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The employment relationship

Country specific laws
What laws and regulations govern the employment relationship?

The Saudi legal system is based on Sharia law. The employment relationship between employers and employees is governed primarily by the Labour Law (Royal Decree M/51 23 Sha’ban 1426/September 27 2005), which covers all aspects of the employment relationship, including employment contracts, wages and benefits, leave, working hours and termination. The Labour Law is supplemented by ministerial resolutions issued by the Ministry of Labour. 

Who do these cover, including categories of worker?

The Labour Law applies to all employers and employees in Saudi Arabia, except:

  • expatriates who enter Saudi Arabia to perform specific tasks limited to a duration of two months (ie, those on business visas); and
  • domestic servants (eg, maids and drivers).

Several Ministry of Labour resolutions regulate the employment of women in certain sectors, while others regulate the employment of minors.

Misclassification
Are there specific rules regarding employee/contractor classification?

The Labour Law does not distinguish between different categories of employee and there are no specific regulations for managerial or executive-level employees, except in relation to working hours and rest periods. However, it does distinguish between Saudi and non-Saudi employees. The Nitaqat programme and the immigration rules mean that there are major differences in how these two categories of employee are dealt with. The concept of self-employment or contracting is extremely limited. The concept of part-time working is recognised, particularly in sectors such as agriculture. However, any commercial activity in Saudi Arabia must be licensed, and thus to have true self-employed status an individual should hold a trade licence. 

Contracts
Must an employment contract be in writing?

Employment contracts are legal and binding, and should be in writing, particularly for non-Saudi nationals. Arabic is the official language of contracts, employment data and records, and therefore the Arabic contract text will apply in the event of any conflict between contractual provisions and any English documents.

Are any terms implied into employment contracts?

The Labour Law sets out an employee’s minimum entitlements and applies to all employer-employee relationships. Employers are free to impose different working terms on an employee, provided that they are more generous to the employee. Therefore, each employment contract is to be read subject to the Labour Law.

Are mandatory arbitration/dispute resolution agreements enforceable?

Employee complaints or disputes should be brought to one of the 37 labour offices which mediate labour disputes. If it is unable to resolve the dispute, the office will refer the dispute to one of the competent commissions for the settlement of labour disputes.

Arbitration is rarely used in employment disputes due to the high cost and expenses that may be incurred by the parties; however, the Labour Law does not preclude arbitration as an option for resolving employment disputes.

How can employers make changes to existing employment agreements?

Neither the employee nor the employer may change the conditions of the contract without the other’s consent. As employment contracts are generally in writing, any changes must also be by written agreement. An employee may terminate the contract without notice if the employer fails to fulfil its contractual obligations.

Foreign workers
Is a distinction drawn between local and foreign workers?

Foreign employees must have a work permit and a residency card (iqama) in order to work in Saudi Arabia.

All non-Saudi employees’ contracts are deemed to be fixed-term contracts. If an employment contract does not specify its duration, the duration will be taken to be equal to that of the employee’s residency visa and work permit. Contracts for Saudi nationals can be indefinite or for a fixed period (for a specified duration or a specific task). If a fixed-term contract with a Saudi national is renewed for two consecutive terms or for a cumulative period of three years (whichever comes first), the contract will be deemed to be an indefinite contract. As of October 2015, the contract will not become an indefinite contract until the third renewal.

Employers must pay the cost of repatriating non-Saudi nationals on termination of their employment. Although there are limited exceptions to this rule, in practice, if the employee cannot afford the cost of returning home, this obligation will fall on the employer.

The Nitaqat programme and the immigration policy pose various considerations for an enterprises looking to conduct business in Saudi Arabia and employ non-Saudi nationals:

  • Every employer must have at least one Saudi national employee, regardless of size.
  • Certain functions may be undertaken only by Saudi nationals.
  • An employer must employ a Saudi national in a job before employing a non-Saudi national in that job.

In addition, Saudi nationals are entitled to additional or varying benefits (eg, retirement benefits in the form of employer contributions to the state pension scheme). 

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