The employment contract is the fundamental legal framework governing the relationship between employers and employees in the Kingdom of Saudi Arabia. It defines the rights and obligations of each party and the mechanisms for initiating and terminating the relationship, thus ensuring job stability and fairness.
This article aims to clarify the concept of the employment contract within the Saudi Labor Law, explaining the difference between fixed-term and open-ended contracts and the circumstances under which each can be converted. It also presents the most important provisions related to contract termination and offers practical advice for both employers and employees.
Definition of an Employment Contract in the Saudi Labor Law
The Saudi Labor Law defines an employment contract as any agreement, whether written or unwritten, whereby an employee undertakes to work under the management or supervision of an employer in exchange for wages. This definition encompasses all forms of agreements that regulate the relationship between the two parties, whether concluded in the form of an official document or through approved correspondence, as long as they include the essential elements of the contract.
These elements include the details of both parties, the type and location of the work, the worker's salary, the subject of the contract, the start date and duration, working hours, leave entitlements, and other rights stipulated by law. The law also requires that the contract for a non-Saudi worker be in writing and for a fixed term. If the contract does not specify a term, its duration is considered to be one year from the date the worker actually begins work, to prevent the employment relationship from remaining open-ended.
Fixed-Term Contract
A fixed-term contract is one in which the beginning and end of the relationship are clearly stated, either by a specific date, a fixed term such as one or two years, or by linking it to the completion of a specific project, upon whose completion the contract ends. This type of contract typically expires automatically upon the expiration of its term without the need for any additional procedures or notice, unless both parties agree to renew it or the contract includes a clause for automatic renewal.
Therefore, many employers resort to this type of contract when they need workers for a specific period, for a temporary project, or when they wish to evaluate an employee's performance over a defined period. Fixed-term contracts are commonly used with non-Saudi workers because the regulations mandate that their contracts be for a fixed term and not open-ended. If the contract does not specify a term, its duration is considered to be one year from the date the worker actually begins work.
Indefinite-Term Contracts
An indefinite-term contract is one that does not specify an end date or where the term is automatically renewed, effectively becoming indefinite. This type of contract is generally applied to Saudi workers because it provides them with greater job security and stability. However, the regulations do not permit indefinite-term contracts for non-Saudi workers. An indefinite-term contract remains in effect as long as the employment relationship exists and only terminates if there is a legitimate reason for termination by either the employer or the employee, in accordance with the regulations regarding notice and compensation.
To prevent this stability from becoming an unfair burden on either party, the regulations have established controls for terminating an indefinite-term contract. The employer or the employee may terminate the contract for a legitimate reason, provided that notice is given. If the termination is initiated by the employer (and the salary is paid monthly), the notice period must be at least sixty days. If the termination is initiated by the employee (and the salary is paid monthly): the notice period must be at least thirty days.
If the salary is not paid monthly (daily or weekly): the notice period is thirty days for both parties, unless otherwise agreed upon. Failure to adhere to the notice period or the absence of a legitimate reason renders the termination unlawful, entitling the affected party to compensation in addition to other rights such as end-of-service benefits.
The Difference Between a Fixed-Term Contract and an Indefinite-Term Contract
The fundamental difference between the two lies in the element of time and the method of termination. A fixed-term contract is tied to a specific period or the completion of a specific task and terminates automatically upon the expiration of that period or the completion of the task without the need for notice. An indefinite-term contract, on the other hand, is not bound by a clear end date but continues until either party wishes to terminate it for a legitimate reason, provided prior notice is given.
They also differ in how compensation is calculated for unlawful termination. In a fixed-term contract, the remaining term of the contract is usually considered, while in an indefinite-term contract, compensation is often calculated based on a specific number of days' wages for each year of service, with a minimum threshold. The conversion of a fixed-term contract to an open-ended contract
The system has established conditions under which a fixed-term contract can be converted to an open-ended contract to protect workers from the unjustified practice of repeatedly entering into short-term contracts. When a fixed-term contract is concluded with a Saudi worker and renewed for several consecutive periods, or when the employment relationship extends for a long, continuous period with work continuing under almost the same conditions, the contract is considered open-ended at a certain stage, even if both parties continue to use the fixed-term contract template. The rationale is that the actual nature of the relationship has become permanent, not temporary, and therefore the provisions governing open-ended contracts regarding termination and compensation should apply.
Termination of Employment Contracts in Both Fixed and Open-Term Contracts
A fixed-term employment contract is usually terminated naturally, either upon the expiration of the contract term or the completion of the work for which the contract was concluded, or by mutual agreement of both parties to terminate before the agreed-upon term. If either party wishes to terminate the contract before its expiry without a legitimate reason, they are obligated to compensate the other party for the remaining period of the contract.
An open-ended contract, however, can be terminated by either party if there is a legitimate reason commensurate with the seriousness of the matter, such as persistent poor performance despite warnings, a genuine organizational need, or the employee's desire to leave due to personal circumstances. In such cases, written notice must be given in the specified manner and for the required duration, and the employer must document the reason for termination and the notice to prevent the action from being interpreted as arbitrary dismissal.
Legal Advice for Employers and Employees
The first essential piece of advice is to carefully read the employment contract before signing it. Ensure that the contract type, duration, nature of work, salary, working hours, leave entitlements, and any additional clauses, such as renewal clauses or termination penalty clauses, are clear. It is advisable to keep a copy of the contract, its addenda, and any correspondence or decisions affecting the employment relationship, as these documents serve as primary evidence in case of any dispute.
The second piece of advice for employers is to choose a contract type that suits the nature of the business. Temporary or seasonal projects are best suited to fixed-term contracts, while permanent, core positions within the establishment are better suited to open-ended contracts for Saudi employees. Care should also be taken when repeatedly renewing fixed-term contracts for Saudi employees to ensure that the total duration does not exceed the limits that would render them open-ended according to regulations. Each renewal or amendment should be documented through official, approved platforms.
As for employees, they should be aware of their rights and obligations as stipulated in the Labor Law, not just those stated in the contract. They should seek assistance from the relevant authorities or legal counsel if they encounter problems related to termination, changes in working conditions, or delayed wages. It is also important to adhere to the contract's stipulations, including performing work as required and respecting company regulations, as gross negligence may constitute legitimate grounds for contract termination without compensation.
Conclusion: In the Saudi system, an employment contract is not merely a document signed at the start of employment. Rather, it is the legal framework that governs the relationship between the employee and the employer throughout the employment period and even after its termination, in terms of financial rights and obligations.
Understanding the differences between fixed-term and open-ended contracts, as well as the circumstances under which a contract can be converted, the methods of termination, and the regulations governing compensation, helps both parties build a stable and fair working relationship based on clarity and commitment, thus reducing the likelihood of disputes and regulatory violations.
Disclaimer: The above content does not constitute legal advice, and the office assumes no legal responsibility. For legal consultations, please contact us.
Governance is the cornerstone of institutional sustainability and its role in guiding institutions toward achieving their goals effectively and with integrity. While the core concept of governance remains constant, operational and strategic objectives vary across sectors—public, private, and non-profit. It is the "vital system" that ensures discipline, transparency, and fairness, and serves as the bridge connecting available resources with desired objectives. This can be summarized as follows:
First: Public Sector Governance
This aims to achieve the public interest, improve spending efficiency, and provide effective services to beneficiaries. This is accomplished by upholding the rule of law and preventing public officials from abusing their authority through oversight and accountability. This leads to increased efficiency in government performance, which in turn contributes to strengthening trust in government institutions.
