This article aims to highlight certain ambiguities in the Egyptian Labour Law No. 12 for 2003 (Labour Law) and its executive regulations, namely employees financial entitlements, the termination of the employment relationship and collective dispute resolution mechanisms1. These topics have recently led to requests by trade unions, labor activists and investors. These requests are based on the belief by labor unions and activists that the Labour Law needs to be reformed to create rights more favorable to employees. Conversely, many investors believe that the Labour Law is too one-sided in favor of the employees and therefore wish to eliminate certain ambiguities so as to not stifle investment. These issues have historical roots as well, as the modern Egyptian government's founder, Gamal Abdel Nasser, had socialist leanings and believed that workers need protection from exploitation.

Employee's financial entitlements and acquired rights

Article 1/C of the Labour Law broadly defines "salary/remuneration" as "all receivables by the employee against his work, whether fixed or variable and whether in cash or in kind". This includes commissions, percentages paid in return for production, allowances of all types, in kind benefits, bonuses, whether contractual or customarily granted whenever they are of general, permanent and fixed nature and the employee's share in the profits. The list provided in Article 1/C of the Labour Law is not exhaustive, as any benefit scheme applied by an employer may also fall within the broad definition of "gross salary" if they are paid to the employees on a customary, general, permanent and fixed manner. Further such benefits will be characterized as acquired rights forming part of the "salary/remuneration".

The majority of the disputes, whether individual or collective, relate to the variable components of the salary as defined in Article 1/C of the Labour Law and more specifically on the criteria to be applied in determining the length of the period within which a right can/shall be considered acquired. The ambiguity surrounding the concept of acquired rights has created a wider opportunity for judicial intervention. Although certain court precedents have attempted to establish set of principles, these do not always cover the specific circumstances of a given case and remain inadequate to ensure sufficient predictability for investors while labor union activists insist that in some cases acquired rights are construed too narrowly. 

Termination of employment relationship and settlement of individual dispute

Termination. The Labour Law establishes a distinction between indefinite term employment contracts and definite term employment contracts. While the employer has the right to terminate the definite employment contract upon the expiry of its term without notice or warning, the employer cannot lawfully terminate indefinite employment contracts except for cause. This also applies for early termination of definite employment contract.

In this context, the Labour Law has again provided in Article 69 a non-exhaustive list of reasons  that an employer is entitled to terminate the indefinite employment contract. In addition, the Labour Law allows the employer to provide other causes of justifiable termination under its employment contracts, internal work regulations/policies and internal disciplinary regulations provided always that such causes are properly communicated to and acknowledged by the employees. As per Article 110, termination for poor performance may also be one of the justified termination causes, however an employer is not entitled to terminate based on a gross fault.

Settlement of individual disputes. In case of a dispute between an employee and an employer, a committee comprised of (1) a representative of the competent administrative body (Ministry of Manpower/competent labor office), (2) a representative of the Labour Syndicate and (3) a representative of the employers organisation must be formed within 10 days from the date of submission of an application. If no settlement is reached by this committee within 21 days from the date of submission, then the representative of the competent administrative body, upon request from either party, shall request the referral of such dispute of the labor court.

In practice, the Labour Law provides a complex and lengthy process to take disciplinary action against an employee and similarly when an employer intends to terminate an employee's contract (whether definite, if before its term, or indefinite). Although the Labour Law reflects a concern to protect manpower against abusive termination of service, in practice it appears to have the opposite effect as some local employers are allegedly compelling new hires to sign undated resignations in order to give the right to terminate employees at the employer's convenience.

Indemnity in case of abusive or early termination

Early termination clauses can be included in a definite employment contract, however it is difficult to enforce any liquidated damages clauses. The Labour Law does not specify minimum indemnity criteria for definite employment contracts and has left this to the judge's discretion. In the case of indefinite contracts, Article 122 specifies a minimum indemnity of two months of the last gross salary per each year of service. Nonetheless, the final decision is left to the judge who will examine the merits to decide based on several factors such as the assessment of the circumstances and the evidence submitted by both parties. In practice, where an employer wishes to terminate an employment relationship, a settlement package based on the minimum criteria above can usually prevent litigation. The uniform recommendation is to propose to the employee to submit unconditional and irrevocable resignation against a payment to be negotiated. The minimum base for negotiation is generally two months gross salary per each year of service. In addition, in calculating the employee's dues for the whole period prior to the coming into effect of his compelled resignation/termination so as to reach the Gross Salary, these components should be considered: (a) unpaid allowances, (b) holidays and unused balance of his annual leaves, if any, (c) his share in the unpaid annual bonus for the period up to his resignation/termination, if such bonus is either a contractual right or an acquired right and (d) any other acquired rights. Labor activists believe these payments are too small while investors generally believe them too generous. 

The new draft Labour Law

A draft of a new Labour Law has been circulated through Egyptian newspapers with great fanfare.  We have reviewed it and have found that it does not address any of the above issues comprehensively, and commentary has shown that all sides in the debate are disappointed. With respect to acquired rights, the new draft has virtually no substantive change in the definition and therefore the ambiguities remain. With respect to termination of employment, the draft law requires that all resignations occur in person at the Ministry of Manpower, with the resigning employee, a representative from the employer and a representative from the Ministry of Manpower in attendance for any resignation to be official. This will greatly complicate employment relations and burden employees, employers and the Egyptian state. Finally, with respect to indemnities for termination of definite or indefinite contracts, the new draft codifies the minimum payment of two months of salary per year of employment. This brings some certainty with respect to definite contracts but leaves labour activists dissatisfied and investors wary of making employment decisions due to labor costs.

Neither the Labour Law nor the draft adequately addresses the main problem areas arising from the employment relationship. Part of the reason may be due to the fact that the draft was prepared solely by the Ministry of Manpower, apparently without input from the Ministry of Investment, Ministry of Trade or other interested administrations. While the draft has not been passed into law, we hope that these issues will be resolved through robust debate in the Egyptian cabinet and Parliament, so that a truly balanced and predictable labor law will be issued for the greater benefit of Egypt.