Termination Agreement Template for Saudi Arabia

A Termination Agreement is a legally binding contract that formalizes the end of an employment relationship in Saudi Arabia. This document ensures that both employer and employee understand their rights and obligations when concluding their working relationship, while maintaining compliance with Saudi labor laws and Sharia principles. The agreement serves as proof of proper termination procedures and protects both parties from potential legal disputes.

When do you need this document?

You need a Termination Agreement when ending an employment relationship, whether through mutual consent, resignation, or dismissal. This document is essential when calculating and paying end-of-service benefits, which are mandatory under Saudi Labor Law for employees who have completed at least two years of continuous service. You'll also need this agreement when dealing with expatriate employees, as it affects their work permit and residency status under Saudi Residence Regulations. The document becomes crucial during company restructuring, redundancy situations, or when an employee breaches their contract terms. Additionally, you need this agreement to ensure proper final wage payments through the Wage Protection System and to address social insurance obligations under the Social Insurance Law.

Key legal considerations

Several critical legal elements must be addressed in your Termination Agreement. The final settlement calculation must include all outstanding wages, unused annual leave, and end-of-service benefits calculated according to Saudi Labor Law provisions. You must specify the exact termination date and ensure proper notice periods are observed, as stipulated in the original employment contract or Saudi Labor Law. Confidentiality clauses should protect sensitive business information while respecting employee rights. For expatriate workers, the agreement must address work permit cancellation and the transfer or termination of residence permits. Social insurance contributions and final settlements must be properly documented to comply with Social Insurance Law requirements. Any post-employment restrictions, such as non-compete clauses, must align with Sharia law principles and Saudi regulatory frameworks.

Legal requirements in Saudi Arabia

Under Saudi Labor Law (Royal Decree No. M/51), your Termination Agreement must comply with specific statutory requirements. End-of-service benefits must be calculated at 15 days' salary for each of the first five years and 30 days' salary for each subsequent year of service. The agreement must be processed through the Wage Protection System to ensure timely payment of final settlements. For expatriate employees, you must coordinate with the Ministry of Human Resources and Social Development to cancel work permits and address residency status changes. The document must be drafted in Arabic or include certified Arabic translation for legal validity. All parties must be properly identified with their legal names, Saudi ID numbers or Iqama numbers, and current addresses. The agreement should reference compliance with Sharia law principles, particularly regarding the prohibition of interest-based penalties and the requirement for fair treatment of all parties.