Saudi Arabia’s Labor Law is designed to protect the rights of both employers and employees by clearly defining when and how an employment contract can legally come to an end. Article 74 is one of the most important provisions because it outlines the lawful situations in which an employment relationship ends.

Unlike Article 80, which deals with dismissal for serious misconduct, Article 74 focuses on normal and legally recognized reasons for the termination of an employment contract.

What Does Article 74 Say?

Under Article 74 of the Saudi Labor Law, an employment contract may end for several legal reasons, including:

• Mutual agreement between the employer and employee.
• Expiry of a fixed-term contract.
• Termination of an indefinite (unlimited) contract in accordance with the law.
• Reaching the statutory retirement age, unless both parties agree to continue employment.
• Any other legally recognized reason stated in the Labor Law.

1. Mutual Agreement

An employment contract may end if both the employer and employee voluntarily agree to terminate it.

Example

A company is restructuring its operations and offers employees a separation package. An employee accepts the offer, both parties sign the agreement, and the employment ends legally.

Benefits

For the Employer

• Reduces the risk of legal disputes.
• Allows workforce restructuring smoothly.

For the Employee

• Opportunity to negotiate final benefits.
• Clear and documented end of employment.

2. Expiry of a Fixed-Term Contract

If the employment contract has a specific duration, it normally ends on the agreed expiry date unless both parties renew it.

Example

A two-year contract signed from 1 January 2025 to 31 December 2026 expires on the agreed date. If neither party renews it, the contract ends automatically.

If both employer and employee continue the employment relationship after the expiry under the applicable legal conditions, the contract may continue according to Saudi Labor Law.

3. Termination of an Unlimited Contract

Either the employer or the employee may terminate an unlimited contract by following the legal requirements, including the applicable notice period and contractual obligations.

Employer Example

A company closes one department due to business restructuring and provides the employee with the required notice before ending the employment.

Employee Example

An employee receives a better career opportunity and submits the required notice before joining another employer.

4. Retirement

An employment contract may end when the employee reaches the statutory retirement age unless both parties agree to continue the employment relationship.

Benefits Under Article 74

For Employees

• Legal and transparent contract termination.
• Eligibility for End-of-Service Benefits where applicable.
• Settlement of outstanding salary and accrued leave.
• Reduced chances of future legal disputes.

For Employers

• Lawful workforce management.
• Compliance with Saudi Labor Law.
• Lower legal exposure when proper procedures are followed.
• Better planning for organizational restructuring.

Potential Risks

Risks for Employees

• Leaving without following contractual or legal procedures may result in compensation claims in certain situations.
• Failure to understand contractual obligations may affect financial entitlements.

Risks for Employers

• Unlawful termination may result in labor complaints and compensation claims.
• Delays in final settlement or required documentation may expose the employer to legal liability.

Article 74 vs. Article 80

Article 74

Article 80

Covers lawful reasons for the end of an employment contract.

Covers dismissal due to serious employee misconduct.

Applies to normal employment termination.

Applies only in specific disciplinary cases.

Employees may remain entitled to statutory benefits, depending on the circumstances.

In certain cases, dismissal may occur without End-of-Service Benefits, subject to the law.

Key Takeaways

Article 74 provides a legal framework that balances the interests of employers and employees. It ensures that employment relationships end through lawful procedures while protecting the rights of both parties. Understanding this article helps employers maintain compliance and enables employees to better understand their rights and obligations when a contract comes to an end.

Disclaimer: This article is intended for general information only and should not be considered legal advice. Individual cases may vary depending on the employment contract, applicable Saudi Labor Law provisions, and the specific facts of the case.