In this context, the Kingdom of Saudi Arabia has adopted good governance as a fundamental pillar in developing government work, in line with the objectives of Vision 2030. It seeks to establish the principles of transparency, integrity, and accountability, and enhance the efficiency of government agencies, thereby achieving sustainable development and solidifying the trust of citizens and residents in state institutions.
Second: Corporate Governance
This aims to generate profits for shareholders/partners/investors, reflecting their financial interests and enhancing the value of their investments, while considering the requirements of other stakeholders according to priority. This is achieved through developing effective growth and expansion strategies, maximizing revenues, managing costs efficiently, and improving operational and financial performance.
It also includes enhancing transparency and disclosure of financial information, enabling boards of directors to effectively exercise their oversight role, managing risks systematically, and adhering to relevant regulations and legislation. Furthermore, companies strive to build sustainable relationships with customers, suppliers, and employees, and to balance profit maximization with social responsibility, ensuring business sustainability and enhancing the corporate reputation in the market.
Third: Non-Profit Sector Governance
This aims to ensure financial integrity and compliance with regulations and legislation, reflecting a commitment to ethical principles and enhancing the ability to achieve societal goals. This is achieved through building effective internal control systems and adopting clear policies for managing resources, donations, and grants, ensuring their efficient and transparent allocation to designated purposes.
It also includes strengthening governance mechanisms related to impact assessment and measuring social return to ensure that programs and initiatives achieve tangible and sustainable results. Furthermore, it involves establishing practices of regular disclosure to stakeholders and building trust with supporters and beneficiaries. Attention is also given to managing non-financial risks, such as reputation and institutional sustainability, and developing institutional capacities through sound governance, thus supporting the organization's continuity and maximizing its impact on serving the community.
In conclusion: Governance is not merely administrative constraints, but rather a "compass" that ensures the ship reaches its destination with minimal losses. The integration of these sectors is what creates a strong economy. The government sets the regulatory environment, businesses drive growth, and the non-profit sector bridges societal gaps, thus completing a system of prosperity under a framework of integrity and accountability.
Disclaimer: The above content does not constitute legal advice, and the office assumes no legal responsibility. For legal consultations, please contact us.
The trade and business sector in the Kingdom of Saudi Arabia has witnessed remarkable development in recent years, thanks to modern developments and legislation aimed at improving the Kingdom's economic environment in line with Vision 2030.
One of the most important systems implemented to develop the business environment and attract more investments is the commercial mortgage system. This system is considered one of the most important legal tools that has significantly regulated commercial transactions, successfully protecting the rights of creditors, supporting debtors, and facilitating their access to financing more flexibly.
In this article, we will learn about the commercial mortgage system in Saudi Arabia, its objectives, and the conditions for its termination in cases stipulated by the system.
What is the commercial mortgage Law in the Saudi legal system?
The commercial mortgage system in Saudi Arabia is one of the most important legal tools introduced to reorganize and manage commercial transactions with stronger guarantees and greater flexibility. The Commercial Mortgage Law was first issued by the Council of Ministers in 1424 AH (2003/2004 CE), then repealed to update the legislative framework in line with economic changes. It was subsequently reissued as the current Commercial Mortgage Law by Royal Decree No. (M/86) dated 8/8/1439 AH (2017/2018 CE). The implementing regulations for the law were issued by the Minister of Commerce and Investment (currently the Minister of Commerce) under Resolution No. (43902) dated 11/8/1439 AH (2017/2018 CE), based on the powers granted to him in the law. These regulations are currently in effect. The law comprises 47 articles, all aimed at regulating mortgage provisions more clearly and in accordance with the current economic environment.
The regulations incorporate a summary of international best practices in the field of credit guarantees and detail the implementation mechanisms and procedures. They also address mortgage contracts and regulate the pledging of bank accounts, whether current, investment, or time deposit accounts.
The current commercial mortgage system is distinguished by its adoption of a set of modern provisions that focus primarily on compatibility with current commercial transactions, not only locally but also internationally.
This serves the system's fundamental objective of bringing about a qualitative transformation in the commercial and investment finance sector, as well as building a more sustainable economic entity. The system and its regulations operate in coordination with other entities. For example, the regulations address provisions related to pledging shares in jointly owned assets in coordination with the Ministry of Justice, and the pledging of securities is subject to the provisions of the Capital Market Law and its implementing regulations.
What are the objectives of the commercial mortgage Law in Saudi Arabia?
The commercial mortgage Law was introduced to bring about a genuine transformation in the Saudi finance sector by focusing on developing the following:
Strengthening the credit sector within the Kingdom by establishing a modern regulatory framework that supports financing operations.
Enabling asset owners to invest the inherent value of their assets without having to dispose of them.
Supporting and encouraging the private sector to contribute to economic development.
Creating a legal environment that helps commercial institutions easily access financing.
Protecting the rights of all parties involved in commercial and financial transactions. Providing legal guarantees for loans and facilitating enforcement procedures against the mortgaged property in case of breach of contract.
Supporting small and medium-sized enterprises (SMEs) by expanding the range of assets eligible for collateral.
Expanding the scope of commercial mortgage contracts and enhancing their reliability in financial transactions.
What are the circumstances under which a commercial mortgage expires?
A commercial mortgage expires if the reason for its establishment ceases to exist or if the parties agree to terminate it. The regulations stipulate a set of circumstances under which a commercial mortgage is extinguished, namely:
First: Extinction of the secured debt
When the secured debt is fully extinguished, whether through payment, release, set-off, or any other legal reason that leads to the termination of the obligation, the mortgage is extinguished accordingly, as it is a security attached to the debt.
Second: Destruction of the mortgaged asset
If the mortgaged asset is destroyed or damaged to the point of losing its value, the mortgage is terminated, unless the mortgagor and mortgagee agree to replace it with other assets, and subject to the specific provisions of the regulations concerning compensation or alternatives.
Third: Agreement of the Parties
If the mortgagor and mortgagee explicitly agree to terminate the contract, the mortgage is extinguished by virtue of this agreement.
Fourth: Assignment
If the mortgagee assigns their right, the mortgage is nullified and extinguished.
Fifth: Various Cases Mentioned in the Law in Which the Mortgage is Extinguished as a Natural Consequence of the Loss of One of Its Essential Elements
For Future Assets and Contingent Debts: The law permits the mortgaging of future assets (Article Nine) or the guarantee of a contingent debt (Article Three). If this future asset does not materialize or the contingent debt is not established, the original obligation (the debt) ceases to exist, and consequently, the mortgage is extinguished, as in the first case.
Change in the Nature of the Mortgaged Assets: If the nature of the mortgaged assets changes substantially, causing them to lose their agreed-upon characteristics as stipulated in the contract, this can be considered a form of constructive loss of the mortgaged assets, leading to the extinguishment of the mortgage, as in the second case.
