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
The Ministry of Human Resources & Emiratisation (“MOHRE”) has announced an overhaul to the labour laws in the UAE. The new UAE Labour Law (Federal Decree Law No. 33 of 2021) (“New Law”), which came into effect as of 2 February 2022 (“Effective Date”), seeks to address changes in the work environment, align UAE labour relations with international best practices, and recognise the need for atypical and/or flexible working structures. The New Law has replaced Federal Law No. 8 of 1980, as amended (“Original Law”) in its entirety, and it is the most significant amendment to UAE labour legislation since the Original Law’s enactment.
The New Law makes a number of references to the “Executive Regulations” whose purpose is to supplement, clarify and expand upon various provisions of the New Law. Although the New Law was published in November 2021, the Executive Regulations (Cabinet Resolution No. 1 of 2022) were not published at the same time, and they were only recently released on 3 February 2022.
Our original legal update released on 18 November 2021 following the announcement of the New Law, and which provided a comparison of the New Law against the Original Law, has been updated below to include a summary of the key changes within the Executive Regulations.
(Unless defined in this summary, the capitalised terms below have the meanings given to them under the Original Law, as applicable.)
Part-time and flexible working arrangements were not expressly addressed in the Original Law, however:
A number of new alternative flexible and atypical employment arrangements have now been introduced:
Separately, whilst there are no specific guidelines concerning remote / home working arrangements, it acknowledges that an employee may work remotely (whether from inside or outside the country) with the approval of the employer. This is a welcome development and reflective of the working environment in light of the COVID-19 pandemic.
In addition to the four flexible arrangements set out in the New Law, the Executive Regulations also makes reference to ’job sharing’ as a fifth alternative employment arrangement.
Although the New Law is silent in regards to the requirements of employers to implement these alternative employment arrangements, and how employee benefits and entitlements (for example, end of service gratuity) will be affected for employees who do not work on a full time and permanent basis, the Executive Regulations shed light on these entitlements:
The Executive Regulations clarifies that annual leave for part-time employees should be calculated with reference to the number of hours that they are contracted to work. The calculation is as follows:
Annual leave for part time employees must be a minimum of 5 working days.
End of service gratuity
The Executive Regulations also provide for prorating of end of service gratuity for both part time and job sharing employees. Note that the Executive Regulations does not make reference to the pro-rating of annual leave for employees in a job-sharing role.
The calculation of end of service gratuity in such cases is as follows:
The Original Law provided that all expatriate employees must obtain an employment permit before they could be legally employed in the UAE. There was only one form of employment permit, and all employees whose employer was registered with the MOHRE were hired on a two year full time employment permit (or ‘labour card’).
The UAE authorities recently announced the imminent implementation of a number of new visas and permits which is a sweeping change to the existing UAE immigration landscape.
The Executive Regulations makes reference to 12 different types of work permits to reflect the various types of sponsorship and employment arrangements that are both currently in place, and that are due to be introduced. These 12 permits are:
The Original Law permitted two forms of contract:
All employees are now required to enter into fixed term employment contracts for a maximum period of three years. On expiry of the term, the employment contract can be renewed or extended for similar or shorter periods (on multiple occasions). If the contract is neither renewed nor extended, but the parties continue to operate as though the contract is still in effect, the contract is deemed as renewed on the same terms and conditions as were set out in the most recent version. Any extension or renewal will automatically count towards an employee’s continuous service (for the purposes of end of service gratuity or otherwise).
For employees currently on unlimited term contracts, the provisions of the New Law will automatically apply following the Effective Date. Employers are required to convert existing unlimited term contracts into fixed term contracts within one year from the Effective Date (i.e. by 1 February 2023).
Where employees are currently employed under an unlimited term contract, either party may terminate the contract for a legitimate reason (see “Contract Termination” section below regarding what may constitute a ‘legitimate reason’), subject to the following minimum notice provisions:
Under the Original Law, employment could only be legitimately terminated:
Despite the use of the term “fixed”, the New Law provides that fixed term contracts can be terminated on notice during the course of the term for a “legitimate reason”, provided that the period of written notice under the contract of employment is provided (minimum of 30 days’, maximum 90 days). The term “legitimate reason” is not defined, and therefore it remains to be seen how the Labour Courts will interpret what constitutes a justifiable grounds for dismissal.
