Direct Answer / Quick Summary:

Under Article 77 of the Saudi Labor Law (Royal Decree No. M/51 as amended), if either the employer or the employee terminates an authenticated contract for an invalid or non-statutory reason (Sabab Ghayr Mashroo'), the harmed party is entitled to mandatory statutory financial compensation calculated as follows:

1. Fixed-Term Contracts: Full wage for the entire remaining duration of the contract term.

2. Indefinite (Open-Ended) Contracts: Fifteen (15) days' wage for each completed year of continuous service (prorated for partial years).

3. Mandatory Statutory Floor: Under Paragraph 3 of Article 77, compensation can never be less than two (2) months' full wage, regardless of remaining contract time or length of service.

4. Cumulative Entitlements: Article 77 damages are in addition to (not a substitute for) accrued End of Service Benefits (Article 84), unused annual leave encashment (Article 111), and notice pay (Article 76).

What Constitutes an "Unlawful Termination" Under Saudi Labor Law?

Saudi labor jurisprudence does not recognize "at-will employment." An employer cannot dismiss an employee simply by offering arbitrary severance or citing vague "operational restructuring" unless strictly justified under statutory provisions.

An employment termination executed on Qiwa is legally classified as unlawful under Article 77 if it does not satisfy one of the lawful separation grounds defined in the Labor Law:

Statutory Safeguards & Rights Protection

Mandatory protections enforced by MHRSD & Saudi Labor Law

1
Article 74 Lawful ExpiryMutual written agreement, fixed-term contract expiry, total permanent disability, or verified retirement.
2
Article 80 Gross MisconductProven criminal conviction, physical assault, deliberate commercial fraud, or prolonged unexcused absence.
3
Article 77 Unlawful TerminationArbitrary dismissal without statutory cause, unproven operational redundancy, or retaliatory termination.
4
Article 81 Employer Statutory BreachFailure to pay wages for 3 months, unauthenticated contract, or constructive dismissal.

Common Unlawful Dismissal Scenarios Encountered on Qiwa

1Fabricated Restructuring: Terminating an employee under the guise of corporate reorganization without official MHRSD insolvency filings or commercial license cancellations.
2Pretextual Performance Allegations: Dismissing a worker for "underperformance" without providing formal written warnings, statutory improvement plans, or complying with the disciplinary inquiry process under Article 71 and Article 72.
3Retaliatory Dismissals: Terminating an employee shortly after they reported Wage Protection System (WPS) violations, safety infractions, or overtime discrepancies.
4Unilateral Early Termination of Fixed Contracts: Terminating an expatriate or Saudi professional 6 months into a 2-year contract without mutual written agreement or Article 80 gross fault.

The Statutory Compensation Formula: Basic vs. Gross Wage

A critical area of dispute in labor conciliations is the definition of "wage" used to compute Article 77 damages. Employers frequently attempt to calculate severance solely on the Basic Salary (Al-Ajr Al-Asasi).

Under Article 2 of the Saudi Labor Law, all severance and statutory indemnities must be calculated on the Actual Gross Wage (Al-Ajr Al-Fa'li), which includes:

Basic monthly salary
Fixed housing allowance (or company-provided housing evaluated at contractual rate)
Fixed transportation allowance
Any recurring, non-discretionary allowances (e.g., mobile, food, shift allowances)
Guaranteed quarterly or annual commissions
Daily Wage = (Gross Monthly Salary ÷ 30)

Detailed Calculation Models & Worked Scenarios

Model 1: Fixed-Term Contract Dismissal

Under Article 77, Paragraph 2, the compensation equals the total wage for the remaining contractual term.

Scenario: An Operations Director is on a 2-year authenticated Qiwa contract with a monthly gross salary of SAR 25,000 (Basic: SAR 17,000 + Housing: SAR 5,500 + Transport: SAR 2,500). The employer terminates the contract without statutory cause at the end of Month 14 (10 months remaining).
Remaining Duration: 10 months.
Article 77 Compensation:
10 months × SAR 25,000 = SAR 250,000
Statutory Floor Check: SAR 250,000 is greater than 2 months' wage (SAR 50,000). Full SAR 250,000 is legally owed.

Model 2: Indefinite (Open-Ended) Contract Dismissal

Under Article 77, Paragraph 1, compensation equals 15 days' wage for every year of service.

