Terminating an Employee in Saudi Arabia: Mistakes Employers Regret

The errors foreign employers make when ending employment in Saudi Arabia, from invalid reasons to botched final settlements, and how to avoid them.

Ending employment in the Kingdom is governed by the Labour Law, which distinguishes between expiry of a fixed-term contract, termination with notice for a valid reason, dismissal for specific misconduct, and resignation. Each route has its own notice, compensation and end-of-service consequences, and some rules changed with the amendments in force from 2025. Mistakes here commonly end up before the labour courts, where the employer's paperwork decides the outcome.

Why these keep happening

Employers get termination wrong because they carry the practice of their home country or act in frustration. A performance problem becomes a sudden dismissal, a restructuring is done without notice, or the final settlement is delayed while the company decides what it owes. The employee has an accessible route to challenge the decision, and the burden of showing it was lawful often falls on the employer.

1. Dismissing without a valid reason

The employer ends an indefinite contract because the relationship is not working, without a reason the law recognises.

• Avoid it by: Identifying the legal basis for termination before acting, with advice.
• Proof it is closed: A written record of the reason and its legal basis.

What it costs you: Compensation for unlawful termination under the law or the contract.

2. Using misconduct dismissal without the process

The Labour Law lists specific grounds for dismissal without notice or award, with procedural requirements such as an investigation.

• Avoid it by: Following the investigation and documentation steps the law and your internal rules require.
• Proof it is closed: Investigation records, the employee response and the decision.

What it costs you: The dismissal is treated as unlawful and the full entitlements become due.

3. Ignoring notice

The employer ends the contract immediately without the notice period or pay in lieu.

• Avoid it by: Applying the notice period in the contract and law, which can differ by pay frequency.
• Proof it is closed: Notice letter with dates, or payment in lieu recorded.

What it costs you: Notice pay owed, and a weaker position in any dispute.

4. Delaying the final settlement

The company waits to calculate end-of-service, leave balance and final pay.

• Avoid it by: Preparing the settlement before the last day.
• Proof it is closed: Settlement paid within the legal time limit.

What it costs you: Claims and possible penalties for late payment.

5. Leaving residency and platforms untidy

The contract ends but the iqama, GOSI registration and insurance are left as they were.

• Avoid it by: Updating Qiwa, GOSI and Muqeem, and handling final exit or transfer.
• Proof it is closed: Records closed on all platforms.

What it costs you: Continuing liabilities and confusion over the employee status.

6. Retrenchment without process

The company cuts roles in a downturn and treats it as a series of individual dismissals.

• Avoid it by: Taking advice on the rules that apply to termination for economic or organisational reasons.
• Proof it is closed: A documented rationale and process applied consistently.

What it costs you: Multiple claims at once.

A short check before you sign

• What is the legal basis for this termination, and is it written down?
• Has the required process, such as an investigation, been followed?
• Is the notice period correct under the contract and current law?
• Is the final settlement calculated and ready?
• Are platform, insurance and residency steps planned?

If it has already happened

If a termination has gone wrong, get advice quickly on whether to settle before a claim. Many disputes pass through amicable settlement at the labour offices before reaching the court, and an early, well-documented offer is usually cheaper than a judgment. Then fix the policy and process that led to the error.

Domira works with foreign investors on the property side of entering Saudi Arabia: finding land or premises, due diligence, design, construction and asset management. For licensing, tax and legal steps, work with a licensed adviser; we coordinate with yours so the property decision fits the structure you choose.