It should be noted that upon the expiration of the mortgage, the mortgagee is obligated to remove the mortgage registration from the Unified Commercial Mortgages Registry within a period not exceeding three (3) working days, in accordance with Article Ten of the Regulations Governing the Unified Commercial Mortgages Registry.
Finally, the commercial mortgage system in Saudi Arabia is no longer merely a means of securing debts, but has become a legal instrument to support commercial activities and manage financial transactions within the Kingdom. It is also a strategic tool for stimulating investment, achieving financial stability, and creating a more competitive business environment that aligns with the aspirations of the Saudi economy and Vision 2030.
Hence, the importance of engaging a reputable law firm with practical experience in commercial and financial regulations becomes clear, to ensure the protection of your rights, minimize risks, and achieve the highest levels of security and stability.
Therefore, we at Mohammed Al-Khliwi Law Firm are pleased to be your legal advisor in this field.
Commercial mortgage services are available to help you draft commercial contracts and represent you in enforcement and litigation proceedings, ensuring your interests are protected and your business stability is enhanced. Don't hesitate to contact us to be your legal partner on your journey in the world of finance and business.
Disclaimer: The above content does not constitute legal advice, and the firm assumes no legal responsibility. For legal advice, please contact us.
The Kingdom of Saudi Arabia is witnessing remarkable growth in attracting foreign investment, thanks to Vision 2030 and legislative reforms across various sectors.
Despite these tremendous opportunities, flexibility, and facilities offered to foreign investors, foreign companies often face a range of legal and regulatory challenges upon entering the Saudi market. These challenges can hinder company growth, expansion, or even business continuity if not addressed professionally from the outset.
This article will explore the most prominent challenges facing foreign companies in the Saudi market and the role of law firms in resolving these issues and handling them professionally. Key Challenges Facing Foreign Companies in the Saudi Market
Difficulty in Keeping Up with Regulations and Legislation
The legislative environment in the Kingdom of Saudi Arabia is characterized by constant and continuous development. This multiplicity of regulations and their ongoing updates pose a real challenge for foreign companies. Simply put, these companies find it extremely difficult to understand all the regulations, to fully grasp the procedures required by each system, and to comprehend the precise requirements for establishing or opening a branch of a foreign company within the Kingdom.
The Role of a Law Firm:
- Clarifying the appropriate legal framework for each activity.
- Coordinating with relevant authorities and ensuring all requirements are met.
- Ensuring full compliance at all stages, from company establishment to operating in the Saudi market.
Ignoring Intellectual Property Rights
Intellectual property rights are often disregarded by foreign companies when starting their operations in Saudi Arabia, under the mistaken assumption that intellectual property rights are not enforced in the Saudi market or are not of great importance in the commercial sector. In reality, there is an entire institution dedicated to overseeing and regulating this aspect: the Saudi Authority for Intellectual Property. Saudi Arabia has established a set of regulations to protect intellectual property and has imposed strict penalties on those who infringe upon it, ranging from fines and imprisonment to business closure. Therefore, it is essential for foreign companies and investors to be mindful of this aspect and to adhere strictly to the regulations in place to avoid legal problems.
The Role of a Law Firm:
- Conducting a comprehensive review of trademarks and intellectual property rights.
- Providing legal advice before the registration and business launch phase.
- Representing the company before the relevant authorities in case of any issues.
Difficulty in Obtaining Licenses
License requirements are one of the biggest challenges facing foreign companies entering the Saudi market. Despite the government's efforts to streamline procedures, the numerous regulatory steps, the time required to complete these procedures and obtain licenses, the varying documentation requirements from different agencies, and the need for a thorough understanding of the specific requirements of the sector in which the company operates can make the process seem daunting.
The role of the law firm here:
- The law firm studies the company's activities, identifies the required licenses, and prepares the necessary documents for the license application.
- It follows up on all procedures until all required licenses are obtained, enabling the company to commence operations more quickly.
- It minimizes the legal risks the company may face when operating without the proper license.
Dealing with Government Portals
Companies in Saudi Arabia are subject to an integrated digital system that requires them to comply with regulations through government portals or platforms established by the relevant authorities. Compliance with these is essential for conducting business legally and avoiding penalties such as fines or service suspensions.
These portals include, for example, the Madad platform, the Qiwi platform, and other institutions that provide digital services related to insurance, residency permits, salaries, and so on. Any negligence in managing these platforms will result in financial penalties or the suspension of government services provided to the company.
The role of the law firm:
- The law firm assists foreign companies in understanding and complying with all regulatory obligations related to government portals.
- Providing legal guidance to avoid violations and fines.
Finally, success in the Saudi market depends not only on the strength of the project or the uniqueness of the company's activities, but also on the ability to respect and comply with applicable laws and regulations professionally and systematically from day one. This cannot be achieved without a reliable legal partner who ensures your company's compliance with regulations and protects your project from any legal risks that could hinder its business continuity.
This is where we at Mohammed Al-Khliwi Law Firm come in, with our extensive experience in establishing foreign companies and accompanying them through all stages of their entry, expansion, and operation in the Kingdom. From incorporation to operational performance and growth in the Saudi market.
Don't hesitate to contact us for legal consultations and comprehensive support to conduct your business with confidence, professionalism, and stability within the Kingdom of Saudi Arabia.
Disclaimer: The above content does not constitute legal advice, and the firm assumes no legal responsibility. For legal advice, please contact us.
With the digital transformation currently sweeping across all sectors, reliance on the internet for buying and selling has increased, making e-commerce one of the most important economic sectors in the Kingdom of Saudi Arabia. Keen to keep pace with this development, the Kingdom issued the E-Commerce System, which serves as a framework defining and regulating the relationship between e-commerce service providers and consumers, aiming to achieve transparency, flexibility, and enhanced trust in electronic transactions.
The Concept of the E-Commerce Law
The E-Commerce Law in Saudi Arabia was issued by Royal Decree on 7 Dhu al-Qi'dah 1440 AH (corresponding to July 2019). Its provisions are overseen by the Ministry of Commerce. The system consists of 26 articles, all of which aim to monitor and regulate e-commerce activities. Article 1 of the system defines e-commerce as: "An economic activity undertaken by a service provider and a consumer – wholly or partially – through electronic means, for the purpose of selling products, providing services, advertising them, or exchanging data related to them."
The system includes a set of rules and regulations governing the practice of e-commerce activities through various electronic means, such as online stores, digital platforms, and applications. It also aims to protect consumer rights, define the obligations of merchants, and ensure trust and fairness in electronic transactions within the Kingdom.
Provisions of the E-Commerce Law
The main objective of issuing the E-Commerce Law in Saudi Arabia is to regulate the relationship between merchants and consumers, as clearly demonstrated in its provisions, as follows:
First: Conducting E-Commerce Activities
- E-commerce may be conducted within the Kingdom through any electronic means specified in the law; an online store, platform, application, etc.
- Every merchant conducting e-commerce activities inside or outside the Kingdom is subject to this law, as long as they target Saudi consumers.
- The merchant is obligated to comply with other regulations related to e-commerce, such as the Consumer Protection Law, the Data Protection Law, and other relevant regulations.
Second: The E-Commerce Merchant
Third: Protecting Consumer Rights
Fourth: Electronic Commercial Advertising
- Advertisements must be clear and not misleading.
