Welcome to the Saudi Arabia focus edition of Law Update.
One of the key markets in the Middle East and North Africa (MENA) that continues to lead from the front is the Kingdom of Saudi Arabia (KSA). As the largest country in the Middle East and the 18th largest economy in the world, the progress KSA continues to make is underpinned by its Vision 2030 that envisions developing the country as an investment powerhouse and hub that ultimately connects Asia, Europe, and Africa. Given Saudi Arabia’s significance to the regional economy, our team of experts have prepared a range of pertinent articles that provide insights into new laws, regulations, and the legal landscape in the Kingdom.
This edition will provide you with an up-to-date guide on matters such as; the framework issued by the Saudi Central Bank on IT governance, the anti-corruption landscape under Vision 2030; we also provide practical tips for dispute avoidance. This is only a snapshot; there are many more articles within the KSA focus section for you to read, which we hope you will find valuable and enjoyable.Read the edition
Following on from Ministerial Resolution No. 142906 dated 13.8.1441(H) which was issued on 6 April 2020 and introduced a new Article 41 to the Executive Regulations of the Labour Law with aim of regulating the employment relationship in cases of exceptional circumstances and force majeure, the Ministry of Human Resources and Social Development (“MHRSD”) has now provided a much needed Explanatory Note for its application.
The Explanatory Note, which has been issued by Ministerial Resolution No. 14662 dated 10.9.1441(H) (corresponding to 3 May 2020), explains the circumstances in which Article 41 is intended to apply and the measures that employers can take when the State adopts any actions, including any preventative steps or precautionary actions, to mitigate against the effects of a force majeure event . The measures that employers can take include making wage reductions, setting annual leave or placing employees on unpaid leave with their agreement.
Article 41 has been introduced with the intention of dealing with the impact of the coronavirus pandemic but its application is much wider in scope and can be invoked whenever there are exceptional circumstances that may be described as a force majeure event. The Explanatory Note defines a force majeure event as any event that can neither be predictable or escapable in response to which the state adopts procedures that requires minimising working hours or where it takes precautionary measures to limit the exacerbation of the force majeure event. Article 41 will apply and be effective for as long as the force majeure event exists. Employers will, therefore, be able to apply the measures set out in Article 41 (as explained further below) within a six-month period following the measures taken by the state to deal with the force majeure event. When it ceases to exist then Article 41 and any measures taken in reliance upon it will also cease and the parties to the employment contract will return to their positions that existed prior to the force majeure event.
a. Wage reduction
Paragraph 1 A of Article 41 stipulates that employers can reduce the wages of employees commensurate to a reduction in their working hours. The Explanatory Note clarifies that employers can unilaterally impose a wage reduction without an employee’s consent provided that such wage reduction does not exceed 40 per cent (and any reduction must be in line with a corresponding reduction in working hours).
b. Setting annual leave
Paragraph 1 B of Article 41 stipulates that employers have the right to grant annual leave to employees. The Explanatory Note clarifies that employees cannot refuse to take leave once leave dates are set by the employer. Further, annual leave must be paid at the rate of the employee’s actual wage before any reductions were applied in response to the force majeure event.
c. Granting unpaid leave
Paragraph 1 C of Article 41 stipulates that an employer may agree a period of unpaid leave with the employee. The Explanatory Note describes this as exceptional leave and, unlike with the measures relating to reduction in wages or taking of annual leave, states that the employee must agree to take a period of unpaid leave in accordance with Article 116 of the Labour Law.
Paragraph 2 of Article 41 stipulates that it will be unlawful to terminate employment where it is evidenced that the employer has benefited from a subsidy from the state. The Explanatory Note now clarifies that the employer has a right to terminate employment in a force majeure case provided that it satisfies the following three conditions:
Paragraph 3 of Article 41 states that the employee’s right to terminate employment is not prejudiced. The Explanatory Note restricts the employee from resigning for a force majeure reason unless the employee can show that a period of six months has lapsed following the actions taken to counter the force majeure event that resulted in a reduction in working hours or a cessation of work for a period and the employee has taken up or complied with all or some of the measures available to the employer under Article 41.
The Explanatory Note has put the flesh on the bones of Article 41 of the Executive Regulations and given some much needed clarity. It has strengthened the hand of employers to impose measures on employees but with some limitations. However, it has not dispelled all of the questions that arose following the introduction of Article 41 and there is still no certainty as to what extent employers are restrained from terminating employment where they have received state support for the force majeure event. A failure to comply with the requirements of Article 41 will expose employers to a penalty fine of SAR 10,000 per violation and employees, and risk claims being brought in the Labour Court.
The Employment & Incentives team in the KSA regularly advises on all aspects of the employment relationship. If you require further information on dealing with the impact of the Coronavirus pandemic on the workplace or any other employment issue then please feel free to contact: