Saudi Arabia
JordanEmployer’s Guide to Avoiding Labor Disputes in Saudi Arabia
Introduction
Labor disputes are among the most significant challenges faced by employers in the Kingdom of Saudi Arabia, particularly amid the ongoing legislative and regulatory transformations in the labor market. Legal risk prevention and proactive compliance measures are no longer optional; they are a necessity driven by modern human resource practices.
Minimizing the risk of labor disputes relies heavily on an employer’s adherence to a set of principles and practices grounded in the Saudi Labor Law and its Executive Regulations, in addition to modern compliance tools such as the “Qiwa” platform. This guide presents employers and HR departments with a practical roadmap to proactively prevent labor disputes and maintain a legally sound and stable work environment.
Section One: Drafting Clear and Compliant Employment Contracts
In the business world, the employment contract is the legal foundation of the employment relationship. Most legal disputes often stem from a vague clause, a minor oversight, or an improperly worded condition. Therefore, drafting a clear, precise, and legally compliant employment contract—particularly one aligned with the Saudi Labor Law—is not only a legal obligation but a crucial preventive measure that protects both parties from costly disputes in terms of time, resources, and reputation.
1. The Importance of Contract Clarity
An employment contract is not a mere formality, it reflects the parties’ intentions, defines rights and obligations, and serves as a legal reference in the event of a dispute. As such, the contract must include clear and specific elements, such as:
- Job Title – accurately reflecting the employee’s actual tasks and responsibilities.
- Nature of Work – whether administrative, technical, fieldwork, etc., and what duties it entails.
- Wages – including the base salary, allowances, and any other financial or in-kind benefits.
- Work Location – especially relevant for companies with multiple branches or frequent reassignments.
- Working Hours – in accordance with statutory limits, including shifts and overtime if applicable.
- Contract Duration – clearly indicating the start and end dates for fixed-term contracts, and renewal terms.
2. Compliance with the Saudi Labor Law
The Saudi Labor Law is one of the most comprehensive regulatory frameworks governing employment relationships. Employment contracts must strictly adhere to their provisions, including but not limited to:
- Article 37 – requiring that contracts with non-Saudi employees be in writing and of fixed duration.
- Article 55 – addressing contract duration and conditions under which a fixed-term contract becomes indefinite.
- Articles 51 onwards – covering working hours, annual leave, sick leave, and rest days.
- Article 53 – regulating the probation period and termination during that time.
Failure to comply with these provisions—intentionally or otherwise—may invalidate certain clauses or expose the employer to legal liability.
3. Periodic Contract Updates
Given the frequent changes in labor laws, internal company policies, and job nature, it is essential to:
- Regularly review contracts – to ensure alignment with legal amendments or ministerial decisions.
- Update internal policies and benefits – such as remote work terms or leave entitlements, by attaching signed addenda to the original contract.
- Formally document all changes – to maintain enforceability and avoid reliance on informal practices that may be difficult to prove in disputes.
Legal Tip: Avoid using generic contract templates
One of the most common errors we encounter in legal practice is the reliance by startups and small businesses on off-the-shelf or internet-sourced employment contract templates. While these may seem convenient, they often fail to reflect the specific business context or comply with current legal standards, making them vulnerable during disputes.
Best practice: Engage a legal professional specialized in Saudi labor law to draft customized contracts that reflect the role, business activity, and risk profile of the employment relationship, thereby ensuring legal protection and dispute prevention.
Section Two: Documenting the Employment Relationship via “Qiwa” Platform
As part of Saudi Arabia’s efforts to enhance transparency, equity, and legal compliance in the labor market, the Ministry of Human Resources and Social Development launched the “Qiwa” electronic platform as a centralized tool for registering employment contracts. This initiative ensures alignment with the Saudi Labor Law and its implementing regulations.
“Qiwa” represents a transformative step in organizing labor relations. Contract registration has become mandatory, and non-compliance may result in legal consequences ranging from monetary fines to reputational and administrative penalties in the event of a dispute.
1. The Importance of Contract Registration via “Qiwa” in accordance with Article (38) of the Executive Regulations of the Labor Law – following the amendment issued on 26/12/1444H.
Electronic registration of employment contracts is now a legal obligation, not simply an administrative formality. The process achieves several strategic goals:
- Protecting the rights of both employer and employee.
- Reducing the frequency of disputes caused by ambiguous terms.
- Facilitating judicial and enforcement authorities in verifying the employment relationship.
- Integrating labor data with other government platforms such as GOSI, Muqeem, and Absher.
