How to Shield Your Company from Unfair Dismissal Claims

Strategy for Protection

Unfair dismissal lawsuits represent a tangible threat to any company, both in terms of potential financial costs and compensation liabilities, and the damage to the corporate reputation and internal work environment. Therefore, building a proactive strategy founded on legal knowledge and clear procedures is crucial to equip you with the legal tools necessary to protect your company from such lawsuits and ensure a balanced and legally secure employment relationship

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What is Unfair Dismissal?

Unfair dismissal is defined as the termination of an employment contract by the employer for unlawful reasons, without issuing prior notice to the employee. The Saudi legislator regulates this matter within two main contractual frameworks, in addition to other specific cases, as follows:

1. Unfair Dismissal in Fixed-Term Contracts

The Law prohibits the employer from arbitrarily terminating the contract before its agreed-upon expiration date. Since the contract defines fixed obligations for both parties throughout its duration, any breach of this condition obligates the employer to compensate the employee for the remaining period of the contract.

Exception: This excludes the probationary period, during which the employer is permitted to terminate the contract under certain conditions, including obtaining written consent from the employee.

2. Unfair Dismissal in Unlimited-Term Contracts

This type of contract arises when a fixed-term contract is renewed more than twice consecutively, or when the contractual relationship continues between the parties after the original term ends. This is affirmed by Article 55 of the Saudi Labor Law, which treats such cases as indefinite contracts.

Other Unlawful Forms of Dismissal: In addition to these two types, other forms of dismissal are considered unlawful, such as: dismissing an employee for refusing to work in an unsafe environment that poses a risk to their health or safety, dismissing an employee due to union membership, or dismissal based on racial, religious, or color discrimination.

Key Grounds for Unfair Dismissal under Saudi Labor Law

Article 80 of the Saudi Labor Law specifies the legitimate reasons for the employer to terminate the contract without compensation (e.g., the employee committing a serious offense or fraud). However, if the conditions stipulated in Article 80 are not met, the dismissal is classified as “Unfair Dismissal,” including but not limited to:

• Discriminatory Dismissal: Based on gender, age, origin, or religion.
• Retaliation: Dismissing an employee for exercising their rights or reporting workplace violations.
• Dismissal During Leave: Such as terminating a pregnant employee or an employee on sick leave.
• Termination without Legitimate Cause or without prior notice.

In all aforementioned cases of unfair dismissal, the employee has the right to claim financial compensation for the damages incurred.

Unfair Dismissal During the Probationary Period

The probationary period is a legitimate testing period, not exceeding 90 days, extendable up to 180 days. Either party has the right to terminate the contract during this period without notice or compensation, provided the probationary period is explicitly stipulated in the employment contract.

• Employee Rights During Probation: The employee is entitled to the full agreed-upon salary, sick leave based on medical reports, and benefit from Eid and official holidays.
• Legal Status: Termination during this period is not considered “unfair” in the strict legal sense. However, the dismissal must occur during the actual probationary period (excluding leave), and the employee also has the right to leave work without notice during this time.
• Exceptions: Cases beyond ordinary dismissal exist, such as termination due to a discriminatory reason, as a result of exercising a legal right, or if the employer fundamentally breaches the contract terms.

Recommended Actions for Employees during Alleged Unfair Dismissal in Probation: It is crucial to retain all documents (employment contract, pay slips, correspondence), document any evidence of discrimination or retaliation, and seek legal advice to assess the legality of the procedure. Although the right to terminate during probation is flexible, it does not grant the employer the right to violate terms or discriminate. Upon completion of the probationary period, the employee gains full employment rights, including protection from unfair dismissal.

How Can an Employee Prove Unfair Dismissal in Saudi Arabia?

