Saudi Arabia: Headcount Reduction In The GCC

Last Updated: 7 March 2016
Article by Sara Khoja and Rebecca Ford

Written by Sara Khoja, Rebecca Ford and Jack Fletcher

With economic commentators predicting a difficult 2016 employers across the region may be forced to look at staffing levels. With commodity prices struggling to recover, the Chinese stock market losing 8% of its value on the first trading day of the year and with oil prices remaining low, it is no wonder that the first trend of 2016 looks set to be the implementation of cost reduction measures. More often than not, this means reducing the workforce.

In this article we examine the issues involved when an employer reduces headcount together with the various regulations applicable across the GCC.

An Employer's ability to lawfully reduce headcount

Redundancy, whereby the need for certain roles is reduced or eliminated, has not historically been a recognised concept across the GCC. However, in the recent amendments to their Labour Codes, Bahrain, Kuwait and KSA introduced provisions providing for a recognition of redundancy and the dismissal of employees by reason of redundancy in certain circumstances.

The most extensive of these are in Bahrain where Article 110 of the Labour Law for the Private Sector, No. 36 of 2012 states that: "An employer may terminate the contract of employment because of the total or partial closure of the establishment, scaling down its business or replacement of the production system by another that may affect the size of the workforce, provided that the contract's termination shall not take place except upon giving notice to the Ministry concerning the reason for termination 30 days before the date of giving the worker notice of termination."

In Kuwait and KSA, however, the circumstances in which redundancy dismissals are permitted are limited to where the establishment of the employer is being closed (KSA and Kuwait) or there is a cessation of business within the unit or operation where the employee works (KSA only).

Where a redundancy exercise does not fall within the circumstances provided for in the Labour Codes identified above, or is in one of the other jurisdictions (such as the UAE) where the employment laws do not include the concept, the usual termination provisions apply and potentially, claims can be brought for unfair or arbitrary dismissal.

Employers should also be aware that there is additional protection from dismissal (for any reason) for nationals in a number of the GCC states (UAE, KSA and Bahrain in particular). In addition, there are restrictions in all of the GCC states on issuing notice to employees on leave (annual leave, sick leave or maternity leave).

Getting the Process Right

Where an employer operates across the GCC one consideration will be whether to adopt a standard process across operations to identify which roles will be affected, how employees will be informed of the process and what exit packages will be paid.

From an employee relations perspective, a standardized approach may be welcome and help to smooth the transition for employees as well as those who remain within the business. Choosing to adopt this approach however, could increase business costs where the process extends the employment period (and thus salary payments). On the other hand, it may reduce the prospects of a successful claim against the employer for compensation (in addition to common entitlements such as notice, end of service gratuity and payment in lieu of holiday.

A potential process an employer could choose to follow would be as follows:

  • Announcing the pending restructuring to the relevant employees (i.e. at a 'town hall' type meeting);
  • Ensuring that there is a mechanism for employees to air concerns and ask questions (many employers also produce a FAQs document which is updated and circulated at regular intervals);
  • Conducting individual meetings with the affected employees to explain in more detail why their role is at risk of redundancy and to explore with them whether there any alternative options;
  • After these meetings efforts should be made to be seen to have considered any alternatives put forward by the employee and to have explored any other potential solutions before the decision is made and communicated to the employee.

In Bahrain a formal notice of the intention to make redundancies must first be made to the Ministry of Manpower and no notice of termination can be issued prior to the notice being given and acknowledged by the Ministry. There may also be additional requirements for nationals – for example, in the UAE, an employer falling under the Ministry of Labour jurisdiction should obtain prior consent for the dismissal of a UAE national.

Termination Packages

Depending on the condition of the business and the extent of the reductions, employers may wish to consider offering an exit package which includes an ex-gratia payment over and above the statutory and contractual entitlements (i.e. notice, holiday, end of service gratuity, and, in the case Bahrain, a statutory redundancy payment). There is no obligation on an employer to do so. If made, such a payment should always be offered under a settlement agreement or release document, whereby the employee agrees to receive the payments and acknowledges that these are the entitlements due, that any claims or complaints are waived, and that the employer is released from any liability.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Sara Khoja
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