Article 77 of the Labor Law: When Is Compensation for Contract Termination Due, and How Is It Assessed?

Calculate compensation directly

Use the Article 77 compensation calculator to estimate compensation for an indefinite-term or fixed-term contract with the minimum applied, and the end-of-service award calculator to estimate the award, which is separate from it.

What Does Article 77 Address?

The article governs the compensation owed to the aggrieved party when an employment contract is terminated by either party for an illegitimate reason, unless the contract specifies compensation for this situation. The article does not cover lawful terminations governed by other articles of the Law, such as expiry of the contract term, or cases in which the Law permits the employer to terminate the contract without an award or notice under Article 80.

How Is Compensation Assessed?

According to the text of the article as available at the time of writing, compensation is assessed as follows:

• If the contract specifies compensation for termination, the parties' agreement applies.
• In an indefinite-term contract: fifteen days' wages for each year of the employee's service.
• In a fixed-term contract: wages for the remaining term of the contract.
• In both cases, compensation may not be less than two months of the employee's wages.

The Labor Court examines each case based on its facts and documents; whether the termination itself was lawful is the core of the dispute in most matters.

Illustrative Example

An employee on an indefinite-term contract has a wage for compensation purposes of SAR 9,000 per month and 6 years of service, and it is established that the termination was for an illegitimate reason. Fifteen days' wages equal SAR 4,500, so the compensation is 6 × 4,500 = SAR 27,000, which is higher than the minimum of two months' wages (SAR 18,000). The figures are for illustration only; the calculation varies depending on the contract, the wage, and the facts.

What Is the Difference Between Compensation and the End-of-Service Award?

Compensation under Article 77 is tied to the termination being illegitimate, whereas the end-of-service award is a separate right calculated based on length of service, the wage, and the reason the relationship ended. Both may be claimed together in the same dispute if the conditions for each are met. For details, read how the end-of-service award is calculated.

What Should You Prepare Before Filing a Claim or Responding to One?

• The employment contract, its annexes, and any amendment to the wage or job title.
• The termination letter, or anything proving the fact of termination, its date, and its stated reason.
• Payslips and bank transfers to determine the wage on which compensation is calculated.
• Previous warnings and investigation records, if any.
• Correspondence exchanged before and after termination.

A labor lawsuit is usually preceded by the amicable settlement stage, and Article 222 of the Law sets a period of twelve months from the end of the employment relationship within which labor claims may be heard, so do not delay taking action.

Additional examples of calculating Article 77 compensation

The following examples illustrate how compensation is calculated under Article 77 of the Labor Law, on the assumption that it is established that the termination was for an unlawful reason and that the contract did not specify special compensation for this case.

Example One: A Fixed-Term Contract. A two-year contract with a monthly wage of SAR 8,000, terminated with five months remaining in its term. The compensation is the wages for the remaining term: 5 × 8,000 = SAR 40,000, which is higher than the minimum of two months' wages (SAR 16,000).

Example Two: Short Service under an Unlimited-Term Contract. One year of service at a wage of SAR 6,000. Fifteen days' wages equal SAR 3,000, which is less than two months' wages, so the compensation is raised to the minimum: SAR 12,000.

Third example: a fixed-term contract nearing its end. One month remained on the contract, with a wage of SAR 10,000. The wage for the remaining period is SAR 10,000, but the minimum is two months' wages, so the compensation is SAR 20,000.

If the period of service includes part of a year, the method of calculating it is determined by reference to the statutory text and to what the court decides. The figures here are for illustration only.

What Is the Difference Between Article 77 and Article 80 of the Labor Law?

The two articles are often confused, even though each addresses a different situation:

• Article 77: Provides for compensation to the aggrieved party where the contract is terminated for an unlawful reason, and the aggrieved party may be either the employee or the employer.
• Article 80: Specifies certain cases in which the employer may terminate the contract without an award, notice, or compensation, provided the employee is given the opportunity to state the reasons for objecting to the termination.
• Core of the dispute: If the employer relies on Article 80, the dispute usually centers on whether the fact is proven, whether it fits one of the specified cases, and whether the requirement of hearing the employee was met. If that is not established, the court may consider the compensation claim under Article 77.

For details on cases of termination without an award, read Explanation of Article 80 of the Labor Law.

What Does Termination under Article 77 Mean?

The phrase "termination under Article 77" appears in some termination letters and generally means terminating the contract while paying the compensation the article specifies. What matters here is that Article 77 does not itself provide a ground for termination; it only sets the compensation due upon termination for an unlawful reason. Citing it in the letter therefore does not extinguish the remaining entitlements, nor does it remove the need to verify that the compensation and the wage it was based on were calculated correctly.

The Law requires that termination of an indefinite-term contract be based on a legitimate reason, subject to the notice period. This is the origin of the common term "unfair dismissal," a colloquial description of termination that is not based on a legitimate reason.

Entitlements that may be claimed alongside compensation for unfair dismissal

• The end-of-service award, which is a right independent of compensation.
• Compensation for the notice period if the statutory notice was not observed, and the 2025 Labor Law amendments changed its duration in the unlimited-term contract.
• Unpaid wages and pay in lieu of unused leave.
• The service certificate.

These claims are not accepted automatically; each claim has its own conditions and evidence, and the matter varies according to the contract, the facts, and the documents. It helps to present each claim independently, with its amount, method of calculation, and legal basis, whether at the amicable settlement stage or before the Labor Court, because conflating compensation, the end-of-service award, and the notice allowance is one of the main things that weakens the clarity of a claim or a response to it.

Frequently asked questions

How much is the Article 77 compensation in an unlimited-term contract?

If the contract does not specify special compensation, the compensation is fifteen days' wages for each year of the employee's service, provided it is not less than two months' wages. An employee who served four years at a wage of SAR 8,000 would thus be entitled to SAR 16,000, which equals the minimum in this example.

Can Compensation under Article 77 Be Combined with the End-of-Service Award?

Yes, both can be claimed together if the conditions for each are met, because compensation is tied to the unlawfulness of the termination, while the end-of-service award is a right calculated based on length of service, the last wage, and the reason the relationship ended. The court rules on each claim based on its own supporting documents.

Does Article 77 apply to the employee if he leaves the job before the contract ends?

The article grants compensation to the party harmed by termination for an unlawful reason, and the harmed party may be the employer if the employee terminates the contract without a lawful reason. This differs from cases where the Law allows the employee to leave work while retaining their rights, such as the employer's breach of its material obligations.

What is the time available to file an unfair dismissal lawsuit?

Article 222 of the Labor Law sets the limitation period for hearing a labor case at twelve months from the end of the employment relationship. The case begins with an amicable settlement request with the Ministry of Human Resources and Social Development, then is referred to the Labor Court if conciliation fails.