- Advertisements are not permitted to contain any false information intended to deceive consumers.
- The merchant is responsible for the credibility and accuracy of the information in advertisements displayed on their platform.
- Consumers must be able to request to stop receiving advertisements.
Fifth: Consumer Data Protection
Penalties for Non-Compliance with the E-Commerce Law in Saudi Arabia
The E-Commerce Law in Saudi Arabia includes a set of penalties for those who violate its provisions and its executive regulations. These penalties include:
- Issuing a warning to the violator.
- Imposing a fine not exceeding one million Saudi Riyals.
- Permanently or temporarily suspending the business activity, depending on the case.
- Blocking the online store or shop, either partially or permanently.
In the event of a violation, one or more committees will be formed by a decision of the Minister of Commerce to review the violations. Finally, given the obligations and penalties stipulated by the E-Commerce Law, compliance is no longer optional but a necessity for anyone conducting e-commerce activities within the Kingdom.
To avoid these errors and violations or legal repercussions, engaging a reputable and specialized law firm remains essential to ensure the protection of your business. Therefore, we at Mohammed Al-Khliwi Law Firm are pleased to offer our assistance to e-commerce practitioners, helping them take the correct legal steps from the outset. Contact us to be your legal partner and help you manage your business Trade with confidence and security.
Disclaimer: The above content does not constitute legal advice, and the firm assumes no legal responsibility. For legal advice, please contact us.
Franchising is currently one of the most prominent investment models in Saudi Arabia, allowing investors to benefit from successful brands and robust business models within a clear regulatory framework. With its increasing popularity, understanding the terms and conditions of franchising has become crucial for ensuring a successful investment.
In this article, we'll explore everything you need to know about franchising in Saudi Arabia.
What is a Franchise?
A franchise is a contractual relationship between two parties:
This system gives the investor the opportunity to operate a business under a well-known brand name, according to a proven business model, and within clear legal regulations.
Types of Franchise
According to practice, franchises are divided into three main types, each differing according to the nature of the relationship between the franchisor and the franchisee, and the details of the contract:
First: Business Model Franchise
This is the most common type in the Saudi market. In this type, the franchisee obtains the right to use the brand and its operating system, including the work mechanism, approved standards and procedures, technical support, management, marketing, and all other details.
Second: Product Distribution Model Franchise
This model is based on granting the franchisee the right to distribute or sell the brand's products according to a business model and providing specific expertise between the franchisor and the franchisee. It requires the franchisee's operational system and may also require administrative and marketing support. This is the core difference between a franchise and a commercial agency or distribution partnership. The franchise system excludes "agreements or contracts limited to the purchase and sale of goods or the provision of services bearing a specific brand" from its application. Therefore, if the relationship is limited only to the distribution or sale of products without the franchisor providing a business model, technical expertise, or imposing a specific operating method, it is not considered a franchise subject to the system.
Third: Manufacturing Franchise
This model allows the investor to manufacture, market, and sell products under the franchise name, provided they adhere to quality standards, specifications, and production guidelines based on a business model and technical expertise provided by the franchisor and adopted by the franchisee.
Key Points in a Franchise Agreement
To ensure a clear and successful relationship, Article Eleven of the Law and Article Eight of its Implementing Regulations mandate that the franchise agreement include several essential clauses, including:
Definition of the Franchise System in Saudi Arabia
Franchising in Saudi Arabia is governed by the Franchise System, issued by Royal Decree No. 22 dated 9/2/1441 AH (corresponding to 2019 CE), following approval by the Shura Council and the Council of Ministers. The system aims to regulate the contractual relationship between the franchisor and the investor, ensuring transparency, protecting the rights of both parties, and enhancing confidence in this investment model.
Royal Decree No. 22 dated 9/2/1441 AH (corresponding to 2019 CE) A specialized franchise center was established within the Ministry of Commerce by Cabinet Resolution No. 22 to handle all aspects of the franchise process, from registering agreements and promoting a franchise culture to enabling individuals and companies to adopt this model, assisting brands in expanding locally and globally, and increasing investment opportunities, thus contributing to the realization of Vision 2030.
Franchise Requirements in Saudi Arabia
The Saudi Franchise Law specifies requirements for both the franchisor and the franchisee to protect the rights of both parties and enhance transparency. These requirements are as follows:
First: Franchise Requirements for the Investor
- Carefully review the contract terms and conditions. It is recommended to consult a reputable law firm specializing in such transactions. Article Seven of the Franchise Law mandates that the franchisor provide the investor (potential franchisee) with a "Disclosure Document" at least fourteen (14) days before signing the agreement or making any payment. This document contains all essential details, rights, obligations, and risks.
- Provide the required capital to purchase the franchise, in addition to covering additional costs such as establishment and operating expenses. The regulations stipulate that the franchise agreement must clearly specify "any fees the franchisee is required to pay the franchisor" and the mechanism for calculating other amounts.
- Selecting and specifying a location that conforms to the standards and requirements of the franchisor's brand. The regulations stipulate that the franchisee is obligated to "obtain the franchisor's approval when changing the location of the franchise business." This means that the initial location selection, or any subsequent change, is subject to the franchisor's approval to ensure compliance with brand standards.
- Ensuring the franchisee receives administrative and marketing support from the franchisor to guarantee the project's success.
Secondly: Franchise Requirements for the Franchisee
- The franchisor must have actually operated the franchise using the franchise business model for at least one year, with at least two different sales outlets.
- The disclosure document must be provided to the investor or franchisee at least 14 days before signing the contract.
- The franchisor must provide the investor with operating manuals and all necessary guidance for establishing and operating the project.
- A confidentiality agreement must be concluded, emphasizing the non-disclosure of private information, data, and commercial information.
Finally, given the precise requirements and procedures of the Saudi Arabian franchise system, contracting with a specialized law firm is a crucial step to ensure the success of your franchise. Therefore, if you are considering this step, contact us at Mohammed Al-Khliwi Law Firm. We will handle the review and drafting of franchise agreements, prepare disclosure documents, and verify compliance with all required conditions, saving you time and effort and protecting you from potential legal risks.
Disclaimer: The above content does not constitute legal advice, and the firm assumes no legal responsibility. For legal consultations, please contact us.
In the business world, a company's success depends not only on good management or strong marketing, but also on legal compliance and sound risk management. This is why it's crucial for a company to hire a reputable law firm, which will be primarily responsible for protecting the company's interests and ensuring its operations comply with applicable laws and regulations.
But is hiring a permanent in-house lawyer the best option? Or does hiring a specialized law firm offer the company broader protection, more comprehensive expertise, and lower costs? This is what we will explore in this article.
The Importance of Hiring a Specialized Law Firm to Protect Your Company
In today's rapidly changing and highly complex business world, legal protection is no longer an option but an essential element for any company, regardless of its size or activity. With the increasing number of laws and regulations governing various business activities, an experienced legal representative is needed to defend the company and protect it from potential risks.
Hiring a law firm provides you with a range of advantages, all aimed at protecting the company's interests and helping it achieve its goals and ensure continuity. These advantages include:
- Preparing for Risks Before They Occur
Anticipating and mitigating legal risks before they escalate is achieved through proactive risk reduction strategies. This proactive approach protects the company from significant financial losses and helps safeguard its reputation in the event of any problem. This is difficult to achieve with a single lawyer within the company, compared to a comprehensive legal team within a law firm possessing diverse and specialized expertise.
