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Significant Amendments to the Saudi Labor Law

Abstract

The main legislation governing employment in Saudi Arabia is Royal Decree No. (M/51) on the Labor Law Dated on 8/23/1426 AH (26 September 2005), which entered into force on 26 April 2006 and its Implementing Regulations and Ministerial Decisions and Resolutions issued by the Minister of the Ministry of Human Resources and Social Development (HRSD).

On 6 August 2024, the Saudi Council of Ministers issued Decision No. 117 Dated on 02 /02 /1446 (6 August 2024) and approved amendments to the Labor Law. The Decision was officially published in the Official Gazette on 23 August 2024 and is expected to come into force 180 days after the publication, i.e. on 19 February 2025. The amendments include alternations to 38 articles, removal of 7 articles and the addition of 2 new articles, which aim to enhance worker protections, clarify employer cost burdens, and specify the responsibilities of HRSD.

Analysis

Strengthening Protections for Workers

  1. Non-Saudi Workers Not Affected by The Employer’s Non-Compliance with SaudizationThe previous Labor Law allowed HRSD to refuse work permit renewals if the employer did not comply with Saudization requirements. The updated Labor Law grants HRSD broader discretionary power while protecting non-Saudi workers. This means that a worker will not be affected by the non-renewal of a work permit due to the employer’s non-compliance, such as being transferred to another employer without the violating employer’s consent.
  1. Automatic Renewal of Contracts for Non-Saudi workersThe previous Labor Law required contracts for non-Saudi workers to be fixed-term. If no duration was specified, the work permit duration would match the contract term. The updated Labor Law states that if the contract duration is unspecified, it will be for one year from the worker’s actual start date. If the work continues after this term, it will be considered renewed for a similar duration.
  1. Extension Of the Time Limit for Workers to Object to Employer Penalties If an employer imposes penalties on a worker for violations, the worker has the right to appeal. The previous Labor Law required appeals to be filed with the labor court within 15 days of notification. The updated Labor Law extends this period to 30 days and introduces an additional grievance process. Workers may first appeal to the competent authority within the employer’s organization within 30 days, and the employer must respond within 15 days. If the worker is dissatisfied with the employer’s response or if there is no timely response, they may appeal to the labor court (المحاكم العمالية).
  1. Enrichment of Statutory Leave for WorkersNew articles have been added to enhance statutory leave entitlements for workers. Employees are now entitled to three days of bereavement leave for the death of a sibling. Additionally, maternity leave for female workers has been extended from 10 weeks to 12 weeks with full pay.

Clarifying Employer’s Obligations

  1. Clarification of Employer’s Financial Responsibilities for Non-Saudi Workers The previous Labor Law required employers to cover all fees related to recruiting non-Saudi workers, including residence and work permits, renewal fees, fines for delays, fees for changing professions, exit and return fees, and the worker’s return ticket upon termination. The updated Labor Law clarifies that employers are only responsible for delay fines if the delay is due to their actions or inactions, rather than being liable for all delays regardless of cause.
  1. New Articles for Housing and Transportation AllowancesEmployers shall either provide appropriate accommodation and transportation for their workers or pay equivalent allowances as part of their employment package.
  1. New Articles for Compensatory LeaveFor workers who work overtime, the employer shall either pay him 1.5 times the basic wage as stipulated in the previous Labor Law, or provide compensatory paid leave instead of overtime wage with the worker’ consent.

More Practical Worker Training

  1. Elimination Of the Percentage Requirement for The Training of Saudi EmployeesThe updated Labor Law requires employers to establish a policy for training and qualifying Saudi workers to improve their skills, rather than mandating training to replace expatriates. The previous requirement for employers with 50 or more workers to train at least 12% of their Saudi employees annually has been removed. Instead, the percentage of Saudi employees to be trained will be determined by HRSD, allowing for more flexible and adaptable training policies based on the employers’ actual circumstances.
  1. Training ContractsThe updated Labor Law requires training contracts to be in writing and to specify the profession, training duration, stages, and trainee rewards at each stage. It also mandates that the contracts outline the rights and obligations of both the trainee and the employer, including whether the training occurs at the employer’s facility or elsewhere. If the trainee cannot complete the program satisfactorily based on periodic evaluations, the employer may terminate the contract. Neither party can claim compensation from the other unless agreed otherwise in the contract.
  1. HRSD Is No Longer the Party to The Contract for Student TrainingThe previous Labor Law allowed HRSD to require employers to accept a certain number of students for training and practical experience through agreements with employers. The updated Labor Law shifts the training contract from HRSD to the trainees (students) and permits employers to pay the trainees directly.

