Since its accession to the WTO in 2005, the Kingdom of Saudi Arabia (KSA) has embarked on a dual process of opening its markets to foreign companies (its bourse, the largest in the Middle East will shortly open to foreigners) and regulating its labour market to promote employment for nationals. Approximately three years ago, the Ministry of Labour also published 80 proposed amendments to the KSA Labour Law which have been sharply debated by the business community. The amendments are designed in part to bridge the gap between the private and public sectors thereby encouraging nationals to work in the private sector. Two weeks ago, the Ministry of Labour announced that 38 amendments had been approved by the Council of Ministers.

Given that the current form of the KSA Labour Law was issued in 2005 (which is relatively recent), the fact that the Kingdom has continued to look at amending the law, culminating in the most recent announcement, indicates the importance placed by the Kingdom on access by its nationals to training and jobs, and to ensure that the statutory regime continues to reflect current work practices.

The Resolution approving the amendments (Resolution 258 dated 3/6/1436) was published on Friday 24 April 2015. The Minister of Labour has previously indicated that the amendments will come into force six months from publication in the official gazette. The new amendments include amendment to working time rules, regulation of fixed term contracts, potential compensation for termination of employment contracts, amendments relating to the inspection system and penalties to be imposed in the event of violations; as well as measures designed to improve the qualification and training of Saudi nationals.

We examine below the key amendments to be introduced.

Training

The existing duty on employers with 50 employees or more to train a certain proportion of the KSA national workforce is increased from 6% to 12% of Saudi nationals within the workforce. Included within this requirement are Saudi nationals for whom the employer covers their education costs; eghigher education courses. The law permits employers to impose claw back provisions if an employee completes training but does not continue with the business.

Probation

The current maximum probationary period of 90 days will be increased to a potential 180 days under the amendments, which is arguably more consistent with regional market practice and ensures that both parties in an employment relationship have sufficient time to establish if the role is suitable, without penalty. Moreover, probation may be imposed again if the employee leaves the employer for a period of 6 months or more and then returns, presumably designed to remove any existing reluctance on the part of an employer to re-hire an individual, after a period of absence.

Fixed term contracts

The current maximum permitted term for fixed term contracts of three years will be increased to four. Likewise a fixed term contract for KSA nationals will automatically convert into an unlimited term contract if an employee accrues four years continuous service (currently the period is three years) or if the fixed term is renewed three times (instead of the current renewal twice).

Work regulations

Under the amendments, employers should be able to more easily obtain approval for policies and procedures which differ from the Ministry’s model work regulations and which can be supplementary to the standard regulations.

Employee relations

The new amendments seek to encourage employers to permit workers to form worker’s committees responsible for staff welfare and specifically the use of funds resulting from the imposition of fines on employees. These provisions currently exist in the labour law but the obligation is clarified and strengthened in the amendments.

Leave

The amendments provide for the following:

  • increased marriage leave from 3 to 5 days;
  • increased paternity leave from 1 to 3 days;
  • increased leave for Muslim women whose spouse dies. The amended law now gives the full ‘Iddah’ leave of 4 months and 10 days;
  • Increased compassionate leave from 3 to 5 days.

An interesting amendment to the leave provisions relates to maternity. The amendments provide for an increased ability for a female employee to schedule maternity leave over the expected date of birth (with the earliest start date, as already provided for, being four weeks before the likely date of childbirth), and in particular, a working woman is also given the right to extend their maternity leave by one month’s unpaid leave. The increase to the leave period (albeit on an unpaid basis) means that maternity leave may be a total of 14 weeks, thus greatly increasing the chances that a woman will return to the workforce after giving birth.

Termination of employment: redundancy

Presumably in recognition of the recent economic challenges faced by many countries globally, the amendments now specifically permit an employer to validly terminate employment if the establishment is permanently closed or if there is a cessation of business within the unit or operation where the employee works; ie the amendments recognise a redundancy concept. No mention has currently been made of a diminution of a requirement for a role on an individual basis as being a valid reason for termination, although the final form of the amendments will confirm this.

Termination of employment: increased notice, compensation and gross misconduct

Notice for termination of an unlimited term contract is increased from 30 days to 60 days for employees paid on a monthly basis (although such contracts continue to apply only to KSA nationals).

An employer and an employee can also agree under the employment contract what compensation is payable if either terminates the contract for an invalid reason. It would appear from the announcement that this relates to unlimited term contracts only, although we will need to wait for the published version to confirm this.

Article 80 regarding termination for gross misconduct (ie without notice and without end of service gratuity) is amended to provide that termination under Article 80 due to unauthorised absence may only occur if the employee has been absent for up to 30 non consecutive days (instead of the current 20 days) or 15 consecutive days (instead of the current 10 days). The duty to issue a written warning part way through these unauthorised leave periods remains.

Salary certificates/references

Under the amendments an employer is prohibited from making statements in salary certificates which could prevent the employee securing alternative work. This emphasises the aim of the amendments to ensure access to jobs.

Labour inspections and violations

Greater inspection powers are granted to Ministry of Labour Officials and inspections may now also be carried out by consultants to the Ministry (ie not direct employees). Inspectors are also now obliged to produce reports and minutes of any inspection and to impose an immediate fine for any discovered violations (rather than offer initial guidance and corrective recommendations).

Potential fines have also increased to SAR 100,000, and there is greater scope for shutting down an establishment for 30 days or permanently depending on the severity of the violation. An employer may come to an agreement with the Ministry regarding payment of a fine and corrective action within a specific time frame, failing which the continued violation will incur further fines.

Whistleblowing: reward

The amendments seek to encourage the reporting of violations of the rules by individuals, by way of financial incentive; an individual assisting a Ministry of Labour inspector (for example, by reporting a violation or assisting with the inspection) can be rewarded by a payment of up to 25% of the value of the fine imposed on the employer. It will be interesting to see the extent to which this incentive is taken up by employees, and how issues such as the establishment of good faith on the part of the employee, as well as the protection of their rights after whistleblowing, is considered and addressed by the authorities and/or the courts.

Much publicity was given to the Shoura Council’s approval of a 40 hour, 5 day working week in 2014 for the private sector (Click here to view relevant update). However, the Council of Ministers did not include this amendment in its approved revisions to the KSA Labour Law; preferring instead to request the Shoura Council to debate the issue again this year.

In light of the amendments and their proposed implementation, the Ministry of Labour has delayed its revisions to the Nitaqat system and in the applicable quotas for the employment of KSA nationals on every employer operating in KSA. The delay is to give employers time to adapt and prepare for the amendments to come into force without also having to deal with increased or adjusted quotas.

Against the backdrop of the impending amendments, the Ministry of Labour continues to implement its Wages Protection System (the fifth stage having recently come into force) and to adjust the Nitaqat system; for example the waiting period which applied before a KSA national could count towards the quota has been removed (a KSA national now counts from the date of registration with GOSI).

Looking forward into 2015, clearly, the pace of change in labour regulations looks set to continue. It is likely that the next measures to be introduced will be the revised Nitaqat rules, such as increasing the minimum salary under Nitaqat, and potentially introducing weighting for non nationals and national employees, making it harder to achieve quota, (for example, non nationals being counted as more than 1 employee if they have been employed for 5 years or more).