In the event that the employee does not serve or the employer does not wish the employee to serve the notice period, the party terminating the contract must pay the other compensation equal to the amount of the employee’s salary for the notice period (or remaining part thereof). Where the employer terminates the contract, an employee is permitted one day of unpaid leave per week in order to search for a new job.
Termination with notice for reasons other than those related to an employee’s performance or conduct is now permitted. Most notably, the concept of redundancy is now expressly recognised as a valid reason for termination if the employer is bankrupt or insolvent, or there are any economic or exceptional reasons. The New Law provides that the Executive Regulations will set out the conditions, controls and procedures in respect of redundancies. Furthermore, termination is unambiguously permitted in the event of company closure, or where the employee’s work permit cannot be renewed (provided that the non-renewal is not attributable to any fault on the part of the employer).
Although the grounds for summary dismissal are mirrored from the existing legislation, there have been some notable additional grounds, where an employee:
Of significance, where an employee is terminated summarily, they will now be entitled to their end of service gratuity (which is previously forfeited in such circumstances under the Original Law).
The circumstances in which an employee may leave employment immediately and without notice have also been amended, and the following new grounds have been included:
Although it was initially contemplated that the wording of the New Law surrounding “economic or exceptional reasons” may provide employers with some degree of flexibility to terminate an employee’s employment for reasons of redundancy, the Executive Regulations confirms that the employer’s ability to rely on a redundancy termination is restricted to the following circumstances:
Under the Original Law, end of service gratuity was calculated on the basis of calendar days and entitlement was reduced where an employee resigns before completing five years of service. Specifically where an employee resigns:
Further, arrangements under which an employer pays contributions into a pension or other savings scheme in lieu of paying end of service gratuity are permissible if (i) the payments made by the employer are at least as favourable as the employee’s end of service gratuity entitlement, and (ii) the employee has elected to accept the fund benefits in lieu of end of service gratuity.
Although end of service gratuity is calculated in the same way under the New Law, end of service gratuity reduction provisions for resigning employees are conspicuously absent and therefore, under the New Law, resigning employees are equally entitled to a full end of service gratuity payment (provided that they have completed at least one full year of service).
The Executive Regulations clarifies the calculation of gratuity for employees employed in a job sharing role or on a part time basis (please see “Part Time and Flexible Working Arrangement” section for further details on the calculation).
No provisions or time frames under the existing law to pay employees’ end of service entitlements.
All end of service entitlements must be paid within 14 days from the termination date. Failure to comply may result in a fine of between AED 5,000 and AED 1,000,000 (with a possible multiplier effect for the number of employees affected by the breach). However, no compensation is payable to the employee in the event that this time frame is not complied with.
Previously, the courts had the ability to award compensation for “arbitrary” dismissal being a dismissal that is “unrelated to the work” of the employee. In practice, this was interpreted as being any reason not attributable to the employee’s poor performance or conduct.
The concept of “arbitrary dismissal” has been removed. Instead, the New Law provides that an employee’s termination is unlawful (i) if the termination was as a result of the employee filing a serious complaint against the employer (akin to the concept of victimisation in other jurisdictions); or (ii) the employee filed a case against the employer which is successfully upheld. Where termination is found to be unlawful in accordance with these grounds, the Labour Courts may oblige an employer to pay compensation of up to three months’ total remuneration (basic salary and allowances), in addition to all other contractual and statutory entitlements. In awarding compensation, the court will have consideration to the amount of damage sustained by the employee, length of service and type of worked performed.
It remains to be seen whether compensation will also be available to employees who are terminated for reasons other than those expressly set out under the new legislation.
Probation was up to a maximum of six months and employment could be terminated without notice during such probationary periods, without any notable consequences.
A minimum notice period of 14 days for employers wishing to terminate an employee whilst on probation has been introduced. The maximum period of probation remains six months.