2. Legal Obligations for the Employer
Under the current regulatory framework, employers must fulfill key obligations when using the “Qiwa” platform:
Electronic Contract Registration
Employers must register the employment contract electronically on “Qiwa” within 90 days of the employee signing the contract or commencing work. The contract must include all essential elements as per Article 52 of the Labor Law, including:
- Full details of both parties.
- The contract’s start date and duration.
- Salary and all its components.
- Job title and description.
- Working hours and leaving entitlements.
Notifying Employees of Material Amendments
In the event of material changes to the contract—such as wage adjustments, job duties, or work location—the employer must formally notify the employee and obtain their explicit consent via “Qiwa.” Failure to do so constitutes a legal violation and may result in the amendment being void and unenforceable.
Accuracy and Consistency
The contract details on “Qiwa” must accurately reflect the real terms of employment—including actual job functions, location, benefits, and working hours. Any discrepancy may be interpreted as bad faith or regulatory evasion, weakening the employer’s legal standing in case of a dispute.
3. Legal Consequences of Non-Compliance
Failure to register contracts or update changes through “Qiwa” can lead to serious legal and administrative consequences, such as:
- Financial penalties imposed by the Ministry of Human Resources.
- Suspension of government services, including issuance or renewal of work permits.
- Judicial bias in favor of the employees especially where there is no documented contract or if actual terms differ from registered ones, as courts often resolve ambiguity in favor of the weaker party.
4. Legal Recommendations for Employers
To ensure full compliance and minimize legal exposure, we recommend that employers:
- Establish an internal mechanism for timely contract registration via “Qiwa.”
- Train HR personnel on the proper use of the platform.
- Review existing contracts and update them in line with legal changes.
- Keep both electronic and documented records of all contracts and signed amendments.
Section three: Managing Performance and Discipline in a Legally Compliant and Structured Manner
In today’s workplace, performance and disciplinary management is no longer just an administrative tool for improving employee productivity—it is a critical legal component that directly impacts an employer’s legal standing before labor courts and regulatory bodies.
Unjustified or undocumented disciplinary actions and performance reviews are often interpreted unfavorably against the employer and may be seen as evidence of wrongful termination, discrimination, or abuse of managerial authority.
1. Legal Challenges in Performance and Disciplinary Procedures
Through our representation of numerous employers in labor disputes, one of the most common areas of legal weakness lies in the lack of proper documentation for performance evaluations and disciplinary measures.
The absence of a formal and fair system for performance assessment or imposing sanctions without a clear policy framework significantly strengthens the employee’s position in disputes, especially those related to termination or financial claims.
2. Legal Foundations for Managing Performance and Discipline
To establish a compliant and defensible disciplinary framework, the employer’s actions must be grounded in four key legal pillars:
I. An Approved Internal Work Regulation (Company Policy Manual)
Maintaining an officially approved internal work regulation is a legal requirement in several jurisdictions (e.g., Saudi Labor Law, UAE Labor Law, Egyptian Labor Code). This policy must:
- Be approved by the relevant authority (e.g., Ministry of Human Resources).
- Clearly define rules of conduct, types of violations, disciplinary actions, and limitation periods.
- Be published and made accessible to employees.
Failure to maintain an approved regulation or relying on informal practices significantly weakens the employer’s ability to impose valid disciplinary action.
II. A Fair and Documented Performance Evaluation Mechanism
A formal evaluation system is the foundation for any managerial decision—whether promotion, transfer, or termination. To ensure legal defensibility, evaluations must:
- Be based on objective, pre-defined criteria (KPIs, qualitative and quantitative metrics).
- Follow a regular, announced cycle (quarterly/semi-annually/annually).
- Allow employee input and acknowledgment.
- Be supervised by the line manager and HR department.
Poor performance cannot justify termination unless it is documented through a gradual and fair evaluation process, supported by warnings, training, and a performance improvement plan (PIP).
III. Progressive Disciplinary Actions Based on Law and Policy
Sanctions must be proportionate to the severity of the offense and applied in a gradual manner:
- Verbal or written warning – initial stage.
- First and final written notices – outlining the breach and possible consequences.
- Financial penalty or loss of privileges – such as salary deduction within the limits of the law.
- Termination for cause – the last resort, which must be supported by prior documented warnings.
Any disciplinary measure issued without prior formal warning is likely to be classified as arbitrary by labor courts.
IV. Archiving Disciplinary and Evaluation Records
Whether electronic or physical, documentation is a key legal defense. It must include:
- Warning letters and notices.