- Identifying and Assessing Potential Risks
Through a comprehensive legal review of the company's status, activities, and business operations, and by studying the legal implications of administrative decisions before they are made, and by monitoring all changes occurring in the market, the law firm can accurately assess risks and determine how to address them, even uncovering any potential vulnerabilities to prepare for them.
- Developing Effective Compliance Programs
Designing and implementing compliance programs tailored to the company's nature is one of the most important roles of a law firm. These programs aim to ensure compliance with laws and minimize or at least reduce risks. They include company policies, employee training on compliance with regulations and systems, the establishment of oversight mechanisms, the provision of secure channels for reporting any legal violations, and the definition of procedures for handling such violations.
This is a key strength of a law firm: it ensures you benefit from accumulated expertise across multiple sectors, compared to relying on the limited judgment of an individual lawyer, no matter how experienced that lawyer may be. - Periodic Auditing
Continuous monitoring is one of the strong services that law firms provide to companies. This is achieved through establishing standardized procedures for periodic legal reviews to ensure the validity of contracts, intellectual property rights, compliance with labor regulations, and other procedures that guarantee the detection and resolution of problems in their early stages before they escalate into major legal disputes.
- Legal Support for the Board of Directors
Thanks to the expertise of the law firm, it can provide comprehensive support to the company's senior management by offering sound legal advice when making any decision. This prevents the company from encountering legal problems with negative consequences. Providing correct legal advice and opinions in various situations ensures the protection of the company's interests and enhances its stability and continuity.
- Crisis Management
Contracting with a law firm is a necessity, not an option. You will need them when any legal problem arises. They will handle the entire process, from organizing paperwork to complying with judicial authorities, mediation, or arbitration, according to the situation, to provide effective solutions that protect the company's interests.
Here, a law firm gives you the advantage of rapid action with a complete team in the event of a crisis, instead of burdening a single in-house lawyer with responsibilities beyond their capacity and ability to handle.
How to Choose the Right Law Firm
Your choice of a law firm to entrust with your business should not be arbitrary. It should be a well-considered decision based on the following:
(1) Experience
The firm must possess sufficient experience, be familiar with all the regulations and bylaws pertaining to the company's activities, and stay up-to-date with all legal developments. It should also be capable of handling various legal aspects of companies, such as commercial registration, incorporation procedures, intellectual property rights protection, company liquidation, mergers and acquisitions, and so on.
(2) Ability to Manage Cases
Naturally, companies need a law firm capable of managing multiple cases simultaneously. This is due to the numerous legal issues and requirements that arise during a company's operations. Multiple cases may occur at once, or official documents may need to be notarized in various areas. Therefore, the firm's ability to manage cases professionally and meticulously is paramount for companies.
(3) Deep Understanding of the Corporate Environment
A law firm must possess a practical understanding of the nature of business operations and be able to leverage its legal expertise in alignment with the company's goals and aspirations, supporting its growth and sustainability plans.
(4) Strong Communication Skills
Law firm representatives must possess the ability to build successful professional relationships with clients, along with strong listening and analytical skills, critical thinking abilities, and other skills that enable them to win cases of all types.
Why is hiring a law firm better than hiring an in-house lawyer?
Lower Operating Costs
Hiring a law firm eliminates the need for a fixed monthly salary, social security contributions, and ongoing administrative expenses. Furthermore, it provides a higher level of professionalism in all legal services.
A Complete Team Instead of Relying on One Person
A law firm allows you to benefit from a complete team with diverse expertise and specializations, unlike relying on a single lawyer who may lack sufficient experience or be unable to cover all the legal aspects the company requires. Diversity of Specializations
A law firm possesses expertise in multiple areas, such as company formation, contract drafting, and various types of dispute resolution, ensuring efficient handling of every case.
Continuous Legal Support Without Administrative Burdens
Hiring a law firm guarantees you access to legal support whenever you need it, without placing unnecessary operational or administrative burdens on your company.
Services Tailored to Your Stage
Hiring a law firm offers greater flexibility in the legal services provided to your company. Services are tailored to the scope of work and the company's actual needs, whether during the establishment or expansion phases.
Finally, if your company is located outside Riyadh and you believe you are limited to finding a corporate lawyer within your geographical area, let us assure you that this is no longer the case. Whether your company is in Riyadh or elsewhere, you can comfortably search for the best lawyer in Riyadh, the best lawyer in Jeddah, or the best lawyer in the Kingdom and meet with them to learn about the services they offer. With technological advancements and the digital transformation of legal services, geographical location is no longer an obstacle to hiring a specialized law firm, even if they are located in another city or country. Through modern technologies and digital communication channels, legal consultations, contract reviews, legal file management, and communication with relevant parties can be provided remotely with high efficiency, eliminating the need for physical presence in the same city or country. This ensures greater flexibility and speed in service delivery and the provision of continuous legal support at any time.
Therefore, regardless of your geographical location, contact us at the Mohammed Al-Khliwi Law Firm. We are capable of representing your company wherever it is located and dealing with official entities and clients throughout the Kingdom.
In conclusion, contracting with a law firm is essential to ensuring integrity within your company, enhancing transparency, and protecting your company's interests. Let us be your legal partner, supporting your decisions with confidence and professionalism, keeping pace with your business development, supporting your expansion plans, protecting your reputation and rights at every stage, and providing you with practical legal solutions tailored to your company's needs and future plans.
Disclaimer: The above content does not constitute legal advice, and the firm assumes no legal responsibility. For legal consultations, please contact us.
Commercial contracts are the foundation upon which commercial transactions between individuals and companies are based. They provide the legal framework that governs these relationships and clearly defines the rights and obligations of each party. With the increase in commercial activity in Saudi Arabia and the remarkable economic development in recent years, it has become essential to understand everything related to commercial contracts in detail.
In this article, we will learn about commercial contracts in the Saudi system, their most important regulations, provisions, and conditions for validity, and everything related to commercial contracts for a successful and sound business transaction.
What is the definition of commercial contracts in the Saudi Law?
In reality, there is a misunderstanding, or rather a misinterpretation, of the concept of commercial contracts. Most people believe that commercial contracts are a separate category of contracts with their own distinct commercial nature, completely different from civil contracts. However, the truth is that commercial contracts are the same as civil contracts in the Saudi system and do not differ in their principles and the foundation upon which they are based.
What determines that a contract is commercial and not civil is its purpose, meaning it must be for a commercial purpose. Additionally, the nature of the parties and their relationship must be based on a commercial interest. This is what gives it its commercial character and makes it subject to the provisions governing commercial transactions.
Essential Elements and Clauses in Commercial Contracts
For a commercial contract to be legally valid and enforceable, it must contain the essential elements of a contract, which are the fundamental conditions for its formation and validity. These elements are: (consent, subject matter, and cause). There are several necessary clauses that the contract must include, which define the rights and obligations of all parties. These are as follows: - Identification of the contracting parties: This involves clearly defining the status of each party, whether they are individuals, companies, or government entities.
- Subject matter of the contract: This requires a clear and detailed formulation of the nature of the service or product being contracted for.