Scenario: A Senior Accountant has worked continuously for 6 years and 4 months on an indefinite contract. Monthly gross salary is SAR 12,000 (Daily wage = SAR 400).
Completed Service: 6 years + (4 months / 12) = 6.333 years.
Entitlement Days:
6.333 years × 15 days/year = 95 days' wage
Article 77 Compensation:
95 days × SAR 400 = SAR 38,000
Statutory Floor Check: Minimum compensation is 2 months' wage ($2 × SAR 12,000 = SAR 24,000$). Since SAR 38,000 exceeds the statutory floor, the employee receives SAR 38,000.

Model 3: The Mandatory Statutory Floor (Paragraph 3 Rule)

The law protects workers with short service or near-expiry contracts by establishing an absolute floor.

Scenario: A Sales Specialist with a gross wage of SAR 8,000 on a 1-year contract is unlawfully dismissed with only 2 weeks (14 days) remaining on their contract.
Remaining Contract Calculation:
14 days × (SAR 8,000 / 30) = SAR 3,733.33
Application of Article 77(3) Floor: The calculated amount is far below the statutory minimum. The law mandates:
Minimum Compensation = 2 months × SAR 8,000 = SAR 16,000
The employer is legally required to pay SAR 16,000, not SAR 3,733.33.

Contractual Penalty Clauses: Can an Employer Cap Article 77?

Article 77 opens with the clause: "Unless the contract includes specific compensation in case of its termination by one of the parties for an invalid reason..."

This clause allows parties to negotiate an agreed liquidated damages figure. However, Saudi Labor Courts apply strict public policy limitations:

1Clauses Below the Statutory Minimum Are Void: If an employment contract stipulates a compensation of "1 month's wage," the Labor Court will invalidate the clause under Article 8, which prohibits any agreement that deprives a worker of rights established by law. The statutory 2-month minimum applies.
2Higher Contractual Penalties Are Strictly Enforceable: If the contract specifies "6 months' gross wage" as termination compensation, the Labor Court will enforce the full 6 months against the terminating party.
3Asymmetric Clauses: Clauses that penalize the worker heavily (e.g., 6 months' salary) while capping employer liability at 1 month are routinely declared unconscionable and adjusted by labor judges to reflect statutory parity.

Full Financial Separation Package: Article 77 vs. Other Entitlements

A widespread corporate misconception is that paying Article 77 damages absolves the employer from paying other end-of-service entitlements. In reality, an unlawful termination triggers four separate financial buckets:

Compensation ElementGoverning StatuteCalculation BasisWhether Taxable / GOSI Deductible
1. Article 77 DamagesLabor Law Art. 77Remaining contract or 15 days/yr (min. 2 mo.)Severance indemnity (GOSI exempt)
2. Notice Period PayLabor Law Art. 7660 days gross wage (if notice was not served)Regular wage (GOSI applicable)
3. End of Service (ESB)Labor Law Art. 84Full 100% scale (0.5 mo./yr for 1-5 yrs, 1 mo./yr after)Statutory gratuity (GOSI exempt)
4. Unused Annual LeaveLabor Law Art. 111Exact accrued balance × daily gross wageFinal compensation payout

Step-by-Step Legal Procedure: Claiming Article 77 in Labor Court

If an employer terminates your contract unlawfully on Qiwa and refuses to pay Article 77 compensation, follow this statutory litigation roadmap:

Step 121 Days

Dispute Lodged on Waddi

File electronic labor grievance on MHRSD portal within 12 months (Article 222)

Step 2Settlement

Virtual Amicable Conciliation

MHRSD conciliator conducts remote hearing; issues executive Reconciliation Deed

Step 3Binding

Najiz Labor Court & Enforcement

Judicial ruling by commercial labor panel; Article 46 bank freeze on non-payment

Step 1: Reject the Unlawful Qiwa Separation Worksheet

When the employer processes the termination on Qiwa, do not sign internal discharge papers (Ikhla' Taraf) stating that you have received all financial rights. On Qiwa Individuals, review the recorded reason. If the reason is inaccurate or the compensation is missing, record your objection.

Step 2: File Electronic Claim on MHRSD Waddi

Within 12 months of termination (statute of limitations under Article 222), submit a labor grievance on the MHRSD Portal under Amicable Settlement (التسوية الودية - ودي). Attach:

Authenticated Qiwa Contract PDF
Termination notification screenshot from Qiwa
Bank statements or Mudad payroll slips showing gross wage breakdown

Step 3: Attend Waddi Virtual Conciliation (21 Days)

MHRSD schedules a mandatory video conciliation session within 21 business days.

If the employer agrees to pay: The conciliator issues a Reconciliation Deed (*Wathiqat Sulh*), which holds the executive power of an enforceable judicial writ.
If the employer refuses to pay or fails to attend two scheduled hearings: The conciliator formally refers the case to the Labor Court via the Ministry of Justice (Najiz).

