Employment Law of the Kingdom of Saudi Arabia: Key Amendments

1.             Introduction

Employment Law of the Kingdom of Saudi Arabia has been amended by Royal Decree No. M/46 of 05/06/1436H and came in to force on 24 October 2015[1].  It is now critical that all existing contracts of employment and internal procedures and work manuals are reviewed and amended to ensure that they comply with the new amendments.

2.             Transfer of Undertakings Protection of Employment[2]

Where a business is transferred in whole or in part (sale or otherwise), the employees will automatically transfer to the transferee, who must protect in full all “rights and privileges” provided by the original employer.

3.             Employment Policy Manual (the “Manual”)[3]

(a)  All employers irrespective of their size must now have Employment Policy Manual drafted in accordance with the Ministry of Labour Model Employment Policy Manual (“Model”)[4].

(b) Additional[5] provisions that do not contravene the Model may be added[6].

(c)  The Model must be displayed in a place that is easily accessible or by any other means that ensures that the employees have seen it[7].

4.             Training[8]

Businesses that employ more than 50 employees must ensure that their Saudi employees equal to 12% of the work force undergo work related training.

5.             Employment Contract[9]

(a)  The Ministry of Labour will publish a Model Employment Contract (the “MEC”)[10].

(b) Additional[11] provisions that do not contravene the MEC may be added[12].

6.             Probationary period – The two rules

(a) The 180 day rule[13]

The initial 90 days probation period may be extended by a mutual agreement in writing for another 90 days to a total of 180 days (6 months)[14].

(b) Re-employment and new probation rule

An employee who leaves (by termination or otherwise) and is re-employed after a period of not less than 180 days, may be put on probation.[15]

7.             Unlimited Contracts[16]

(a)  Fix terms contracts terminate at the stipulated end date. If the contract is renewed it automatically converts to an unlimited contract in the case of Saudi employees only[17].

(b) Where a contract stipulates renewal for a specified period, any renewal will be for a similar period, except where the contract has been renewed three times or a period of four years has been reached, the contract converts to an unlimited contract[18].

8.             Change work location[19]

(a)  Employers may not change the employment location that requires a change in the employee’s residence[20].

(b) Employers may change the employment location for a period of 30 days in a year where they bear all the expenses of the change[21].

9.             Employee Reference on Termination / Expiry[22]

(a)  A free and non – prejudicial employment reference must be given on request[23].

(b) All employee documents must be returned[24].

10.         Ending an employment relationship[25]

(a) Redundancy[26]

An explicit termination for redundancy is now provided in case of either (i) permanent business closure[27]; or (ii)[28] the business activity in which the employee is employed is terminated.

(b)  Notice period
  • Unlimited contracts – Legitimate reason and the greater of: (a) the expressly agreed period in the contract; (b) 60 days for monthly paid employees; or (b) 30 days for all other employees[29].
  • The party that fails to provide the notice must pay an amount equal to the notice period[30].
  • [31]Compensation for wrongful termination must be: (a) agreed in the contract; or the greater of; (i) 15 days of each year; (ii)wage for the remaining period in case of a fixed period contract; or (iii) the total wage for two months.
  •  [32]The parties can expressly set out in the contract of employment what compensation is payable if either party terminates the contract for an unlawful reason[33].
  •  An employee is entitled to a day or 8 hours a week to be absent from work to seek alternative employment[34].
  • An employee may be put on garden leave on full pay for the notice period[35].
  • A contract may be terminated if the worker is absent without a valid reason for more than thirty days in one contract year or more than fifteen consecutive days, provided that the termination is preceded by a written warning by the employer to the worker after his absence for twenty days in the first case and or ten days in the second case[36].

11.         Non – Compete / Competition

(a)           An employer may insist on a non-compete clause for a period not exceeding two years[37].

(b)           An employer has a right to insist on a confidentiality provision to protect the employer’s trade secret[38].

(c)           An employer may issue legal proceedings against the employee within 1 year of establishing a breach[39].