- Financial consideration: The contract value, payment methods, and agreed-upon payment dates must be clearly and in detail specified.
- Contract duration: The contract's start and end dates must be included, along with any renewal terms and procedures. - Termination and Cancellation: Clarifying the circumstances under which a contract may be terminated before its expiry date, the resulting consequences, and the rights of each party.
- Dispute Resolution: Specifying the competent authority for resolving disputes, which is agreed upon by the contracting parties, whether arbitration or litigation.
- Obligations: Defining the obligations of each contracting party and clearly outlining their responsibilities and assigned tasks.
- Force Majeure: Explaining the exceptional circumstances that may occur and how to address and regulate them.
Omitting or ignoring any of these clauses invalidates the contract and may lead to unnecessary financial losses, problems, and disputes. Therefore, it is essential to ensure that all these clauses are properly covered as outlined.
Types of Commercial Contracts
Commercial contracts in the Saudi legal system vary according to the nature of the commercial activity and the purpose of the contract. These diverse contracts form the foundation upon which commercial relationships are built in an organized and sound manner. The following are the most important commercial contracts and the role of each:
Sales Contract
This is the most common of the commercial contracts. It is based on an agreement whereby the seller commits to transferring ownership of the goods or services to the buyer in exchange for an agreed-upon sum of money specified in the contract. The sales contract also includes the quantity, methods of delivery, payment terms and methods, and payment dates agreed upon by both parties.
Lease Contract
As its name suggests, this contract regulates the rental of properties or premises for commercial activities in exchange for a specific rent and for a specific period. The contract includes the lease term, the rent amount, and any other matters agreed upon by the parties on a case-by-case basis.
Construction Contract
This contract is used to regulate the relationship between a contractor and a client. It defines the mechanism for executing a specific project, such as construction, maintenance, and installation work. The contract clearly defines the service, the agreed-upon timeframe for completion, the required specifications, and the project cost.
Supply Contract
This contract is used to regulate the relationship between suppliers and clients. It obligates the supplier to provide the agreed-upon products or services to the other party under predetermined conditions, which include quantity, specifications, quality, price, and so on. Distribution Agreement
This agreement grants its holder the right to distribute the products of a specific company within a defined geographic area. The agreement outlines the distribution terms, sales objectives, the obligations of both the distributor and the company, and the rights of each party.
Partnership Agreement
This agreement regulates the relationship between two parties involved in a single business activity. It specifies each party's contribution percentage, the methods for dividing profits and losses, and the authority of each partner. This type of agreement is common in projects that rely on diverse expertise or capital.
Agency Agreement
This agreement grants its holder the authority to conduct business transactions and procedures on behalf of another party. The principal authorizes the agent to perform a set of tasks on their behalf, and these tasks and authorities are precisely defined in the agreement.
Franchise Agreement
This agreement, also known as a franchise, allows a party to use a brand and build a complete business system based on it in exchange for a specific fee. The agreement obligates the franchisee to adhere to the brand's operational standards, and the fee is clearly defined.
Financing Agreement
This agreement aims to provide financial support for business activities. It includes the financing amount, repayment methods, and the necessary guarantees for obtaining the financing. Consulting Contract
This contract is used when providing specialized investment services to help companies develop their businesses. It specifies the work location, contract duration, and fee.
Finally, commercial contracts in their various forms represent the cornerstone of regulating commercial transactions, defining the relationship between parties, clarifying and specifying shared objectives, and protecting the rights of each party.
Documenting Commercial Contracts In the Saudi law :
Although notarization is not a prerequisite for the validity of a contract—as a contract is valid and produces its legal effects as soon as the parties sign it (provided its essential elements and conditions are met)—the contract is the law between the contracting parties.
However, the importance of notarization lies in its being a fundamental and necessary procedure for contracts that are eligible for notarization. Notarization grants the contract enforceability before official authorities, and without it, some contracts are not recognized.
The following are the steps for notarizing commercial contracts in the Saudi legal system:
- Agreeing on the contract terms and drafting them precisely to define the rights and obligations of each party.
- Reviewing the contract with a notary public to ensure its compliance with applicable laws and regulations, or notarizing it through the designated contract notarization platform.
- Paying the prescribed fees.
- Officially approving the contract to make it notarized and recognized by all official authorities.
You can contact us at Mohammed Al-Khliwi Law Firm office to handle all these steps on your behalf, ensuring speed and accuracy without the hassle of following up on each step yourself.
Disclaimer: The above content does not constitute legal advice, and the office assumes no legal responsibility. For legal advice, please contact us.
Throughout their journey in the business world, companies face various financial crises. They may experience minor financial difficulties that can be remedied, or sometimes the crisis may escalate to the point of declaring bankruptcy. Regardless of the reasons leading to bankruptcy, a company reaching this stage requires a legal system and structure that regulates the relationship between the company and its creditors.
Therefore, in this article, we will learn about bankruptcy in the Saudi system, how corporate bankruptcy is handled, and how Saudi Arabia has managed to establish a flexible system that supports companies to continue operating and helps them recover, while also guaranteeing creditors their full rights.
What is meant by the term bankruptcy?
Corporate bankruptcy is a financial situation in which a company is unable to fully repay its debts, whether due to a lack of liquidity or because the debts have become greater than the value of the assets. It is a legal status for a debtor who is either in default or bankrupt. A defaulter is a debtor who faces current or anticipated financial difficulties that prevent them from repaying their debts on their due dates. A bankrupt debtor, on the other hand, is one who has stopped repaying their outstanding debts.
Here, legal intervention regulates the relationship between the company and its creditors, helping the company recover, overcome the crisis, and continue its operations, or liquidating its business if that is the only viable option. On the other hand, it also prevents the company from evading its debts and compels it to repay all debts to creditors in a legally regulated manner, overseen by a specialized committee.
Bankruptcy Law in the Saudi System
The Saudi Bankruptcy Law was issued by Royal Decree No. (M/50) dated 28/5/1439 AH, following approval by the Shura Council and the Council of Ministers. With the issuance of this law, previous related regulations were repealed.
The law primarily aims to improve the business environment, attract foreign investment, and achieve a balance between creditors' rights and enabling companies to continue their operations. This is accomplished by regulating bankruptcy procedures and handling the entire process legally. The law supports companies in all procedures, including preventative settlement, financial reorganization, and administrative liquidation.
Bankruptcy Procedures in the Saudi System
The Saudi Bankruptcy Law establishes a set of fixed and integrated procedures to protect the rights of both companies and creditors. These procedures are summarized in seven main steps for dealing with a bankruptcy crisis:
(1) Preventive Settlement: This allows the company the opportunity to settle debts with creditors through negotiation. During this stage, the company continues to operate normally.
(2) Financial Reorganization: This procedure aims to enable companies to restructure their financial obligations and reach an agreement with creditors. The procedure is carried out under the supervision of the Financial Reorganization Trustee.
(3) Liquidation: This involves identifying and determining all debts, selling assets, and distributing the proceeds to creditors. The distribution is carried out according to the priority set by the Bankruptcy Law, and the debt distribution process is supervised by the Liquidator.
(4) Preventive Settlement for Small Debtors: This procedure ensures that the debtor settles their debts easily by reaching an agreement with creditors.
