Layoff Agreement Template for Saudi Arabia

A layoff agreement is an essential legal document that formalizes the termination of employment in Saudi Arabia when business circumstances require workforce reduction. This agreement protects both you as an employer and your employees by establishing clear terms for separation that comply with Saudi Labor Law requirements.

When do you need this document?

You need a layoff agreement when your company faces organizational restructuring, economic downturn requiring workforce reduction, business closure or department elimination, or merger and acquisition activities that result in redundant positions. The agreement becomes crucial when you must terminate multiple employees simultaneously or when the termination involves senior employees with significant tenure. It's also necessary when you want to ensure a smooth transition while minimizing legal risks and potential disputes with departing employees.

Key legal considerations

Your layoff agreement must address several critical legal elements to ensure enforceability and compliance. The final settlement calculation must include all outstanding salary, accrued vacation pay, and mandatory end-of-service benefits as specified in Articles 84-88 of Saudi Labor Law. You must clearly define the termination date, final working day, and any transition period requirements. The agreement should specify confidentiality obligations, non-compete restrictions (subject to Article 65 limitations), and return of company property procedures. Include provisions for reference letters, continuation of benefits during notice periods, and any severance payments beyond statutory minimums. Consider including mutual release clauses to prevent future claims while ensuring the employee receives fair compensation for their service.

Legal requirements in Saudi Arabia

Saudi Labor Law imposes strict requirements that your layoff agreement must satisfy to be legally valid. Article 74 mandates specific notice periods based on employment duration, which cannot be waived without proper compensation. You must calculate and pay end-of-service benefits according to the formula in Articles 84-88, which varies depending on whether the employee worked under the Saudi or Hijri calendar system. The agreement must be written in Arabic or include certified Arabic translation for enforceability in Saudi courts. Ensure compliance with Article 77 provisions regarding unlawful termination to avoid compensation claims. Document the legitimate business reason for the layoff to distinguish it from discriminatory dismissal. The final settlement must be paid within the timeframes specified in Article 83, and any delays can result in additional penalties. Consider having the agreement witnessed and notarized to strengthen its legal standing and facilitate enforcement if disputes arise.