Employment & labour law in Saudi Arabia

Legal

Which issues would you most highlight to someone new to your country?

Immigration and visa requirements

Non-Saudi nationals may work in Saudi Arabia if they have prior approval from the Ministry of Labour and the Ministry of Interior. Similar to other Gulf Cooperation Council countries, Saudi Arabia has a sponsorship system, which means that expatriate workers can enter, work and leave the host country only with the permission or assistance of their sponsor. All individuals who come to Saudi Arabia to work must have a sponsor, which can be either a Saudi Arabian national or international company. A non-Saudi national may be employed for only a fixed term corresponding to the duration of his or her work permit and residency visa.

Nationalisation of workforce

Pursuant to the Nitaqat programme implemented by the Ministry of Labour, employers are classified based on the percentage of Saudi nationals that they employ. Establishments will be categorised as premium, green, yellow or red. In general, an employer benefits from being in a higher category through greater flexibility in recruiting and managing expatriate employees, and will face increased penalties when placed in a lower category.

Recruiting female workers

Women are permitted to work but are restricted from working in certain fields and are prohibited from working in hazardous jobs or industries, as set out in a list issued by the Ministry of Labour.

Women must work separately from any male employees (ie, in partitioned offices) and must have separate facilities. There are particular regulations with regard to women working in certain sectors (eg, factories, retail and kitchens).

What do you consider unique to those doing business in your country?

The Nitaqat programme sets high targets for the employment of Saudi nationals. Under the Labour Law, 75% of the total workforce must comprise Saudi nationals. However, under Nitaqat, an employer will be given a quota for the employment of Saudi nationals commensurate with the number of employees and the sector in which the employer operates. Various subsidies and incentives are offered to encourage employers to meet and exceed quotas.

Is there any general advice you would give in the employment area?

The Nitaqat programme and the immigration policy pose various considerations for 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.

Against this backdrop of promoting the employment of Saudi nationals, in practice, the termination of their employment can be problematic.

Employers wishing to employ female workers must also take into account the unique legal environment of Saudi Arabia.

Employers should be aware of their duty to contribute to the state pension scheme for Saudi national (Gulf Cooperation Council nationals are also entitled to pension contributions in accordance with their home country’s pension schemes) employees on an ongoing basis. Further, on termination, employees are entitled to an end of service payment, which employers should accrue in their accounts during the employment period.

Emerging issues/hot topics/proposals for reform

Are there any noteworthy proposals for reform in your jurisdiction?

Several long-awaited employment law reforms have recently been implemented. In April 2015 the Council of Ministers approved 38 amendments to the Labour Law, including the following (which will be effective six months from their publication in the Official Gazette):

Training – employers are required to train their Saudi national employees with a view to enhancing their technical, administrative, vocational and other skills for the purpose of gradually replacing non-Saudi employees. Each employer is required to keep a record showing the names of the Saudi workers who have replaced the non-Saudi nationals. Establishments with 50 or more employees must now train 12% of their Saudi national employees (previously 6%).
Probation – the maximum probation period has been increased from 90 days to 180 days.
Fixed-term contract – the maximum permitted duration of a fixed-term contract has been extended from three years to four years. Further, as of October 2015, fixed-term contracts will be converted into indefinite contracts on the third renewal rather than the second, as previously.
Work regulations – when preparing policies and regulations in line with the prescribed model prepared by the Ministry of Labour, employers may now obtain approval to incorporate additional rules.
Whistleblowing reward – a financial reward of no more than 25% of the fine imposed on the employer will be given to individuals who assist inspectors by notifying the Ministry of Labour of an employer's non-compliance with labour regulations.

What are the emerging trends in employment law in your jurisdiction?

There is an increased focus on vocational training for Saudi nationals to encourage the incorporation of Saudi nationals into the workforce at all levels. Employers can benefit from subsidies offered for employing Saudi students undertaking vocational training.

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).

Recruitment

Advertising

What are the requirements relating to advertising positions?

In order to obtain a work visa for an expatriate employee, the employer must first show that it has advertised locally to Saudi nationals through the Human Resources Development Fund for a minimum of two weeks.

The non-Saudi employee can be employed and undertake work only as stipulated in the work permit, which cannot be renewed without the employer first ascertaining whether any Saudi nationals with the required skills want the position.

Background checks

What can employers do with regard to background checks and inquiries in relation to the following:

(a) Criminal records?

Police clearance certificates are available, but only in limited circumstances.

(b) Medical history?

Under the immigration procedures, non-Saudi national employees must undergo a medical check. When an expatriate is recruited, he or she must obtain a medical examination certificate in his or her home country including a negative test for contagious diseases (particularly HIV) and up-to-date vaccinations (including meningococcal, hepatitis A and B and, depending on the home country, typhoid).

(c) Drug screening?

The law does not expressly prohibit drug screening and, given the serious attitude of the Saudi authorities towards drug possession, pre-employment drug testing is unlikely to result in a backlash against the employer. Alcohol is also prohibited in Saudi Arabia. Employers can carry out random drug and alcohol testing of employees using the Ministry of Labour’s accredited system and registered government-designated clinics. This service is particularly common in the oil and gas industry.

(d) Credit checks?

The Saudi Credit Bureau offers consumer credit information services in Saudi Arabia.

(e) Immigration status?

Employers are required to secure work and residence permits for foreign employees brought into the country. A non-Saudi national employee must carry his or her residence permit for identification purposes at all times. Although it is unlawful, it is common practice for employers to hold employees’ passports until the employee leaves the country, as employers are liable for the administrative cost of the employee’s exit and re-entry.

(f) Social media?

The Cybercrime Law prohibits the processing of information that infringes privacy through electronic means. However, although the law is broadly worded, it is unlikely to prohibit employers from viewing publicly available information on potential employees.

(g) Other?

N/A.

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Source: lexology