Redundancy Settlement Agreement Template for Saudi Arabia

A Redundancy Settlement Agreement is an essential legal document that formalizes the termination of employment in Saudi Arabia when positions are eliminated due to business restructuring, economic conditions, or operational changes. This agreement creates a binding contract between you and your employer that outlines the terms of your departure and ensures compliance with Saudi labor regulations.

When do you need this document?

You need a Redundancy Settlement Agreement when your employer eliminates your position for reasons unrelated to your performance. This typically occurs during company downsizing, departmental closures, technological changes that make roles obsolete, or economic downturns affecting business operations. The agreement is also necessary when organizations merge or restructure, resulting in duplicate positions being eliminated. In Saudi Arabia's dynamic business environment, this document ensures your rights are protected while providing your employer with legal certainty about the termination process.

Key legal considerations

Several critical elements must be addressed in your settlement agreement. The termination payment calculation must include your end-of-service gratuity, which equals half a month's salary for each of the first five years of service and one month's salary for each subsequent year. Notice period compensation is required unless waived by mutual agreement, typically ranging from 30 to 90 days depending on your length of service. Any outstanding vacation pay, overtime, and expense reimbursements must be clearly calculated and included. Post-employment restrictions such as confidentiality clauses and non-compete agreements should be reasonable and legally enforceable. The agreement should also address the return of company property and the handling of ongoing projects or client relationships.

Legal requirements in Saudi Arabia

Saudi Labor Law (Royal Decree No. M/51) mandates specific requirements for redundancy settlements that cannot be waived. Employers must demonstrate that the redundancy is genuine and not discriminatory, particularly regarding Saudization (Nitaqat) quotas for national employment. The settlement must comply with Social Insurance Law requirements, ensuring proper documentation for unemployment benefit eligibility. All payments must be processed through the Wage Protection System (WPS) where applicable, and proper tax treatment must be applied according to Zakat, Tax and Customs Authority regulations. The agreement must be written in Arabic or include an Arabic translation to ensure enforceability. Employers are required to provide at least 30 days' notice or payment in lieu, and the settlement amount cannot be less than the statutory minimum entitlements. Additionally, the agreement should specify that it represents the complete settlement of all claims, providing both parties with legal finality.