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Coronavirus: Saudi labour law amended to protect jobs

Out-Law Analysis | 27 May 2020 | 5:44 pm | 3 min. read

Labour law in Saudi Arabia has been updated by the government in the Kingdom in response to the threat to job losses amid the Covid-19 pandemic.

Under the amendments, employers face restrictions on relying on force majeure clauses in employment contracts as a justification for dismissing workers or reducing their contractual benefits.

The labour law amendments

The changes were introduced by the Ministry of Human Resources and Social Development (MHRSD) via Ministerial Resolution 13/1441. Dated 6 April 2020, the Resolution amends the KSA Labour Law.

A new Article 41 that has been inserted which enables an employer and employee – for a period of six months – to agree to any of the following:

  • a reduction to salary provided that there is a corresponding reduction in working hours;
  • placing the employee on paid annual leave (as part of their holiday entitlement);
  • implementing a period of unpaid leave.

The KSA Labour Law already permits an employer to set the dates on which an employee must take their holidays. With respect to unpaid leave, it will be important that the details of the arrangement are clearly recorded in writing, specifically the duration of the unpaid leave. It will also be important for companies to consider whether and to what extent periods of unpaid leave will impact on their compliance with the KSA wage protection system (WPS).

The Resolution also makes clear that employment dismissals following the implementations of these measures – i.e. between April and October 2020 – will not be justified if the employer benefitted from any of the government subsidies, such as the state sponsored 'furlough' scheme for KSA nationals.

 Employers that do not benefit from government funding to support employee salaries will continue to face existing constraints on their ability to lawfully effect redundancy dismissals, whether connected with Covid-19 or otherwise. The ridged parameters of Article 74 of the KSA Labour Law still apply, which recognises redundancies only where either the business is shutting or the business unit within which the employee works is closing.

An invalid dismissal will risk an award of arbitrary dismissal compensation payable at the following rates – subject to any rate of compensation agreed in the employment contract which cannot be less than two months pay:

  • unlimited term employment contract: 15 days' wages for each year of service
  • limited term employment contract: payment for the unexpired period of the contract.

The direction from the authorities is that private sector employers should first explore all viable options before dismissals are confirmed.

The furlough scheme

On 3 April, a decree was introduced to enable private sector companies to submit a request to the General Organisation for Social Insurance (GOSI) to cover 60% of their KSA employees' salaries up to a maximum of SAR 9,000 ($2,400) per employee for a period of three months – i.e. April, May and June.

Limitations and conditions apply as follows:

  • for employers with five employees or more, only 70% of the employer's Saudi workforce will be covered;
  • the KSA employee must have been registered with GOSI prior to 1 January 2020;
  • the employer must be able to show that its sector has been affected by Covid-19. Various sectors are excluded from this scheme including banking and insurance;
  • the employer must be up-to-date and have paid all employees – both expatriates and KSA nationals – their full salaries for the first quarter of 2020.

It is anticipated that more than 1.2 million Saudi employees will benefit from this government aid. Employers benefiting from this scheme are not legally obliged to 'top up' employees' salaries to the full rate of pay; this will be a decision for the employer to take. However, employers should be cautious of any differential treatment among employees and the problems a two tier-workforce can cause. 

The KSA authorities have been responsive and dynamic in updating their employment laws and working requirements to achieve the correct balance between safeguarding employees' health and supporting business. It is important that companies are alive to those regulatory developments. It is more important than ever that companies safeguard their employees, their clients and their business to ensure the company survives this pandemic and takes advantage of any commercial opportunities that it may present in the short to medium term future.  

Luke Tapp and Ruth Stephen are employment law experts in the Middle East at Pinsent Masons, the law firm behind Out-Law.