81)
The Saudi Labor Law allows a worker to resign immediately and lawfully (retaining full rights) under specific, justified conditions, including:
- The employer fails to fulfill essential obligations.
- The employer commits fraud during the hiring or employment process.
- The employer or manager commits an assault, or engages in abusive or unjust treatment.
If resignation does not fall under these grounds, the termination is considered invalid, and the worker becomes liable for damages.
Worker’s Compensation Liability (Article 77)
When an employee unlawfully terminates a limited contract before its expiration, they are financially liable to the employer under Article 77.
Compensation Liability Calculation
| Rule | Description |
|---|---|
| Primary Rule | The employer is entitled to compensation equal to the wages for the remaining duration of the contract. |
| Minimum Guarantee | Compensation cannot be less than two (2) months’ wages, even if the remaining contract period is shorter. |
👉 Understand the differences in termination liability between Limited and Unlimited Contracts →
This liability can result in a significant financial obligation for the worker, especially for long-term fixed contracts.
Proportional EOSB Entitlement (Article 85)
Even when a worker becomes liable for compensation, the EOSB (End of Service Benefit) remains a mandatory right accrued for time already served.
EOSB entitlement applies separately from compensation liability.
Resignation-Based EOSB Scale
| Continuous Service Period | EOSB Entitlement |
|---|---|
| 2 to 5 years | One-third (⅓) of total award |
| 5 to 10 years | Two-thirds (⅔) of total award |
| 10+ years | Full (100%) award |
👉 Review all EOSB Entitlement Rules for Resignation →
⚖️ Note: EOSB entitlement applies only if the worker has completed at least two consecutive years of service.
Case Study: The Dual Financial Outcome
To illustrate how this works in practice, consider the following scenario:
Employee: Mr. Khalid
Contract Type: Limited (4 years total)
Service Completed: 2 years and 6 months (30 months)
Monthly Wage: SAR 15,000
Financial Outcome Summary
| Component | Calculation Basis | Result |
|---|---|---|
| Compensation Liability (Article 77) | Remaining 18 months × SAR 15,000 | SAR 270,000 owed to employer |
| EOSB Entitlement (Article 85) | 1/3 of total EOSB for 2.5 years’ service | SAR 6,250 due to worker |
Net Settlement
Employer may deduct EOSB due (SAR 6,250) from total compensation liability (SAR 270,000).
Final Liability:SAR 270,000 – SAR 6,250 = SAR 263,750 owed by the worker to the employer.
Key Takeaway
While the employee retains a proportional EOSB, the liability for early termination under Article 77 typically far exceeds the EOSB benefit - often resulting in a net payment owed to the employer.
Final determination of liability and entitlement rests with the Saudi Labor Court, based on evidence of justification and contract terms.
Any unresolved disputes or questions must be formally directed to the relevant Saudi authorities for official clarification and binding decisions.
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