Amendments to the KSA Labour Law

At a glance

• The KSA Council of Ministers approved significant amendments to the Labour Law on 6 August 2024.
• Key changes include new definitions for 'Assignment' and 'Resignation,' expanded penalties for non-renewal of work permits, and revised terms for fixed-term contracts.
• Non-Saudi employees face stricter regulations, including prohibitions on working for third parties and enhanced penalties for violations.
• Employers must now establish training policies for Saudi nationals, with specific training quotas, and adhere to new probation period rules allowing up to 180 days without separate agreements.
• Additional amendments address non-discrimination duties, housing and transport allowances, grievance rights, resignation and bankruptcy termination rights, notice periods for indefinite contracts, overtime compensation, bereavement leave, and extended maternity leave.
• The amendments come into effect 180 days after their publication in the Official Gazette.

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After much anticipation over the last year or so, the KSA Council of Ministers has (at a meeting held on 6 August 2024) approved a number of amendments to the Labour Law. The amendments represent the most significant change to the Labour Law since 2015.

Key changes

A summary of the key changes is set out below.

Definitions

Two new definitions have been introduced into Article 2 of the Labour Law. The first is for 'Assignment' which is defined as the service of providing a worker to work for a person other than the employer through an establishment licensed for this purpose. The other is for 'Resignation' in the context of fixed-term contracts and is defined as the worker's written expression of their desire, without coercion, to terminate a fixed-term contract of employment without any condition or restriction, and the employer's acceptance of it.

Penalty of non-renewal of the work permit

Currently, Article 35 of the Labour Law allows the Ministry of Human Resources and Social Development (MHRSD) to not renew the work permit of non-Saudi employees where the employer fails to comply with Saudisation requirements. The amendments go further and allow the MHRSD to apply this penalty to any other conditions or controls contained in the Executive Regulations of the Labour Law (Regulations). Also, the Regulations will specify the procedures for ensuring that employees are not affected by this penalty by allowing the employee to transfer to another employer without the consent of the current employer.

Period of the fixed-term contract

Where the contract of a non-Saudi employee does not specify the term of employment, Article 37 of the Labour Law deems it to be fixed to the end date of the work permit. This is changed so that, if the contract does not specify a fixed-term, then the period of employment will be one year from the date the employee actually commences work. Whereas the current Article 37 is silent on what is to happen once the work permit expires, the amendment goes further and stipulates that if the employee continues working after the expiry of the fixed- term then it will be considered renewed for a similar period.

Prohibition on Non-Saudis working for third parties and personally

Non-Saudi national employees are generally prohibited by Article 39 of the Labour Law from working for anyone other than their sponsor or on their personal account. The MHRSD is empowered to inspect establishments and refer any violations to the Ministry of Interior (MOI) for it to take action and impose penalties. The amendments will allow the MHRSD to impose its own penalties for any violations as well as referring employers to the MOI to take action as it deems appropriate. Additionally, the MOI will be able to able to notify the MHRSD of any employers that it has detected have committed violations under Article 39 so that the MHRSD can apply its penalties too.

Training of Saudi nationals

Articles 42 and 43 of the Labour Law set down some requirements for employers to train their Saudi national employees. These requirements are changed by the amendments so that instead of an obligation on employers to train Saudi employees to improve their technical, administrative, professional and other skills so that they can gradually assume the work of non-Saudi employees, employers will instead be required to establish a policy for training and qualifying Saudi employees and the objective of them replacing Saudi employees has been removed from Article 42.

Further, Article 43 requires that employers with 50 or more employees should qualify or train their Saudi employees who comprise not less than 12% of the total number of employees annually. The amendments place this obligation on every employer to qualify or train their Saudi national employees at a rate to be determined by the Minister's decision.

Additionally, there are changes to Articles 46 and 47 in relation to training contracts and the possibility of the Minister obliging employers to accept a certain number of students and graduates for training and practical experience. Article 48 is changed in regard to the right to terminate a training contract and termination compensation.

Probation period

Employers can apply a probation period under Article 53 of the Labour Law of up to 90 days in the employment contract and can extend this by a further 90 days for a total period of 180 days provided that the employee expressly consents to the extension in a separate agreement that is executed before the end of initial probation period.