An employee can prove unfair dismissal in the Kingdom of Saudi Arabia through the following procedures:

• Document Retention: Keeping authenticated copies of all employment documents, including the employment contract, termination decisions, warning letters, and communication records.
• Evidence of Discrimination/Retaliation: Documenting any evidence of discrimination or retaliation, including offensive comments, threats, or a sudden change in treatment after claiming a legal right.
• Witness Statements: Obtaining written statements from colleagues who witnessed the events leading to the dismissal.
• Official Documentation: Ensuring that procedures for authorization and sick leave are documented through official channels.
• Filing Deadline: Filing the claim within a 12-month period from the date of dismissal, according to Article 234 of the Labor Law. The court may accept the claim after this period if there is an acceptable excuse.
• Compensation: The employee is entitled to receive compensation for unfair dismissal (a monetary amount) based on the length of service, the value of the last salary, and the material and moral damages incurred.
• Court Judgment: The court may rule for the reinstatement of the employee or award full compensation.

Compensation Granted in Cases of Unfair Dismissal

The compensation due to the employee in cases of unfair dismissal under the new Labor Law is divided into three main types:

1. Basic Compensation for Length of Service

• Fixed-Term Contract: The employee is entitled to compensation for the salary remaining until the end of the contract.
• Unlimited-Term Contract: The employee is entitled to compensation of 15 days’ pay for every year of service.

2. Mandatory Minimum Limit

The employee is entitled to receive at least two months’ salary as minimum compensation, even if the service period was short.

3. Supplementary Compensation

The employee is entitled to all other financial entitlements, including: accrued leave balance, housing and transportation allowances, end-of-service awards, and any other agreed-upon entitlements.

The legal mechanisms for claiming compensation involve filing a complaint with the Ministry of Human Resources and Social Development (MHRSD) or resorting to the competent court within one year from the date of dismissal, as well as claiming additional compensation for moral damage if the conditions are met.

7 Tips to Protect Your Company from Unfair Dismissal Claims

As a company owner, investing in a fair work environment is just as crucial as investing in your profits. A regulated work environment shields your company from costly legal disputes and maintains its reputation and the dignity of its employees. Legal experts recommend the following practical measures:

1. Establish a Clear and Publicized Disciplinary Policy

This policy ensures that every employee and manager is fully aware of prohibited behaviors and the resulting penalties, ranging from a warning to termination for a legitimate cause. This protects your company from claims of arbitrary dismissal and provides fair, objective standards for handling all violations.

2. Invest in Legal Training for Management

Training supervisors and managers to understand the Saudi Labor Law, particularly concerning employee rights and legal termination procedures, prevents unintentional errors that could lead to costly unfair dismissal lawsuits and fosters a culture of legal compliance.

3. Apply the Principle of Clear and Documented Procedures

Any violation or written warning must be documented, officially communicated to the employee, and the employee must be given an opportunity to defend themselves before any termination decision is made. Documented evidence becomes the strongest argument before the Labor Dispute Settlement body.

4. Accurate and Continuous Documentation

Create a detailed employee file for every individual, including not just violations, but also periodic performance evaluations, written warnings, meeting minutes, and any notes on the employee’s conduct or performance. This proves that the termination decision was not sudden or arbitrary, but the culmination of a documented series of corrective actions.

5. Follow Graduated Corrective Procedures

Apply a progressive policy for handling shortcomings, starting with verbal warnings, then written warnings, then a final warning, and potentially leading to salary deductions or suspension as stipulated by the system, before resorting to dismissal. This shows that the company provided the employee with fair and multiple opportunities to correct their conduct or improve their performance.

6. Regularly Review Employment Contracts and Internal Regulations

Periodic review of contracts and internal regulations is essential to ensure compliance with the latest amendments in the Saudi Labor Law and MHRSD regulations, ensuring the soundness of the legal basis for termination decisions and closing loopholes that could be exploited in judicial claims.

7. Consult with Legal Counsel Before Final Termination

It is paramount to consult a legal advisor before making a termination decision to ensure the company’s legal protection. The advisor should review the complete employee file—including all documents, reports, and warnings—to evaluate the company’s legal position and identify any weaknesses in procedures or documentation.