Step 4: Labor Court Trial on Najiz

The commercial labor panel (Al-Da'irah Al-Ummaliyya) examines the authenticated Qiwa data. Because Qiwa contracts carry official evidentiary weight under the Saudi Law of Evidence, the burden of proof rests entirely on the employer to demonstrate valid statutory cause. In 90%+ of unsubstantiated dismissals, the court awards full Article 77 damages, notice compensation, and gratuity.

Step 5: Enforcement via Najiz Enforcement Court (Mahkama al-Tanfeez)

Once the final judgment (Hukm Qat'i) is issued, submit the execution request on Najiz. If the employer fails to disburse funds within 5 business days, the Enforcement Judge activates Article 46 sanctions:

Freezing corporate bank accounts
Suspending Qiwa and Muqeem portal government services
Banning company executives from foreign travel

Expat Legal Protection: Sponsorship Freeze & Lawsuit Work Permits

Expatriate workers often fear that filing an Article 77 lawsuit will result in retaliatory deportation or an "Absence from Work" (Inqita' an al-Amal) report.

Under current Saudi regulations:

1Automated Huroob Block: Once a dispute is registered on the MHRSD Waddi system, the employer's portal is electronically blocked from filing an Absence from Work report against the claimant.
2Temporary Work Permit (*Tasreeh Amal Muaqqat*): While the Labor Court lawsuit is pending, the worker can apply through MHRSD for a temporary work permit, allowing them to work legally for another company until a final ruling is delivered.
3Right to Transfer Sponsorship: Upon receiving a favorable Labor Court judgment or proof of arbitrary termination, MHRSD grants the expatriate an unconditional sponsorship transfer without requiring the original employer's consent.

Critical Traps to Avoid in Article 77 Claims

1. The Adhesion Discharge Trap

Never sign a separation agreement containing clauses like: "The employee hereby waives all future claims under Article 77, 84, and 85." While Article 8 invalidates waivers of statutory rights signed during an active employment relationship, signing an unconditional release after termination can complicate labor litigation.

2. Missing the Article 222 Limitation Clock

Under Article 222 of the Saudi Labor Law, Labor Courts will not accept any claim concerning employment rights if filed more than twelve (12) months following the formal termination date of the contract, unless a legally acceptable excuse is recognized by the judiciary.

3. Confusing Forced Resignation with Voluntary Exit

If an employer makes your workplace intolerable to force you to resign, do not submit a standard resignation on Qiwa. A standard resignation is recorded as an employee-initiated Article 75 separation, which forfeits Article 77 claims. Instead, resign under Article 81 (Constructive Dismissal) or file an immediate grievance with MHRSD.

Frequently Asked Questions (FAQ)

Can an employee claim compensation under Article 77 if they resign voluntarily?

No. Article 77 compensation is awarded to the harmed party when the other party terminates the contract unlawfully. If an employee resigns voluntarily without legal grounds under Article 81, the employer may actually claim Article 77 compensation from the employee.

How long does a Labor Court case take to resolve in Saudi Arabia?

Thanks to the full digitization of the Ministry of Justice (Najiz) and MHRSD Waddi systems, standard labor disputes are resolved within 45 to 90 days (21 days in Waddi conciliation, followed by 2 to 3 virtual hearings in the Labor Court).

Is Article 77 compensation subject to GOSI deductions or income tax?

No. In Saudi Arabia, there is no personal income tax, and Article 77 termination indemnity is legally classified as statutory compensation for damages, which is completely exempt from GOSI social insurance contribution deductions.

What if my authenticated Qiwa contract has a lower salary than my real bank transfer?

Under the Saudi Law of Evidence and Wage Protection System (WPS) rules, Labor Courts accept official bank statements, Mudad transfer files, and corporate payslips as conclusive proof of your real actual wage (Al-Ajr Al-Fa'li), overriding understated contract figures.

Can an employer fire a Saudi national under Article 77 if they pay the compensation?

Under Ministerial Decisions regulating Saudization, an employer cannot dismiss Saudi workers under Article 77 if the establishment's Nitaqat Saudization ratio falls below statutory category minimums, or if the dismissal constitutes mass retrenchment (Fasl Jama'i) without prior MHRSD approval.

Facing Unlawful Dismissal or Defending Against Arbitrary Claims?

Whether you are a corporation navigating workforce restructuring compliance or an executive seeking enforcement of contractual severance, consult our specialized regulatory advocates at the Qiwa Platform Compliance Hub for comprehensive dispute representation before MHRSD and the Saudi Labor Courts.