Penalty on Early Termination of Employment

Q: An employer enters into a one year contract of employment with a senior level employee with a specific and unambiguous clause that says:


Three calendar months notice period will apply if your employment is terminated at any stage. Should the notice period be shorter than 3 calendar months, then the defaulting party must pay the balance of the salary equating to the remainder of the notice period not served (eg: should the employee request to leave with a 1 month notice period, then the employee must pay the employer the salary amount for the balance of the 2 months).      

The above applies to both the employee and the employer. My questions are:

  1. Is this clause fair and acceptable from an Islamic viewpoint.

  2. Is it permissible to hold either party accountable to this clause in the agreement if services are terminated?

Please note that the clause will apply both ways and not only for the benefit of the employer.

A: In an employment contract, it is incumbent upon both parties (the employer as well as the employee) to abide by the rules and regulations of the contract, provided it does not contradict any law of Shari’ah. If any condition or clause in the employment contract contravenes any law of Shari’ah, then fulfilling the condition will be impermissible, irrespective of whether it relates to the employer or the employee. The clause of “charging the defaulting party the balance of the salary equating to the remainder of the notice period not served” is an invalid condition in Islam. Hence, it is impermissible. However, if the employee was employed for a specific period e.g. 3 months, it will be impermissible for any party to unilaterally terminate the contract before the completion of this period without any valid Shar’ee excuse, though in this case as well, charging a penalty will be impermissible. 

حدثنا الحسن بن علي الخلال حدثنا أبو عامر العقدي حدثنا كثير بن عبد الله بن عمرو بن عوف المزني عن أبيه عن جده : أن رسول الله صلى الله عليه و سلم قال الصلح جائز بين المسلمين إلا صلحا حرم حلالا أو أحل حراما والمسلمون على شروطهم إلا شرطا حرم حلالا أو حل حراما
قال أبو عيسى هذا حديث حسن صحيح. (ترمذي 1/251)


Answered by:

Mufti Zakaria Makada

Checked & Approved:

Mufti Ebrahim Salejee (Isipingo Beach)