UK: KSA Labour Law Developments To Usher In A New Era Of Labour Relations

Last Updated: 13 October 2015
Article by Sara Khoja and Rebecca Ford

In April 2015, amendments to the Saudi Labour Law (Royal Decree M/51, dated 23/08/1426, as amended, the 'Labour Law') were published (Resolution 258, dated 3/6/1436). These are expected to be implemented six months after publication, which will be 18 October 2015. Since publication, the amendments have been well-received and reflect the importance placed by the Kingdom of Saudi Arabia (KSA) on access to training and jobs by its nationals, and on ensuring that the statutory regime continues to reflect current work practices.

Interestingly, the amendments are likely to satisfy both employees and employers, as they provide more certainty over terms of employment, require more access to training for Saudi nationals and give more support to departing employees looking for alternative employment; and also provide greater flexibility to employers in managing the employment, by (amongst other things), increasing the probation periods, adjusting the fixed term periods, and increasing working hours.

The amendments will require employers to review and update their contracts of employment and company policies, not only to reflect the changes such as increased leave periods, but also to address some of the important developments regarding termination of the employment contract.

The amendments can broadly be grouped together as those which:

  • provide certainty over employment terms;
  • facilitate Saudi nationals in the workplace;
  • reflect current work practices;
  • enable employers to terminate the employment of individuals in certain circumstances and provide support to departing employees; and
  • increase sanctions for breaches (and also increase the chances of discovery of those breaches).

This article will summarise the key amendments in each of these areas.

Certainty of employment terms

The Saudi Labour Law currently requires employers with more than ten employees to develop workplace regulations, to be submitted for approval to the Ministry of Labour.  The amendments to the law will now require all employers (regardless of number of staff) to provide workplace regulations.  Although the workplace regulations must conform to the model code or codes issued by the Ministry, the employer is entitled to incorporate additional terms, provided that they do not contradict the provisions of the Labour Law.  Reference to the approval process previously contained in the Labour Law has been removed.

The amendments to the law also state that the Ministry will develop a uniform employment contract, which shall include the name, address, nationality of the employee, as well as salary, bonus, allowances, dates of employment, and whether the contract is for a fixed term.  Currently, there is no standard form contract issued by the Ministry.  The amendments do, however, allow an employer to add additional terms and conditions, provided that these do not contradict the Labour Law.

Facilitation of Saudi nationals in the workplace

A number of amendments have been introduced which specifically affect the employment of Saudi nationals, in particular:

  • Employers with 50 or more employees must provide training on an annual basis to Saudi employees making up not less than 12 per cent of the total workforce (previously the requirement was for 6 per cent of the workforce), although this can also include those employees who are completing their education, where the employer is paying their education costs.
  • Fixed term periods may now continue for three consecutive terms (whereas previously this was only for two fixed terms), or for a total period of four years (previously this was for three years), whichever is the shorter, before they convert to unlimited term contracts.  A fixed term contract will automatically expire at the end of its term (unless the parties continue to perform under it).

Current work practices

Certain amendments update the Labour Law to reflect both employer and employee requirements in the workplace:

  • Employers may require an employee to carry out their duties in a place other than their workplace for a period not exceeding 30 days per annum, without having to obtain the employee's prior consent.  However, the employer must pay for the employee's transport and accommodation throughout the period, and there must be some form of emergency necessitating the assignment.
  • Employers must pay salary into an employee's bank account through approved banks.  This reflects the fact that a wage protection system is currently being rolled out in KSA (currently those companies with 170 employees or more are required to comply with the system).
  • Maximum working hours have been increased from 11 to 12 hours per day (of which at least one hour must be for rest, food, and prayer).
  • Paid leave periods for employees have been increased, in particular, paternity, marriage, and compassionate leave have all been increased to five calendar days, and compassionate leave for a female Muslim employee whose spouse has died has increased from 15 days to the Iddah leave of four months and ten days.  A female employee may now take an additional one month's unpaid maternity leave (in addition to the current ten weeks' paid leave paid in accordance with the Labour Law provisions) and, if the baby is ill or disabled and whose health requires permanent attention, a female employee may have one additional month's paid leave, in addition to the maternity leave available to other female employees.

Termination of employment

A number of the amendments to the Labour Law address issues which arise during employment, in particular:

  • The existing probation period provided for under the Labour Law of 90 days may be extended by a further 90 days, during which the employment may be terminated at any time (or in accordance with the contract);
  • The notice period to be given to terminate an unlimited term contract (applicable to Saudi nationals only) has been increased from 30 to 60 calendar days;
  • An employer may not dismiss an employee for cause for unauthorised leave until the employee is absent for at least 30 calendar days' a year, or 15 consecutive days (this was previously 20 and 10 days, respectively);
  • The concept of redundancy will now be included in the law, so that a valid reason for termination arises where the establishment of the employer is being closed or there is a cessation of business within the unit or operation where the employee works;
  • The Labour Law currently provides that an employer must issue a service certificate to an employee on termination, on request, confirming the dates of employment, role, and last salary received.  The amendments to the law now expressly provide that the employer shall not include in the certificate any remarks which are prejudicial to the employee's reputation, or are likely to limit the employee's ability to obtain employment;
  • The employee is entitled to paid time off work to look for alternative employment when notice is served by the employer, which is limited to one full day or eight hours, per week, during the course of the notice period;
  • A significant amendment to the law relates to the compensation due on termination for an invalid reason.  The amendments to the law now allow the parties to expressly state in the employment contract the level of compensation which may be payable where either party terminates the contract without reason, provided that it must not be less than two months' wages.  In the absence of prior agreement, the amendments to the Labour Law state that the compensation shall be 15 calendar days' pay per year of service in the case of an unlimited term contract, and pay for the remainder of the term in the case of a limited term contract.

Sanctions for breach

The amendments to the Labour Law have increased the penalties for breaches of the Labour Law and also provide greater powers to Ministry of Labour Officials (or those appointed by them).  In addition, inspectors are now obliged to produce reports and minutes of any inspection (rather than offer initial guidance and corrective recommendations, which is currently contained in the Labour Law).

The amendments also introduce a form of whistleblowing, to encourage the reporting of violations of the rules by individuals, by way of a financial incentive.    An individual assisting in the detection of violations may be rewarded up to 25% of the value of a fine imposed on an employer by the Ministry.

What's next?

The implementation of the amendments to the Labour Law in October is likely to lead to a number of changes in workplace practices and employers should be taking steps now to update their contracts and company policies.

Looking further into the future, the amendments to the Labour Law do contain some noticeable absences; for example, announcements in early 2014 indicated that the Shoura Council had approved a move to a 5-day working week, although this is currently still under discussion.  In addition, revisions to the Nitaqat system are expected, which are likely to increase Saudisation requirements in certain sectors, and make adjustments to the calculation methods and incentives.

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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