As first published in the Lexis Middle East Law Alert on 13 May 2016

What’s happened?

The Saudi Arabian Labor Law (enacted by Saudi Arabia Royal Decree No. M51/1426) and contained in Saudi Arabia Cabinet Decision No. 219/1426 comprehensively governs all aspects of employment relationships in the Kingdom. It has been amended a number of times since its introduction, most recently in October 2015 with the passage of Saudi Arabia Royal Decree No. M46/1436. The country’s authorities have now issued the Implementing Regulations to clarify particular provisions as well as clarify aspects of the Implementing Regulations issued under Saudi Arabia Ministerial Decision No. 693/1/1428 and the Implementing Regulations on Recruitment Companies, Labour Recruitment and Provision of Labor Services under Saudi Arabia Ministerial Decision No. 1/1/1998.

What do the 2016 Implementing Regulations cover?

On 6 April 2016, the Labour Ministry issued a Ministerial Decision which replaced the bundle of old Implementing Regulations. It came into force on its publication in the Official Gazette, i.e. 22 April 2016.

What are the key changes?

The first key change is that Saudi Arabia’s Labour Ministry has adopted a new standard Internal Guidelines form which all companies must adhere to. Under Article 4, companies must log on to the Labour Ministry’s e-portal and either accept their standard Internal Guidelines form or, alternatively, insert additional terms, which will be reviewed electronically by the Ministry for any inconsistencies with Saudi Arabian rules and regulations. However, existing companies who have already adopted Internal Guidelines are exempt from this requirement so long as their current Internal Guidelines are not inconsistent with the Labour Law or Implementing Regulations. If they are, they must amend their Internal Guidelines and submit them to the e-portal for approval within six months.

Whilst the new Internal Guidelines do not have any significant changes from the previous Internal Guidelines, they do lay out a much more specific and detailed scheme for discipline carried out by employers specifying the type of penalty to be applied for 49 specific acts depending on whether the act was committed for the first, second, third, or fourth time. In addition, whilst an employee used to be entitled to a bonus in the event their annual performance was classified as “Good” on the scale of 1) Excellent; 2) Very Good; 3) Good; 4) Satisfactory and 5) Poor under Article 34, they are now entitled to a bonus if their performance is merely “Satisfactory” under Article 19 of the new Internal Guidelines.

Under Article 52 of the Labour Law, the Ministry will create a standard form of employment contract (the Standard Contract) which will be adopted by employers and employees. Until now, the Ministry has never released a Standard Contract. However, under Article 19 of the Implementing Regulations, a Standard Contract has been adopted and attached as Annex 6. All employment contracts concluded in Saudi Arabia must contain all obligatory terms in the Standard Contract. Additional terms may be included and are enforceable only to the extent they are not inconsistent with the Labour Law and its Implementing Regulations and are not unfavourable to employees.

The provisions of the Standard Contract are not significantly noteworthy. It appears the Ministry has adopted the Standard Contract and formatted it in a way to simplify the contracting process so as to encourage employers to reduce to writing the employment relationships with employees in a clear and concise manner, perhaps to reduce the amount of labour and employment law claims as most claims tend to arise out of a basic misunderstanding between the parties because of a lack of a clear written agreement. However, there is an interesting provision in the Standard Contract which includes an obligatory term for all fixed term contracts; an automatic renewal for similar periods at the expiration of the contract unless either party notifies the other party in writing otherwise at least thirty days before.

This requirement has not existed previously in Saudi Arabian labour and employment law. Therefore employers who plan to let an employee go on a fixed term contract at the end of the term by simply not renewing the contract should be mindful of the new thirty days’ notice requirement. Another interesting provision clarifies that the rate for overtime hours is based on an employee’s basic salary. Previously, it was not completely clear if overtime was based on the basic salary or the total salary including allowances.

Under Article 53 of the Labour Law, an employee may be hired on a 90-day probation period. Under the October 2015 Amendments, the probation period could be extended for another 90 days under a mutual written agreement but it was not specified if the parties could simply agree to a 180-day probation period in the written employment contract or, alternatively, if they had to execute a separate written agreement to enter a new 90-day probation period after completion of the initial 90-day probation period.

Under Article 20 of the 2016 Implementing Regulations, this has now been clarified. An employee may be subject to a total 180-day probation period but it must be separated into two 90-day periods. The first 90-day period must be included in the employment contract and the second 90-day period must be mutually agreed separately and in writing by the employer and employee.

Under Article 109 of the Labour Law, employees are entitled to 21 days’ annual leave which rises to 30 days if the employee has five years of consecutive service or more with their employer. The Labour Law does not specify if public holidays or sick leave days are included in the annual leave count towards the 21 or 30 statutory annual leave days. Under Article 25 of the 2016 Implementing Regulations, the Ministry has clarified public holidays falling within an employee’s annual leave will not count towards their 21 or 30 days of statutory annual leave.

In addition, under Article 27 of the 2016 Implementing Regulations, the Ministry has clarified days of sick leave which fall within an employee’s annual leave will not count towards their 21 or 30 days of statutory annual leave. Instead, in the event of sickness during annual leave, an employee’s annual leave will be considered to be suspended until the sickness has stopped.

Under Article 12 of the 2016 Implementing Regulations, non-Saudis may not be employed in eighteen specific professions, which includes titles like:

  • Senior Director of Human Resources;
  • Director of Personnel;
  • Labour & Work Affairs Director;
  • General Reception Clerk;
  • Complaints Clerk; and
  • Treasurer.

It is expected residency permits for expatriates currently holding these titles will not be renewed.

Under Article 15 of the 2016 Implementing Regulations, non-Saudis who are under 18 or over 60 may not be recruited for employment in Saudi Arabia and, therefore, would not be granted an employment visa. Presumably, individuals who are already employed in Saudi Arabia and do not fall into these requirements would also not be permitted to renew their residency. However, experts, doctors, and other professions as determined by the MOL may be excluded from the maximum age limit.

Before the October 2015 Amendments, Article 58 of the Labour Law allowed the employer to transfer an employee to a different geographical location within Saudi Arabia only if the transfer was not likely to cause the employee serious damage without a valid reason dictated by the nature of the work.

Article 58 was then amended to simply state the employer may not transfer an employee to a different geographical location within Saudi Arabia without the employee’s written approval so many employers included in their standard employment contracts a clause with language containing this approval by the employee.

Under Article 21 of the 2016 Implementing Regulations, this clause included in the employment contract is considered to be expressly in line with the requirements of Article 58 of the Labour Law.

Under Article 23 of the 2016 Implementing Regulations, an employee’s yearly overtime will not exceed 720 hours, unless by exception of the Minister.

Employers in Saudi Arabia should be careful to ensure that their employment contracts and internal employment practices are compliant with the changes to the labor and employment law regime affected by the 2016 Implementing Regulations in order to avoid impediments in the market, including enquiries and penalties from the MOL, as well as claims from employees.