12.         Wage Protection

Employers must deposit employee salaries through a Saudi Arabian Bank[40].

13.         Working hours

(a)  No worker should be kept at the place of work for a period exceeding 12 hours in any 24 hour period[41].

(b) Two days paid leave is to be provided with one day being Friday, except where an exemption is obtained and religious obligations are protected [42].

14.         Leave

(a)                 Paternity leave: three calendar days[43].

(b)                 Marriage leave: five calendar days[44].

(c)                  Compassionate leave: five calendar days[45].

(d)                 Four months and 10 days in leave for a Muslim wife in case of death her spouse[46].

(e)                 Maternity leave: 10 Weeks leave as desired, but not earlier than from the expected delivery date [47] and an additional 4 weeks unpaid leave[48] and in the case the baby is ill or disabled a further paid month commencing on the expiry of the maternity period[49].

15.         Labour violations[50]

Breach of Saudi Arabian Employment law will lead to one of the following[51]:

  •  A fine SR 100,000[52] per violation per employee[53].
  • The fine can be doubled in case of repeat offenders [54].
  • Temporary closure for a maximum period of 30 days[55] or permanent closure[56].
  • Violations must be remedied within a specified date, failure to comply will mean a new offense has been committed [57].
  • Fines once collected will be transferred to the Human Resources Development Fund[58].

16.         Whistleblowing[59]

Anyone successfully reporting a violation will be entitled to 25 percent of the collected fine.

[1] Published in Umm Al Qurra – The official gazette on No. 4563 dated 24 April 2015.
[2] Article 11
[3] Article 13.
[4] Article 13.1
[5] Article 13.2
[6] Provisions that have a positive impact on the employees will be allowed.
[7] Get each employee to sign a disclaimer that they have seen and read the Manual.  Obligation is to show but to ensure no evidentiary issues arise in case of dispute a signed disclaimer is better.
[8] Article 43
[9] Book 5, Chapter1, Article 50 to 60.
[10] Article 52.1
[11] Article 52.2
[12] Provisions that have a positive impact on the employees will be allowed.
[13] Article 53.
[14] The Arabic drafting appears not be very precise. It does not appear to allow an automatic right for the employer to set a probation period of 180 days / 6 months.
[15] This provision ensures that any termination is for a genuine reason as opposed to terminating at the initial 90 day or at the secondary 90 day probation period under the 180 day rule and then immediately re-employing the terminated employee and initiating a new probationary period and accordingly having the employee on probation for a total 360 days (a lunar calendar year).
[16] Article 55 – Applicable to Saudi nationals only.
[17] Article 55.1 Non-Saudi contracts of employment only extend for a continual fixed period irrespective of the number of extensions
[18] Article 55.2 Non-Saudi contracts of employment only extend for a continual fixed period irrespective of the number of extensions
[19] Article 58
[20] Article 58.1
[21] Article 58.2
[22] Article 64
[23] Article 64.1
[24] Article 64.2
[25] Chapter 3 – Article 74 to 79
[26] Article 74.6 and 74.7
[27] Article 74.6
[28] Article 74.7
[29] Article 75
[30] Article 76
[31] Article 77
[32] Article 77
[33] There is no right to reinstatement.  It is critical that Employee and Employer agree this in advance to quantify in advance the total compensation that is payable.
[34] Article 78.
[35] Article 78.
[36] Article 80.7
[37] Article 83.1
[38] Article 83.2
[39] Article 83.3
[40] Article 90.2
[41] Article 101
[42] Article 104
[43] Article 113
[44] Article 113
[45] Article 113
[46] Article 160
[47] Article 151.1
[48] Article 151.2
[49] Article 151.3
[50] Article 229
[51] Article 229.1
[52] Article 229.2
[53] Article 229.6
[54] Article 229.5
[55] Article 229.3
[56] Article 229.4
[57] Article 231
[58] Article 232
[59] Article 233