In Saudi Arabia, the labor law outlines two main categories of employment contracts based on their duration: fixed-term contracts and unlimited term contracts.

Fixed-Term Contracts

Fixed-term contracts have a predetermined duration that terminates upon its expiry. These contracts are commonly used for project-based work with a defined completion date and temporary positions with a specific timeframe in mind.

There are important considerations for fixed-term contracts:

• Renewal: The contract can be renewed for a similar or specified term upon mutual agreement between employer and employee. However, if a fixed-term contract is renewed for three consecutive terms or the combined initial term and renewal period reaches four years (whichever comes first), and the parties continue the employment relationship, the contract automatically converts to an unlimited term contract.
• Termination: Fixed-term contracts typically terminate upon the expiry of the agreed-upon term. Early termination might be possible under specific conditions outlined in the contract.

Unlimited Term Contracts

Unlimited term contracts, also known as open-ended contracts, have no predetermined end date. These contracts are generally used for permanent positions within a company and offer greater job security to the employee. However, in Saudi Arabia, there are specific circumstances for such contracts:

• Saudi Nationals: Unlimited term contracts are primarily offered to Saudi Arabian nationals.
• Foreign Nationals: Foreign employees can only be employed under unlimited term contracts if the employer and employee agree, but such agreements are treated as fixed-term contracts tied to the duration of the foreign worker's work permit. If the employment continues beyond the work permit validity and no renewal is secured, the contract terminates.

Saudi Arabia's Ministry of Human Resources and Social Development provides a model employment contract that serves as a baseline for these agreements. Employers and employees can include additional clauses in their contracts as long as they don't contradict the provisions of the Labor Law or its regulations.

Employment agreements in Saudi Arabia are crucial in safeguarding the rights and obligations of both employers and employees. They must adhere to the guidelines outlined in the Saudi Labour Law.

Basic Information

The agreement should include the full legal name, registered address, and contact information of both the employer and the employee. This establishes the parties involved in the agreement and facilitates communication.

Job Description and Responsibilities

The agreement should clearly define the employee's designated position, duties and responsibilities, reporting structure, and primary workplace. This helps manage expectations and ensures the employee understands their role within the company.

Term and Probation Period

The agreement should specify whether the contract is fixed-term or non-fixed. If applicable, it should outline the duration of the probationary period. This helps both parties plan for the future and navigate potential termination scenarios.

Remuneration and Benefits

The agreement should clearly state the employee's base salary, including the currency and frequency of payment. It should detail any additional allowances provided, such as housing, transportation, or meal allowances. It should also outline the employee's entitlement to benefits like health insurance, paid leave, and end-of-service gratuity. Transparency regarding compensation and benefits ensures fair treatment and avoids misunderstandings.

Working Hours and Overtime

The agreement should specify the typical daily and weekly working hours, adhering to Saudi Labour Law regulations. It should define the parameters for working overtime, including notification procedures and compensation rates. Clear guidelines on working hours and overtime help prevent exploitation and ensure employees receive proper compensation for additional work.

Leave Policy

The agreement should outline the entitlement to annual paid vacation leave, paid sick leave, and any additional leave provisions, such as maternity leave, compassionate leave, or Hajj leave. A comprehensive leave policy ensures employees can take necessary time off while maintaining job security.

Termination Clause

The agreement should outline the specific reasons that could lead to termination by either party, following the guidelines set forth in the Saudi Labour Law. It should specify the required notice period for resignation by the employee and termination by the employer. A clear termination clause helps manage expectations and ensures a fair and legal process in case of employment termination.

Probationary periods are a standard part of employment contracts in Saudi Arabia, serving both employers and employees. As per the Saudi Ministry of Human Resources and Social Development (HRSD), these periods have specific rules and regulations.

Maximum Duration and Extensions

Saudi Arabia's labor law stipulates that a probationary period can last for a maximum of 90 days, excluding official holidays and sick leave. Employers have the option to choose a shorter probationary period if they prefer.

An extension of the probation period is possible, but only up to a total of 180 days. This extension necessitates written consent from both the employer and the employee. It's crucial to note that an employee cannot be subjected to more than one probation period with the same employer.

Termination During Probation

During the probationary period, either the employer or the employee has the right to terminate the contract without providing any compensation. This is applicable unless the contract specifically states otherwise, granting termination rights exclusively to one party.

As the probationary period is primarily for assessing suitability, neither party is entitled to benefits like end-of-service gratuity upon termination during probation. However, the employer is responsible for covering the employee's return travel costs.

Key Points to Remember

• The maximum duration of a probationary period in Saudi Arabia is 90 days.
• This period can be extended to a maximum of 180 days with written consent from both parties.
• During probation, either party can terminate the contract without compensation.
• End-of-service gratuity is not applicable for terminations during probation.
• The employer is responsible for the employee's return travel costs upon termination during probation.

In Saudi Arabian employment contracts, confidentiality and non-compete clauses can be included to safeguard an employer's legitimate business interests. However, these clauses must adhere to specific regulations as per the Saudi Arabian Labour Law.

Confidentiality Clauses

Confidentiality clauses are designed to protect an employer's confidential information, such as trade secrets, technical data, or client lists. Even after the termination of employment, these clauses can bind the employee, preventing them from disclosing or misusing such confidential information.

For a confidentiality clause to be enforceable, it must be clearly defined within the employment contract, including the specification of what information is considered confidential.

In Saudi Arabia, there's no set time limit on confidentiality obligations. An employee's duty to protect confidential information can potentially extend beyond the termination of their employment.

Non-Compete Clauses

Non-compete clauses limit an employee's ability to work with a competitor or start a similar business for a certain period after leaving the company.

While these clauses are enforceable in Saudi Arabia, they are subject to limitations to ensure they are reasonable and do not unfairly restrict an employee's ability to find work.

Here are the key limitations on non-compete clauses:

• Maximum Duration: The restrictions cannot exceed two years from the termination date.
• Geographical Scope: The clause should be limited to a specific geographical area relevant to the employer's business interests.
• Scope of Work: The restrictions should only apply to the type of work similar to the employee's role within the company.