Where an employee resigns from employment during their probationary period, the law introduces various obligations. Where the resignation:
Notably, in the event an employee fails to adhere to the provisions as set out under the New Law, they will be subject to a labour ban of a year from the date they leave the country subject to exemptions from the MOHRE (see “Labour Bans” section below).
The Original Law provided that an expatriate employee who ‘abandons his work’ without a valid reason, or without working his contractual notice period is not permitted to take up other employment for one year from the date of abandonment.
The New Law provides that in certain circumstances, the MOHRE may not permit certain individuals to obtain a work permit (colloquially known as a ‘labour ban’) where they resign from their employment either (i) during their probation period or (ii) for an ‘illegal reason’.
The Executive Regulations clarifies that labour bans shall not apply (i) where the individual is “of the skill, professional, or knowledge levels” required by the UAE; (ii) to individual is sponsored for residency purposes by a dependant; (iii) to golden visa holders; and (iv) any “occupational categories” as determined by the Minister of the MOHRE and approved by the UAE Cabinet.
The Original Law made provision for equal pay for men and women for the same work and included protection for discrimination in the event of dismissal due to an employee’s pregnancy or maternity leave.
The New Law provides protection for employees from discrimination in the workplace and specifically, prohibits discrimination on the grounds of race, colour, sex, religion, national origin, social origin and disability that would impair equal opportunities for an employee or prejudice an employee from gaining employment and continuing such employment. Whilst maternity and/or pregnancy are not listed as a protected characteristic, employers are prohibited from terminating an employee (or threatening to terminate an employee) due to the fact she is pregnant or on maternity leave.
Additionally, the New Law provides that there should be equal pay for men and women for the same work.
Whilst there are no specific penalties attributed to discrimination and/or sexual harassment, an employer may be liable for fines ranging between AED 5,000 and AED 1,000,000 for breaches of the law (with a possible multiplier effect for the number of employees affected by the breach).
No provisions under the Original Law relating to bullying or sexual harassment.
Protection for employees against bullying and sexual harassment in the workplace has been introduced. Specifically, sexual harassment, bullying, verbal, physical or psychological violence towards an employee are prohibited by their employer, supervisor, colleagues or those working with them. In addition, an employer is prohibited from coercing or threatening an employee to undertake work or provide services against their will.
Whilst there are no specific penalties attributed to bullying or sexual harassment, an employer may be liable for fines ranging between AED 5,000 and AED 1,000,000 for breaches of the law (with a possible multiplier effect for the number of employees affected by the breach).
The maternity leave provisions under the Original Law provide 45 calendar days at full pay and, on expiry, employees are entitled to a further 100 days of consecutive or intermittent maternity “sick” leave if they are suffering from a condition related to pregnancy or delivery that prevents them from resuming work. Further, employees returning from maternity leave are entitled to two additional breaks per day (not exceeding one hour in aggregate) for nursing, until the child attains 18 months of age.
No provisions under the Original Law pertaining to compassionate leave or study leave.
Maternity leave has been increased to 60 calendar days, the first 45 days are fully paid, with the remaining 15 days at half pay. Maternity pay is not reduced in the event that the employee has not completed one full year of employment at the time of availing maternity leave. Maternity leave also applies in circumstances where an employee miscarries after 6 months of carrying, still births and/or upon the death of an infant after birth. An additional 30 calendar days of maternity leave (with full pay), for employees who give birth to a disabled or sick child whose health conditions require a “constant companion” is available which can be further extended for an additional 30 days (unpaid). An employee’s entitlement to nursing breaks are reduced from 18 months to six months from the date of delivery. Likewise, although the provisions pertaining to maternity “sick” leave remain, entitlement is reduced to 45 (consecutive or intermittent) days.
In addition to the amendments to maternity leave, a number of new leave categories have been introduced, namely:
There was a requirement to pay employees’ salaries in UAE dirhams, into a UAE bank account.
Salaries may now be paid in a currency other than UAE dirhams, where agreed in the employment contract. It remains to be seen how this will work in practice for employers who are required to make salary payments through the Wage Protection System.