(5) Financial Reorganization for Small Debtors: This procedure aims to reach a flexible agreement between small debtors and creditors to help the debtor reorganize their business.
(6) Liquidation for Small Debtors: This procedure aims to sell the debtor's assets and distribute the proceeds to creditors in an organized manner. This procedure is carried out under the supervision of a competent trustee.
(7) Administrative Liquidation: This procedure focuses on selling assets whose value may not be sufficient to repay debts. The procedure is implemented by the Bankruptcy Committee.
Benefits of Complying with the Saudi Bankruptcy Law for Companies
The bankruptcy law is not only a legal framework that regulates the relationship between companies and creditors, but it is also a highly supportive system that transforms financial distress and severe crises from a real threat to the company's existence into a stage that can be easily overcome. Therefore, your company's compliance with the bankruptcy law provides it with a range of benefits and advantages, most notably:
First: Legal Protection
Entering the bankruptcy proceedings leads to the suspension of individual claims and lawsuits filed against the company, giving it more time to reorganize its affairs without pressures that would exacerbate the situation.
Second: Ensuring Continuity
The procedures established by the system, such as judicial marketing and financial reorganization, allow the company to continue operating instead of ceasing or closing suddenly.
Third: Flexible Debt Repayment
Adherence to the system's provisions regarding debt scheduling, distribution, and repayment methods, as well as reaching agreements with creditors, achieves a fair balance between the company's interests and those of its creditors.
Finally, remember that bankruptcy does not mean the end of a company, especially with the flexible procedures and provisions offered by the Saudi Bankruptcy Law, which ensure business continuity and guarantee creditors' rights.
If your company is experiencing financial difficulties or is even on the verge of bankruptcy, contact us in Mohammed Al-Khliwi Law Firm office to assist you in easily completing all the procedures stipulated by the system, tailored to your company's size and financial situation.
Compliance with the Saudi Bankruptcy Law does not mean the end of the company; rather, it represents a strategic tool for protection, restructuring, and business sustainability within a clear and fair legal framework.
Disclaimer: The above content does not constitute legal advice, and the author of this article assumes no legal responsibility. For legal advice, please contact us.
The Saudi Labor Law is one of the most comprehensive and integrated legal systems in the region, distinguished by its organization and precision in regulating the relationship between the employee and the employer. It aims to achieve balance and ensure justice and the protection of rights in the workplace.
The Labor Law sets out clear and detailed regulations that define the employee’s rights in every case of employment termination—whether by mutual agreement, dismissal, unfair dismissal, resignation, or reaching the retirement age. In all these cases, the Saudi system guarantees the employee’s full rights to ensure their financial and social security even after the termination of their employment.
Below, we will explain in detail each case of employment termination, along with the rights and regulations governing it under the Saudi Labor Law.
Types of Employment Contracts in the Saudi Labor System
Before explaining the types of employment relationships, it is important to first understand some of the most important types of employment contracts under the Saudi system, which are classified into three main categories:
Cases of Termination of Employment in the Saudi Labor System
Employment may be terminated in several ways, each governed by specific regulations and legal provisions. Below, we discuss the cases of employment termination and the legal details of each according to the Saudi Labor Law.
First: Termination upon Expiration of the Contract Term or Completion of Work
Fixed-Term Contract:
Article 74 of the Labor Law outlines the circumstances under which employment is terminated upon the expiration of the contract term, as follows:
The parties to a fixed-term contract may agree to renew the contract for another period; in such a case, the fixed-term contract terminates upon the expiration of the renewed period, provided that the following conditions are observed:
Indefinite-Term Contracts:
Regarding indefinite-term contracts, Article 75 of the Labor Law stipulates that if the contract is for an indefinite period, either party may terminate it for a legitimate reason, which must be stated in a written notice given to the other party prior to termination.
If the party terminating the contract fails to observe the required notice period, they shall be obligated to pay the other party compensation equivalent to the worker’s wage for the notice period, or the remaining portion thereof. The worker’s last wage shall be used as the basis for calculating the compensation for employees who are paid on a time-based system.
For workers who are paid on a different basis, the provisions of Article 96 of the Law shall apply, which states:
However, if the termination of employment occurs for an unlawful reason, the party harmed by such termination shall have the right to compensation, which shall be determined by the Labor Disputes Settlement Committee, taking into account both material and moral damages incurred—whether actual or potential—as well as the circumstances surrounding the termination.
Notice Period:
The notice period is the legally prescribed duration during which an employee must continue working after being notified of the termination of their contract, or during which the employer must retain the employee after the employee decides to terminate the contract.
According to Article 75 of the Saudi Labor Law, the length of the notice period varies depending on the type of contract concluded between the two parties:
Secondly: Termination by Mutual Agreement between the Two Parties
In this case, both parties to the contract agree to terminate the employment relationship. It is required that the employee’s consent to the termination be in writing, as this serves as the most reliable form of proof. This written consent enables the employer, in the event of a dispute and the employee’s denial of having agreed to the termination, to present the written document as evidence of mutual agreement, unlike other less definitive methods of proof.
Thirdly: Termination of Employment by Dismissal
There are two types of dismissal: lawful dismissal and unfair dismissal, each governed by specific conditions and resulting in different employee entitlements depending on the circumstances.
(1) Lawful Cases of Dismissal
Article 80 of the Saudi Labor Law stipulates that an employer may not terminate an employee’s contract without compensation, notice, or severance pay except in the following cases, provided that the employer gives the employee the opportunity to present their objections to the termination. The article lists the legitimate grounds for dismissal as follows:
(2) Unfair Dismissal
Unfair dismissal is one of the most concerning issues for employees, as it results in job loss without legitimate cause. It occurs when the employer terminates the employment contract without a lawful reason. For this reason, the Saudi Labor Law includes provisions guaranteeing fair compensation for unfair dismissal to protect the employee’s rights and compensate them for the damages suffered as a result of wrongful termination.
Rights of an Employee Who Has Been Unjustly Dismissed
Articles 77 of the Saudi Labor Law stipulate that an employee who has been unjustly dismissed is entitled to compensation for the damages suffered as a result of the termination of their employment without a legitimate reason. The amount of compensation is calculated according to the following rules:
For an employee who has been unjustly dismissed to be eligible for these rights, the following conditions must be met:
Therefore, employees are strongly advised not to leave their jobs unless they receive a written dismissal notice from the employer, and not to rely solely on verbal notifications from a manager or the company owner.
Fourth: Termination of Employment by Resignation
Resignation is one form of employment termination based on the employee’s desire to end the contract. It is a right guaranteed to employees by law, in accordance with the principle of freedom of will in terminating the contractual relationship. In this case, the employee ends the employment contract voluntarily by submitting a written request to the employer expressing their intention to leave the job.
According to Article 79 of the Saudi Labor Law, for a resignation to be valid, it must be submitted in writing, and it is required that the employee submit it in person or through a legal representative to ensure its authenticity.
It is noted that a resignation becomes effective upon the expiration of the statutory notice period stipulated in Article (75). However, the point of contention lies in the extent of the employer’s acceptance and its effect on the resignation.
However, in the case of a conditional resignation—that is, when an employee resigns due to abuse, mistreatment, or the employer’s violation of the contract terms—Article 81 grants the employee the right to leave work without prior notice while retaining all statutory rights.
Fifth: Termination of Employment upon Reaching Retirement Age
Another reason for the termination of employment is the employee reaching the retirement age. According to Article 74 of the Labor Law, the retirement age for both male and female employees is 60 years. The retirement age may be lowered in cases of early retirement as stipulated in the work regulations.
If the employment contract is for a fixed term, and its duration extends beyond the retirement age, then in this case, the contract terminates upon the expiration of its term.
End-of-Service Gratuity
Article 84 of the Saudi Labor Law defines the end-of-service gratuity as a sum of money paid by the employer to the employee upon the termination of their service or the expiration of their employment contract, whether fixed-term or indefinite. This payment is based on specific criteria and conditions, calculated according to the employee’s last salary, as a token of appreciation for their efforts and as compensation for their period of service. It is considered a fundamental financial right of the employee, guaranteed by the Saudi Labor Law, and cannot be waived or forfeited under any agreement.
The gratuity is calculated according to the type of employment termination, with each case having its own specific rules and criteria, as follows:
Exception: Working women who terminate their contract within six months of marriage or three months of giving birth are entitled to the full gratuity, regardless of the length of service.
Conclusion
In conclusion, after outlining and detailing the provisions governing the termination of employment under the Saudi Labor Law, it is essential to understand your rights clearly.
If you require further clarification, or if you are involved in a dispute and are uncertain about how to claim your rights, we in Mohammed Alkhliwi Law Firm can help you complete the procedures properly and lawfully, ensuring that you receive all your entitlements, including your end-of-service gratuity.
Disclaimer: The above content does not constitute legal advice, and the author of this article assumes no legal responsibility. For legal advice, please contact us.
Registering employees in social insurance is not optional; it is a fundamental pillar in protecting employee rights, enhancing job security, and achieving a stable work environment, as stipulated by the Saudi Labor Law.
Due to the importance and sensitivity of this topic, this article will cover everything related to social insurance in Saudi Arabia, including registration procedures, employer contribution rates, and insurance coverage for both Saudi and non-Saudi employees.
What is social insurance in Saudi Arabia?
Social insurance in Saudi Arabia is a system established by the General Organization for Social Insurance (GOSI), which was founded by Royal Decree No. (M/22) dated 6/9/1389 AH (corresponding to 15/11/1969 AD). Its insurance, social systems and legislation have since evolved to protect employees in both the private and public sectors, whether Saudi or foreign.
GOSI is committed to ensuring the financial stability of employees and protecting their families upon retirement, in cases of disability or death, and in the event of any work-related risks, accidents, or injuries. The General Organization for Social Insurance (GOSI) requires all employers to register their employees with social insurance and pay the monthly contribution rate determined by GOSI. This rate is equal to or greater than the percentage deducted from the employee's salary. Penalties and fines are imposed on any company or employer who fails to comply with this system or commits violations against their employees.
What are the employer's contribution rates?
GOSI has specified, in its regulations and bylaws, the monthly contributions that employers must pay for their employees, based on the employee's salary and the type of insurance applied to them. Generally, however, the contributions are calculated as follows:
For Saudi employees:
(1) Social Insurance Contributions: A specific percentage is deducted from the employee's salary, as determined by GOSI, and the employer is required to pay a similar percentage from their own account to the Social Insurance fund.
(2) Pension Insurance (retirement, non-occupational disability, and death): In the case of retirement, 9% is deducted from the employee's monthly salary, and the employer is also required to pay 9%.
(3) Occupational Hazard Insurance (work-related injuries and occupational diseases): 2% of the monthly salary is the employer's responsibility.
(4) Unemployment Insurance (SANED): The employer and the employee each contribute 0.75%.
Therefore, the total contribution borne by the employer for a Saudi employee is 11.75% (9% pension + 2% occupational hazard + 0.75% SANED). The total contribution for Saudi employees is 9.75% (9% pension + 0.75% unemployment insurance).
For foreign employees:
The mechanism differs for foreign employees. Contributions are limited to occupational hazard insurance, with the employer only responsible for a 2% fee. Foreign employees are not required to pay any contribution.
What happens if an employer fails to register employees with social security?
To ensure that companies and employers comply with its regulations and bylaws, the General Organization for Social Insurance (GOSI) has established a set of penalties to protect workers' rights and ensure fairness in the workplace. These include:
(1) Financial penalty: A financial penalty is imposed on the employer if they are late in paying social security contributions or fail to register employees.
(2) Retroactive registration: GOSI requires the employer to register the employee retroactively from the date they actually started work and to collect all contributions due for that period.
(3) Late payment penalties: In addition to the basic penalty for the violation, a late payment penalty is imposed on contributions that were not paid on time, at a rate of 2% per month of the outstanding contributions.
(4) Penalty for disbursing compensation without entitlement: If the violation (such as failing to register an employee who was entitled to "Sanad" compensation after leaving work) results in the disbursement of compensation without entitlement, the penalty is more severe.
It is worth noting that if an employer fails to register an employee, the employee has the right to notify the relevant social security office and request to register themselves. According to the "Overview of Social Security in the Labor Law," the relevant office is obligated to compel the employer to register the employee once the registration requirements are met. This is the direct, official procedure for protecting the employee's rights before resorting to any legal action.
How to Register Employees with Social Insurance
With the Kingdom's digital transformation across all sectors, it has become easy to register employees with social insurance electronically through the General Organization for Social Insurance (GOSI) website.
For Saudi employees, the steps are as follows:
- Access the GOSI website.
- Start by registering the company if it is not already registered.
- Add the new employee and enter their data, including their ID number, date of birth, contract type, and salary.
- Specify the employee's actual start date.
- Review the data and confirm registration to begin monthly contributions.
For non-Saudi employees, the registration process is usually automatic once the employee transfers to the Ministry of Human Resources and Social Development.
The employer's responsibility here is to "complete the data," not "register from scratch." They can access their "My Insurance" account and select the "Complete Data for a Non-Saudi Subscriber Registered Automatically" service.
This applies to exceptional cases requiring manual registration where automatic registration is not available, such as (GCC citizens, nomadic tribes, and private expatriates not sponsored by the establishment).
In this case, the employer uses the "Add a non-Saudi subscriber who has not previously been registered with insurance" service, and manually enters the residence number, border number, or passport data and completes all the data.
In conclusion, we have covered the details of social insurance in Saudi Arabia, which is important for all employees, whether Saudi or foreign, and is also a concern for employers who are keen to comply with labor laws and regulations.
If you wish to register your employees with social insurance, or if you are facing any legal issues related to insurance, please do not hesitate to contact us at Mohammed AlKhliwi Law Firm. We will be happy to assist you.
Disclaimer: The above content does not constitute legal advice, and the author of this article assumes no legal responsibility. For legal advice, please contact us.
Mohammed Alkhliwi Law Firm is a Saudi legal practice that serves individuals, institutions, and corporations, drawing on extensive experience in litigation and legal consultancy. The firm believes that law is not merely a set of regulations and procedures, but a powerful tool to protect rights and ensure justice. For this reason, the firm is dedicated to serving its clients with the utmost professionalism and responsibility.