- Performance evaluations.
- Minutes of disciplinary meetings.
- Employee acknowledgment or proof of notification.
- Any written evidence of corrective or training efforts prior to the sanction.
Lack of documentation weakens the employer’s case and may be interpreted as procedural misconduct.
Section four: Lawful Termination of the Employment Contract
In a professional work environment, the employment contract forms the core of stability and productivity. However, circumstances may arise where terminating the contract becomes necessary. While lawful termination is permissible, failure to follow legal procedures can lead to claims of unlawful dismissal and substantial financial liabilities.
1. Distinguishing Between Lawful and Unlawful Termination
- Lawful Termination:
Termination initiated by the employer based on legitimate organizational or performance-related reasons in accordance with labor law. - Unlawful Termination:
Termination without valid cause or in violation of procedural requirements, exposing the employer to compensation claims.
2. Key Legal Conditions for Lawful Termination
i. Justified Professional Reasons
Termination should be based on documented, objective causes, including but not limited to:
- Serious negligence or repeated poor performance.
- Frequent unauthorized absences.
- Gross misconduct or policy violations.
Employers must substantiate such reasons with legal evidence, including attendance logs, performance reviews, or formal investigations.
ii. Compliance with Article 77 of the Saudi Labor Law
Article 77 allows termination of open-ended contracts for any legitimate reason, provided that:
- Advance notice: At least 60 days for monthly-paid workers, or 30 days otherwise.
- Compensation: If no contractual clause determines compensation, the employee is entitled to either:
- 15 days’ wage for each year of service, or
- The balance of the contract period, whichever is greater.
iii. Application of Article 80 – Dismissal Without Severance
Article 80 permits dismissal without end-of-service benefits or notice in limited cases, such as:
- Physical assault on the employer or supervisors.
- Willful negligence is causing substantial damage.
- Forgery of official documents.
- Absence without valid reason for 30 intermittent days or 15 consecutive days.
However, such dismissal requires:
- Prior investigation,
- Opportunity for the employee to respond,
- Documentation of all proceedings.
3. Mandatory Procedures Before Termination
- Written warnings: Official documentation of employee violations with proof of delivery.
- Internal investigation reports: Giving the employee a chance to defend themselves.
- Performance evaluations: Especially in cases of underperformance-related termination.
- Meeting minutes/internal memos: Indicating prior discussions or improvement efforts.
- Comprehensive documentation: All records must be retained in the employee’s file for legal reference.
4. Legal Consequences of Unlawful Termination
If a court finds the termination unjustified, the employer may be liable for:
- Compensation per Article 77.
- End-of-service benefits.
- Payment in lieu of notices.
- Unpaid leave balances, if any.
- Issuance of experience or service certificates.
5. Employer Recommendations
- Avoid impulsive or emotionally driven termination decisions.
- Consult with legal counsel or HR before proceeding.
- Ensure internal policies clearly define violations and sanctions.
- Implement electronic attendance systems.
- Conduct regular, well-documented performance reviews.
Section five: Timely Payment of Employee Entitlements
Punctual settlement of employee dues is a key indicator of legal compliance and ethical employment practices. Delays in paying wages or final dues can lead to labor complaints and expose the company to severe legal and financial risks.
1. Wage Payment Through the Wage Protection System (WPS)
According to Article 90 of the Saudi Labor Law, employers must pay salaries on the agreed due dates via the Wage Protection System (WPS), which promotes transparency and allows regulatory oversight.
Failure to comply may result in:
- A fine of up to SAR 3,000 per employee.
- Gradual suspension of company services.
- Employee eligibility to transfer sponsorship without employer consent via the “Mudad” platform.
Timely and consistent salary payments support workplace stability and reduce labor turnover.
2. End-of-Service Benefits – Article 84
Article 84 entitles employees to severance pay at contract termination as follows:
- Half a month’s wage for each of the first five years.
- One full month’s wage for each subsequent year.
- Based on the last full wage, including statutory allowances.
Delays in paying for this entitlement are a frequent cause of labor complaints and may lead to court orders for additional compensation.
3. Employment Certificate – An Unconditional Employee Right
As per Article 64, upon termination, employees are entitled to a service certificate, which must include:
- Start and end dates of employment.
- Nature of the job.
- Final salary paid.
The employer may not condition issuance of the certificate upon clearance forms, waiver of claims, or return of assets. Doing so may be deemed coercive and unlawful.
Providing honest and professional reference reflects good faith and enhances the employer’s reputation in the labor market.