Termination of Employment Contracts

  1. Clarification of Probation Period The previous Labor Law stipulated that the maximum probation period was 90 days, extendable to 180 days with worker’s consent through a written agreement. The updated Labor Law directly states that the maximum probation period shall not exceed 180 days.
  1. Legitimate Grounds for TerminationThe updated Labor Law introduces additional legitimate grounds for terminating an employment contract, which includes resignation and termination due to employer bankruptcy based on a court decision or final judgement. If the worker resigns, the employer may:
    • accept the resignation;
    • be deemed to have accepted if the employer has not responded to the resignation within 30 days of its submission (response period);
    • postpone accepting the resignation request for up to 60 days if the interest or work so requires, provided that the employer shall notify the worker within the response period and provides a written explanation;
    • allow the worker to withdraw the resignation within 7 days of submitting it provided that the employer has not responded.
  1. In summary, an employment contract is terminated in the following cases: (1) the employer accepts the resignation; (2) the response period (30 days) expires; or (3) the period for delaying acceptance expires.
  2. Notification Period for The Termination of Indefinite Employment ContractsThe previous Labor Law allowed either party to terminate an indefinite employment contract with 60 days’ notice for monthly wage workers and 30 days for non-monthly wage workers. The updated Labor Law adopts a bifurcated approach, requiring workers requesting termination to give at least 30 days’ written notice, while employers must provide at least 60 days’ notice. For contracts with non-monthly wages, 30 days’ written notice is required regardless of which party is terminating.
  1. Termination of Marine Employment ContractsThe updated Labor Law removes provisions allowing for the termination of marine employment contracts without notice or compensation in cases of ship sinking, confiscation, loss, or unfitness for use. The new law consolidates the termination clause to apply only when a voyage is canceled before its start due to reasons beyond the ship operator’s control, and the worker’s wage is based on a single voyage.

Clarification of Roles of HRSD and Other Ministries

  1. Penalty PowersThe updated Labor Law clarifies the roles of HRSD and the Ministry of Interior in implementing the penalties, thereby increasing the efficiency of law enforcement and avoiding overlaps or ambiguities in responsibilities. This clarification may speed up the resolution of labor disputes and violations.
  1. Interdepartmental Cooperation on Marine Employment ContractsThe cooperation ensures that marine employment contracts comply with the Commercial Maritime Law, reflecting coordination between different laws in specific industries. Such cooperation is beneficial in establishing unified legal standards, thereby reducing legal conflicts and uncertainties. Given the uniqueness of maritime industry, relevant regulations take into account the industry characteristics, and effectively protecting the rights of seafarers.
  1. The Timing of Labor InspectionsLabor inspectors shall conduct on-site inspections during the facility’s working hour without prior notice rather than at any time of the day or night, which enhances the legitimacy and transparency of inspections, and minimizes disruption to normal business operations. Conducting inspections during working hours provides a more accurate picture of working conditions and helps identify and correct problems promptly.
  1. Increased Penalties for Unauthorized EmploymentEmployers who employ Saudis without authorization or engage in labor outsourcing are subject to heavy fines. HRSD has the authority to impose fines ranging from 200,000 to 500,000 SAR, in order to protect the domestic labor market and encourage legal employment practices.

Conclusion

The amendments to the Labor Law not only improve the protection of workers’ rights, but also provide employers with a clearer legal framework. For employers, there are provisions that alleviate their burdens, such as being responsible only for delay fees caused by their actions or inactions, not having to worry about inspections during non-working hours. However, there are also new burdens, such as the requirement to provide housing and transportation allowances for workers. As the new regulations come into force, it is advisable for employers to keep abreast of the relevant policies so that they can better adapt to the changes ahead.

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