Restrictive covenants were permissible, provided that they were reasonably limited in terms of time, geographical location, and the type of work. In practice, the courts have appeared reluctant to consider restrictive periods exceeding six months as being reasonable (unless the employer is able to link a longer restrictive period to a legitimate risk to the business).
The inclusion of non-competition restrictions in an employment contract is permitted provided that the provisions are limited in time/duration, place/geographical scope and to the extent necessary to protect the legitimate business interests of the employer. However, the law specifically introduces a maximum restrictive period of two years from the termination date. Where employment is terminated by the employer, and the termination is not in accordance with the law, any restrictive covenants are automatically nullified.
The legal landscape that we have come to know in respect of post-termination restrictions has materially changed in the Executive Regulations. The Executive Regulations provide that:
The forfeiture of annual leave was prohibited and unused leave should either be automatically carried forward to the following leave year, or must otherwise by paid out in lieu.
Unless advised otherwise by an employer, employees must utilise their annual leave in the applicable annual leave year.
Employees are entitled to a payment in lieu of unused leave upon the termination of employment calculated on the basis of an employees’ basic salary only.
The Original Law made reference to an employer’s obligation to have in place various ‘disciplinary rules’ which set out the circumstances in which disciplinary sanctions may be imposed on an employee by their employer.
The Executive Regulations has broadened the employer’s obligations in respect of the regulations it must implement to include any regulations required to organise work such as:
(collectively, the “Work Regulations”). The Work Regulations only apply to employers who employ over 50 employees.
Maximum number of normal hours of work for adult workers is eight hours per day, 48 hours per week (assuming a six day working week) or 8 hours per day, 40 hours per week (assuming a five day working week). Where employees are required to work more than the normal number of hours, excess hours were treated as overtime and employees were entitled to overtime pay. Different overtime pay calculations were applied depending on when the overtime was worked.
The Original Law provided for a ‘carve out’ of the overtime regulations to persons holding responsible managerial or supervisory positions, if such positions confer the powers of an employer over employees. According to Ministerial Decision No. 235 of 1984, this ‘carve out’ applied specifically to the following categories of personnel:
Although the New Law makes reference to the number of normal daily working hours (eight) and it confirms how overtime should be calculated where an employee works (i) an extended working day; and (ii) on a rest day, it does not clarify whether any employees are exempt from the daily working hour and overtime provisions.
The Executive Regulations confirm that certain employees are exempted from the working hour and overtime provisions of the New Law. The Executive Regulations that an exemption may be granted to:
The Original Law sets out a minimum disciplinary process that should be followed in advance of the employer imposing any sanctions on an employee. Specifically, the Original Law required the following minimum process to be carried out before a disciplinary sanction, including dismissal, is imposed:
The Original Law provided that the employee must be informed of the allegation within 30 calendar days of the employer becoming aware of the violation, and a disciplinary penalty must be imposed within 60 calendar days of the investigation being concluded.
No concept of an employee’s right to appeal a disciplinary outcome.
Although the New Law sets out the types of sanctions that could be imposed, it does not provide for any guidelines as to what process should be followed in advance.
This is clarified in the Executive Regulations which provides that:
A big change in the Executive Regulations from the existing position is the employee’s ability to internally appeal any disciplinary penalty imposed against him. The employee’s ability to appeal was not contemplated in the Original Law. The Executive Regulations provide that the employer should not suffer any detriment by raising an appeal and that the employer must inform the employee of the outcome of his appeal.
The Original Law provides that where an employee wishes to file a formal dispute against their employer, the employee must initially raise an informal complaint to the applicable labour authority prior to a formal claim being filed before the Labour Court.
This process remains the same.
Interestingly, the Executive Regulations states that where an employee continues to work during a labour claim, he is entitled to claim two months wages and in such cases, the MOHRE may compel the employer to either pay that amount or refer the complaint to the court.
It is important for all UAE companies (both onshore and within the free zones (with the exception of the DIFC and ADGM)) to review their contracts (which in many cases will involve putting in place new employment contracts), employee handbooks and any other employment policies and procedures to ensure consistency with the New Law. We look forward to working with you to ensure that you are fully compliant with the New Law. Please let us know whether you wish to up a meeting or call to discuss further.