Introduction
Terminating employees due to redundancy is a challenging and often sensitive issue for employers in Oman. The process can be complex and legally demanding, and it is essential to follow the appropriate procedures and guidelines to ensure a fair and lawful termination. In this article, we explore Oman's previous and current labor laws on redundancy, the processes followed for redundancy termination, the liabilities arising from employment termination, and the challenges employers may face when terminating workers.
First: Redundancy Under the Previous Labor Law No. 35/2003
Under the previous law, employers did not have the explicit right to terminate work contracts due to redundancy. However, in certain cases, the courts accepted redundancy as being a valid reason for termination where:
1) The company is being closed in its entirety; or
2) The company is required to close down a whole business function to continue operating.
In case of a disagreement between an employer and an employee, if the employer claimed that redundancy was the reason for the dismissal, they had to provide strong evidence to prove this claim. The court had the final say in determining whether the redundancy scenario was valid. Labor Case No. 51/2000 was an example where an employee was compensated for wrongful dismissal because the employer could not prove that the organization's restructuring was valid.
Process Followed for Redundancy Termination
The termination of employment due to redundancy did not follow the proper process. However, the courts carefully examined the financial reports to verify the company's financial condition. For instance, the courts rejected decisions to terminate workers to increase profits or due to losses incurred in one financial year.
In most cases, the courts appointed experts to assess the employer's financial situation, especially if the employee disputes and questions the validity of the financial evidence and claims that there is another reason for dismissal.
Liability Arising on Termination of Employment
If an employee was terminated due to redundancy, the minimum compensation that could have been awarded was three months' salary, with no prescribed maximum cap on the compensation that the court could have awarded.
Furthermore, the courts had the discretion to award increased compensation beyond the minimum. When assessing the compensation, the courts considered several factors, including:
1) The length of the employee's period of service,
2) The level of the employee's monthly remuneration,
3) The employee's prospects of obtaining new employment in Oman.
Second: Redundancy Provisions in the New Labor Law No. 53/2023
Oman's new labor law outlines precise instructions for terminating employment contracts in the event of redundancy. This is a significant departure from the previous labor law, which was vague and led to inconsistent court rulings. The current law requires employers to follow specific conditions and procedures before ending labor contracts.
Definition of Economic Reason
Article 1/22 of the law delineates economic reasons for termination as the sustained financial loss by the employer for a minimum of two consecutive years. Significantly, the closure of activities or branches by the employer, grounded in reasons related to futility, is explicitly excluded from being considered a financial loss.
Termination by the Employer and Competent Committee
Article 43/5 gives employers the authority to terminate contracts after notifying workers if valid economic reasons exist, establishing a clear legal basis for termination under specified conditions.
Furthermore, Article 44 empowers employers, with the approval of a competent committee, to reduce the number of employees. This approach ensures the establishment's continuity and prevents bankruptcy, highlighting the critical role of committee approval in workforce reduction decisions.
The composition, application process, and finality of decisions by the competent committee are detailed in Article 45, involving key entities such as the Ministry of Labor, the Ministry of Trade, Industry and Investment Promotion, the Oman Chamber of Commerce and Industry, and the General Union of Workers of the Sultanate of Oman. The employer initiates the process by applying to the committee, which subsequently reviews and renders a decision on acceptance or rejection, with a provision for filing a grievance to the court of appeal within thirty days if necessary.
Third: Challenges for Employers when Terminating for Redundancy
Terminating workers requires employers to navigate several challenges. Here are some of the challenges employers may face when terminating workers in Oman:
Negotiating Termination with Workers
Employers who wish to terminate employees must first try to negotiate a mutually agreeable solution with the workers. The Ministry of Manpower prefers employers to try and reach an agreement with the employees before resorting to unilateral termination. From our experience, this poses a challenge for employers who may lack effective communication and negotiation skills.
Convincing the Committee of Financial Statements Accuracy
Employers must convince the Committee of the accuracy of their financial statements when requesting to terminate a worker. The Committee requires thorough documentation and transparent communication to build confidence in the assessment of financial statements. Employers must ensure that their financial statements are accurate and transparent to avoid any delays in the termination process.
Preparation and Processing of Arguments and Documents for Appeal
If the decision of the competent committee is unsatisfactory to the employer, an additional challenge arises in preparing and processing arguments and documents for the grievance stage at the Court of Appeal. This requires collaborative efforts between technicians such as accountants and labor lawyers, emphasizing the importance of comprehensive preparation before deciding on worker contract terminations.
Conclusion
Employment termination due to redundancy can be a difficult decision for employers, but following the appropriate procedures and guidelines is essential. Oman's new labor law provides more specific instructions for terminating employment contracts in the event of redundancy, ensuring a fair and consistent approach. Employers must also be aware of the challenges they may face when terminating workers and take steps to minimize them. By following the appropriate procedures and guidelines, employers can ensure a fair and lawful termination and minimize the risk of legal disputes.
Originally published February 27, 2024.
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.