- Important Legal Notice:
Article (64) of the Labor Law explicitly guarantees the employee’s right to receive a service certificate upon the termination of the contractual relationship, without being conditioned on any requirement such as clearance or waiver of rights.
However, despite the clear wording of the provision, some administrative practices in certain organizations contradict this, where employees are required to sign a clearance or waiver before receiving the certificate.
These practices are not based on any legal foundation and can be challenged in labor courts if necessary.
Legal Ramifications of Non-Payment
Failure to settle employee dues on time can result in:
- Inclusion in the Ministry of Human Resources’ non-compliant employer list.
- Suspension of visa and permit-related services.
- Legal action before labor courts, including claims for late payment damages.
- Damage to the company’s legal and commercial reputation.
Section Six: Establishing Effective Internal Communication Channels within the Company
In today’s corporate environment, managing employment relations is no longer confined to regulations and disciplinary measures. It now critically depends on the existence of effective and transparent internal communication systems between management and employees. Based on legal practice in labor law and human resources, it is evident that weak internal communication is a major factor behind the escalation of grievances into formal disputes, whether before labor courts or administrative bodies.
1. The Importance of Communication in Preventing Disputes
Regular and effective internal communication is a key element of corporate governance and an essential tool for fostering a healthy work environment. The absence of clear channels for expressing concerns and complaints often compels employees to resort directly to courts, labor unions, or even media outlets—potentially causing significant reputational harm and threatening the company’s legal and operational stability.
2. Procedural Recommendations for an Effective Internal Grievance System
- Dedicated Email or Electronic System for Receiving Grievances
It is essential to establish a reliable and secure electronic channel for receiving complaints and grievances, such as a dedicated internal email address or a digital form within the HR portal. This system should:
- Be used exclusively for employment-related grievances and complaints.
- Allow employees to submit complaints confidentially without fear of retaliation.
- Be monitored by a designated team responsible for timely follow-up.
- Formation of an Internal Grievance Committee
From a legal and administrative perspective, it is recommended to form an internal grievance committee comprising representatives from HR, the legal department, and—where applicable—employee representatives in accordance with national legislation. This committee shall:
- Review submitted grievances within a reasonable timeframe (e.g., within 10 business days).
- Engage with the complainant to hear their perspective.
- Conduct confidential and impartial investigations when necessary.
- Issue a recommendation for resolution or escalating the matter to senior management if needed.
- Documentation of Actions Taken for Each Complaint
Proper documentation of all actions taken in response to each grievance is critical to ensure procedural fairness and transparency. It also serves as legal defense should the issue escalate to formal litigation. The documentation should include:
- The date the grievance was submitted.
- A record of all procedural steps taken and their corresponding dates.
- The outcome of the investigation or review.
- The final decision and any corrective action taken.
Signatures of all relevant parties on associated records or minutes.
3. Legal and Organizational Benefits
- Implementing such a system offers several key advantages:
- Preempting litigation by providing a fair and expedited process for resolving grievances internally.
- Demonstrating the company’s good faith and due diligence in any subsequent legal proceedings.
- Enhancing regulatory compliance with labor laws and collective agreements where applicable.
- Positioning the company as a responsible and transparent employer, thus improving talent retention and attraction.
Section Seven: Legal Recommendations
Preventive legal compliance is always less costly than resolving disputes after they arise. Therefore, companies are advised to:
- Periodically review and update internal disciplinary policies.
- Train managers in legally compliant performance management.
- Involve HR in the development of evaluation and disciplinary frameworks.
- Maintain thorough and systematic documentation of all administrative actions.
- Regularly verify wage payments through the Wage Protection System (WPS).
- Establish an internal process to ensure timely and accurate calculation and payment of end-of-service benefits.
- Set clear procedures for issuing service certificates without undue delay or conditions.
- Seek legal counsel before initiating any termination or dismissal to mitigate legal exposure.
Adherence to these practices not only shields the company from liability but also fosters a stable and attractive workplace environment, reducing both operational and legal risks.
Conclusion
Preventing labor disputes begins with a strong internal culture of legal awareness. Compliance is not merely about following legal texts—it requires translating laws into operational policies and institutional behavior. Periodic engagement with a qualified legal advisor specializing in Saudi labor law remains one of the most effective tools to enhance compliance and reduce exposure to legal risks.
Establishing an employment relationship based on transparency, documentation, and fairness does more than protect the organization; it also lays the foundation for a productive and sustainable work environment aligned with Saudi Vision 2030 and the evolving labor market.
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