Saudi Arabia: An Employment (Foreign Expertise) Overview

Navigating Labour Disputes in Saudi Arabia: A Guide for In-House Legal Counsel

As in-house legal counsel, a thorough understanding of the labour dispute landscape in Saudi Arabia is essential, especially in light of recent amendments to labour laws. On 6 August 2024, the Saudi Council of Ministers approved significant changes to the Labour Law, which took effect on 19 February 2025. These updates set new standards for employers, requiring compliance within an evolving regulatory framework.

Key aspects of the Saudi Labour Law

The revised labour legislation, overseen by the Ministry of Human Resources and Social Development, introduces critical modifications that every employer must navigate:

• Working Hours: The law mandates a maximum workday of eight hours and a total of 48 hours per week (six days). During Ramadan, the workday is reduced to six hours.
• Contractual Obligations: Employers must issue written, fixed-term contracts for expatriate employees, clearly detailing a probation period not exceeding 180 days.
• Wage Protection: Compliance with the Wage Protection System is compulsory, along with a minimum salary of SAR4,000 for Saudi employees to qualify for Saudisation.
• Termination Procedures: Written notice is required for termination, with specific timeframes depending on which party initiates the process. Employers must also account for end-of-service benefits, which necessitate careful documentation to avoid disputes – even in cases of voluntary resignation.

Extended Maternity Leave: Maternity leave has been extended from ten weeks to 12 weeks, underscoring support for female employees.

Health insurance obligations

Under the Implementing Regulations of the Cooperative Health Insurance Law, commercial health insurance is compulsory for Saudi employees and their families, including:

• male employees – coverage for wives, sons under 25, and unmarried daughters; and
• female employees – coverage for their husbands (if unemployed), sons under 25, and unmarried daughters.

If both spouses are employed, they may choose under which employer’s insurance plan their children will be covered. Employers bear full responsibility for the costs related to health insurance.

Understanding labour disputes

Labour disputes present significant challenges for employers. Employees have a one-year limitation period from the termination of their contract to raise claims, and this must be initiated during the first hearing, as the labour court will not dismiss cases independently.

• Filing Disputes: Labour disputes should be filed with the Commission for Settlement of Labour Disputes, which will conduct a maximum of two hearings – typically within two weeks. If a settlement is not reached, the matter escalates to the Labour Court.
• Substantiating Termination: Employers must be prepared to provide solid evidence, including attendance logs and performance reviews, to substantiate terminations.
• Compliance with Articles 75 & 77: Employers can terminate open-ended contracts for legitimate reasons, but the employment contract must specify the amount of compensation. Failing to do so risks requiring the employer to pay the remaining salary for fixed-term contracts.
• Dismissal Under Article 80: Termination without severance may occur under strict conditions, such as physical assault or wilful negligence. Documenting investigations and allowing employees an opportunity to respond is essential.

Comprehensive end-of-service benefits (EOSB)

End-of-service benefits are vital rights under the Saudi Labour Law. Employees are entitled to:

• half a month’s wage for each of the first five years of service;
• one month’s wage for each subsequent year, applicable regardless of whether the termination is voluntary or involuntary; and
• last wage – the final salary serves as the basis for calculating EOSB, including gratuity for any partial year worked, proportional to the duration of service.

In the case of resignation, the gratuity entitlement varies based on tenure:

• one-third of the award if service ranges from two to five consecutive years;
• two-thirds of the award for service exceeding five but less than ten years; or
• full award if the employee has completed ten or more years of service.

Mandatory procedures before termination

To mitigate potential disputes, employers should, prior to termination:

• keep detailed records of employee violations, including warning letters and performance evaluations;
• conduct thorough inquiries that allow employees to defend their actions; and
• document discussions regarding performance or other concerns to demonstrate efforts at resolution prior to termination.

Legal consequences of unlawful termination

Failure to adhere to proper termination procedures can lead to significant liabilities for employers, including:

• compensation as mandated by Article 77 for unjustified dismissals;
• payment of EOSB;
• compensation for payment in lieu of notice;
• settlement of any unpaid leave balances; and
• issuance of experience or service certificates.

New outsourcing rules

On 28 October 2025, the Saudi Ministry of Human Resources and Social Development issued Ministerial Resolution 60339/1447, implementing new outsourcing regulations effective from 28 January 2026. These regulations apply to all commercially registered companies in Saudi Arabia and regulate the relationship between “service providers” and “service recipients” in outsourcing contracts – distinguishing them from traditional employment relationships involving dispatched labour.

Key aspects of the new outsourcing rules are outlined below.

Distinction between service outsourcing and employee outsourcing

In service outsourcing, employees are managed by the original company (the service provider), with no restrictions on the business scope. Employees can be Saudi or expatriates. Compensation is linked to the agreed results of the service contract. If services are procured on a one-time basis, Ajeer approval is not required.

Employee outsourcing, limited to expatriates, ties compensation to work hours or output, while maintaining the labour relationship with the original company (service provider). The service recipient is responsible for supervising and evaluating outsourced employees’ performance.

Outsourcing process

The employee outsourcing process must be managed through the Ajeer platform under the “Outsourcing Contract” model. Even agreements between parent and subsidiary companies require Ajeer system approval.

Notably, an employee can be outsourced to multiple companies, provided that the total working hours do not exceed the limits set by labour laws, and a separate Ajeer application must be submitted for each arrangement. New expatriate employees must sign new service contracts and obtain individual Ajeer permits.

Responsibilities of service providers and recipients

Service providers must adhere to labour laws, fulfil employer responsibilities (such as signing contracts and securing work permits), and obtain written consent from employees before outsourcing them.

Service recipients are prohibited from assigning outsourced employees to jobs inconsistent with their labour card roles, and must return employees within one working day after the Ajeer permit is revoked to avoid penalties.

Validity of Ajeer permits

Ajeer permits have a maximum validity of three years and cannot exceed this duration. If the service contract ends before three years, the permit automatically terminates upon contract expiration.

Conclusion

As in-house legal counsel, comprehending the nuances of the Saudi Labour Law and its implications for labour disputes is crucial for effective risk management within your organisation. By ensuring compliance with the latest regulations and adopting best practices for dispute resolution, you can adeptly navigate the complexities of the labour market in Saudi Arabia and safeguard your organisation from potential liabilities.