Compensation for Termination or Cancellation of Employment Contracts under Kuwaiti Law

Compensation for the premature termination of an employment contract is an issue that has been addressed in numerous judgments of the Kuwaiti courts. These judgments have established important principles concerning fixed-term employment contracts, the conditions for entitlement to compensation, the limits of such compensation, and the discretion of the trial court in assessing it.

It should be noted that some of the judgments cited below were issued pursuant to Law No. 38 of 1964 concerning Labour in the Private Sector, which preceded the current Labour Law. Accordingly, these principles should be considered in light of the legislation applicable at the time of the dispute and the extent to which the relevant judicial principles remain applicable under the current law.

First: The Actual Term and Conditions of the Employment Contract Are Decisive

The Kuwaiti Court of Cassation has established that the trial court has the authority to determine the facts of the case and interpret the employment contract according to its wording and surrounding circumstances. The court is not required to refer the case for investigation or the hearing of evidence where the documents and evidence before it are sufficient for it to form its opinion.

In one case, the employment contract was concluded for a fixed term of two years and did not contain any special provisions governing its termination or indicating that its continued existence was dependent upon another contract entered into between the employer and a government authority.

The Court of Cassation held that the employer's termination of the employment contract before the expiry of its agreed term entitled the employee to compensation, provided that the trial court's determination that the contract was for a fixed term was reasonable and supported by the evidence on record.

(Labour Appeal No. 62/2002 – Hearing dated 20 January 2003)

Second: A Notice of Non-Renewal Clause Does Not Convert a Fixed-Term Contract into an Indefinite-Term Contract

The Court of Cassation held that a provision in an employment contract stating that the contract is valid for two years and is automatically renewable for a similar period unless either party gives the other written notice of its intention to terminate or not renew it within a specified notice period does not, in itself, render the contract indefinite in duration.

Where the wording of the contract demonstrates that it was concluded for a specific period, the right to give notice of non-renewal relates to the expiry of the contract at the end of that period. It does not constitute an unrestricted right to terminate the contract at any time during its term.

Accordingly, an employer's termination of a fixed-term employment contract before its expiry must be distinguished from merely notifying the employee that the employer does not wish to renew the contract after the agreed term has expired.

(Labour Appeal No. 161/2002 – Hearing dated 29 December 2003)

Third: Distinction Between Fixed-Term and Indefinite-Term Employment Contracts

Kuwaiti jurisprudence, under the provisions of Labour Law No. 38 of 1964, emphasized the importance of determining the nature of the employment contract before applying the rules governing compensation for its termination.

The Court of Cassation held that the compensation provided for under Article 53 of the said law in respect of termination of employment contracts applied to fixed-term contracts. Accordingly, a claim based on that provision would be rejected where the legal requirements for its application were not satisfied.

(Labour Appeals Nos. 71 and 74/2003 – Hearing dated 16 February 2004)

Fourth: Salary for the Remaining Contractual Period Represents the Maximum Limit of Compensation and Is Not Necessarily the Amount Automatically Payable

An important principle established by the Court of Cassation is that where an employer terminates a fixed-term employment contract before its expiry, and the conditions for compensation are satisfied, the employee is not necessarily entitled to receive the full salary for the entire remaining period of the contract.

Rather, compensation is assessed according to the actual damage suffered by the employee as a result of the premature termination, taking into consideration various relevant factors, including:

• Prevailing custom and practice.

• The nature of the work.

• The agreed duration of the employment contract.

• The extent and amount of the damage suffered.

• Other circumstances and considerations affecting the assessment of the damage.

Under the statutory provision applied by the Court in that judgment, the compensation could not, in any event, exceed the total salary that would have been payable for the remaining period of the contract.

In one case, the Court of Cassation upheld a judgment awarding the employee compensation equivalent to three months' salary, notwithstanding that the employment contract had been terminated before the expiry of its agreed term. The trial court had determined that this amount was sufficient to compensate the employee for the damage actually suffered.

The Court of Cassation further confirmed that the assessment of compensation proportionate to the damage suffered falls within the discretion of the trial court, provided that its assessment is based on reasonable grounds supported by the evidence on record.

(Labour Appeal No. 9/2003 – Hearing dated 4 October 2004)

Fifth: Determining Whether There Was Justification for Termination Falls Within the Discretion of the Trial Court

The Court of Cassation has consistently held that determining the facts of the case, evaluating and weighing the evidence and documents submitted by the parties, and deciding whether a valid justification existed for terminating an employee's service are matters falling within the discretion of the trial court.

Such findings will generally stand where the court's reasoning is reasonable, supported by the evidence on record, and sufficient to sustain the conclusion reached.

In one case, the court concluded that the termination of the employment relationship was attributable to the employer and was not caused by the employee's absence without justification. On that basis, the employee was held to be entitled to end-of-service benefits and compensation in respect of the remaining period of the employment contract.

The Court of Cassation also confirmed that photocopies of documents, although they may not in themselves constitute legally binding evidence, may nevertheless be considered as circumstantial evidence subject to the trial court's discretion.

Conclusion

The principles established by the Kuwaiti Court of Cassation demonstrate that the mere termination of an employment relationship does not, by itself, automatically entitle an employee to compensation equivalent to the salary for the remaining contractual period.

Rather, several matters must be considered, principally:

1. Whether the employment contract is for a fixed term or an indefinite term.

2. Whether the contract was terminated before the expiry of the agreed term.

3. The reason for termination and whether there was a legally valid justification for it.

4. The contractual provisions governing termination and non-renewal.

5. The damage suffered by the employee as a consequence of the termination.

6. The assessment of compensation in accordance with the statutory and judicial principles applicable to the particular circumstances.

Accordingly, a distinction must be drawn between terminating a fixed-term employment contract during its contractual term and giving notice that the contract will not be renewed upon expiry. Each situation may give rise to different legal consequences.

Furthermore, according to the judicial principles referred to above, the salary corresponding to the remaining contractual period should not necessarily be regarded as compensation automatically payable in every case. Entitlement and quantum depend on the applicable statutory provisions, the terms of the employment contract, the grounds for termination, and the damage established before the court, subject to the limits prescribed by law.

Court of Cassation Judgments Referred to Above

• Labour Appeal No. 62/2002 – Hearing dated 20 January 2003.

• Labour Appeal No. 161/2002 – Hearing dated 29 December 2003.

• Labour Appeals Nos. 71 and 74/2003 – Hearing dated 16 February 2004.

• Labour Appeal No. 9/2003 – Hearing dated 4 October 2004.

Legal Note: The judgments referred to above include applications of the provisions of the repealed Law No. 38 of 1964 concerning Labour in the Private Sector. Therefore, when relying on these judgments in relation to a current dispute, reference should also be made to Law No. 6 of 2010 concerning Labour in the Private Sector, as amended, and consideration should be given to whether the judicial principles established in those judgments remain applicable and consistent with the legislation in force at the time the dispute arose.