This has been changed so that Article 53 will allow employers to include a probation period of up to 180 days in the contract without the need for an extension to be separately agreed with the employee. Additionally, both parties will have the right to terminate employment during the probation period whereas currently one party can reserve the right to terminate to itself exclusively.

Duty to not discriminate

Article 3 of the Labour Law stipulates a general right of citizens to work without discrimination on the basis of gender, disability, age, or any other form of discrimination. The amendments will add a duty on employers under Article 61 of the Labour Law to refrain from doing anything that would nullify or weaken the application of equal opportunities or treatment in employment whether through exclusion, differentiation or preference between job applicants or employees on the basis of race, colour, gender, age, disability, social status or any other form of discrimination.

Housing and transport allowances

The amendments will solidify the market practice of providing housing and transport allowances to employees by making it a duty on employers under Article 61 of the Labour Law to provide adequate housing and appropriate transportation from their place of residence to the place or work, or providing cash allowances instead.

Right of grievance

Employees will be given the right by an amendment to Article 72 of the Labour Law to file a written grievance to employers in relation to any penalty imposed on them within 30 days of being notified of the decision of it. Currently, employees only have the right to file an objection to the Labour Court and this will remain as an additional right to be exercised if the grievance is rejected by the employer or if there is no decision in writing issued to the employee within 15 days of the submission of the grievance.

Additional rights to terminate employment – resignation and bankruptcy

The amendments will add two further rights to lawfully terminate employment under Article 74 of the Labour Law. The first is resignation (as will be defined by Article 2 of the Labour Law discussed above) and the second is termination by the issuance of a decision or final ruling by the competent court in any of the bankruptcy proceedings opened in accordance with the Bankruptcy Law.

The right to terminate employment by resignation is a significant development in that employees who are issued a fixed-term contract can terminate it prior to the expiry date of the fixed-term by submitting a written request to resign. The resignation will be deemed to be accepted if 30 days lapse without a response from the employer. The employer can postpone accepting the resignation request for a period not exceeding 60 days if the interests of the business so require it. The resignation request will terminate the contract on acceptance of it by the employer, or the expiry of 30 days where it is not responded to by the employer, or 60 days after the period of postponement by the employer.

Notice periods for indefinite term contracts

Currently, either party to an indefinite term contract can terminate it if it has a valid reason to do so by serving not less than 60 days' notice where the employee is paid on a monthly basis and 30 days in all other cases in accordance with Article 75 of the Labour Law. This will change so that employees who are paid monthly can terminate the contract with 30 days' notice, but the employer will have to give a minimum of 60 days' notice to terminate. Where the employee is not paid on a monthly basis then both the employer and the employee can terminate with 30 days' notice.

Overtime

Article 107 of the Labour Law requires that employers should compensate employees for overtime work with overtime pay equivalent to the employee's hourly wage plus 50% of the basic salary. The amendments will allow employers to, with the employee's consent, substitute overtime pay with compensatory paid leave for overtime hours.

Right to bereavement leave for death of a sibling

Employees currently have a right to bereavement leave for the death of an ascendent or descendent relative under Article 113 of the Labour Law. This will be amended to introduce three days paid leave for employees on the death of their sibling.

Maternity leave

Employees will have their right to paid maternity leave under Article 151 of the Labour Law increased from ten to 12 weeks.

There are also changes to the provisions in the Labour Law regarding marine work contracts and the inspectorate division of the MHRSD.

Conclusion

Whilst the amendments are not as far reaching as they perhaps could have been (interestingly, there is no change to the remedy for unlawful termination of employment after much speculation and discussion around repealing the Article 77 right to fix the compensation sum), there are some positive developments for both employers and employees.

Employers will welcome the ability to apply a probation period of 180 days without needing to agree an extension with the employee, and the ability to substitute overtime pay with paid time off in lieu as compensation for additional hours worked.

For employees, the right to resign from fixed-term contracts before expiry of the term, the right to additional maternity and bereavement leaves, the right to present a written grievance to the employer against a penalty decision, and the duty on employers to not discriminate against them are important developments in their employment rights and protections.

The amendments come into effect 180 days after their publication in the Official Gazette.