Work Settlement Agreement Template for Saudi Arabia

What is a Work Settlement Agreement?

The Work Settlement Agreement is a crucial document used in Saudi Arabia when concluding an employment relationship, whether through mutual agreement, resignation, or termination. It serves as a comprehensive record of the final settlement terms between the employer and employee, ensuring compliance with Saudi Labor Law and Shari'ah principles. This document typically becomes necessary during employee exits, corporate restructuring, or mutually agreed separations. The agreement includes detailed calculations of end-of-service benefits, outstanding salary, unused leave, and other entitlements as prescribed by Saudi labor regulations. It also addresses the return of company property, confidentiality obligations, and mutual releases. The document must be drafted in both Arabic and English (with Arabic prevailing in case of conflict) and may require certification by relevant authorities depending on the circumstances.

About the Work Settlement Agreement

A Work Settlement Agreement is your legal safeguard when ending an employment relationship in Saudi Arabia. This comprehensive document ensures that both you and your employer fulfill all obligations under Saudi Labor Law while providing clear terms for the final settlement of your employment.

When do you need this document?

You need a Work Settlement Agreement whenever your employment relationship is ending, whether through resignation, termination, or mutual agreement. This includes situations during corporate restructuring, redundancy programs, or when you're leaving for a new opportunity. If you're an employer dealing with workforce changes or an employee negotiating your exit terms, this agreement protects your interests. The document becomes particularly important when significant end-of-service benefits are involved or when there are complex arrangements regarding company property, confidentiality, or non-compete obligations.

Key legal considerations

Your settlement agreement must accurately calculate end-of-service benefits according to Articles 84-88 of Saudi Labor Law, which typically equals half a month's salary for each of the first five years and one month's salary for each subsequent year. You need to address outstanding salary payments, unused annual leave compensation, and any bonus entitlements. The agreement should include mutual release clauses protecting both parties from future claims, confidentiality provisions regarding company information, and clear terms for returning company property. Consider including provisions for reference letters, visa cancellation procedures, and final working arrangements. Both parties should understand their social insurance obligations and ensure proper documentation for the Wage Protection System.

Legal requirements in Saudi Arabia

Under Saudi Labor Law (Royal Decree No. M/51), your settlement agreement must comply with specific regulatory requirements. The document should be prepared in both Arabic and English, with Arabic taking precedence in case of conflicts. You must ensure calculations align with the End of Service Benefits Regulations and that payment terms comply with Wage Protection System requirements. If disputes arise, the Labor Dispute Settlement Law governs resolution procedures through labor courts. Certain circumstances may require certification by the Ministry of Human Resources and Social Development, particularly for expatriate employees or complex settlements. The agreement must respect Shari'ah principles and cannot waive an employee's statutory rights under Saudi labor law. Ensure all social insurance contributions are properly settled and documented as required by the Saudi Social Insurance Law.