Adapting to change: Exploring recent amendments to the Saudi labor law

On 6 August 2024, the Saudi Arabian Ministry of Human Resources and Social Development (“MHRSD”) announced the Cabinet’s approval of amendments to the Labor Law. The proposed amendments were originally published for public consultation in 2020 with implementation being delayed due to the COVID-19 pandemic. The amendments will take effect 180 days from their publication in the Official Gazette, which is expected later this month.

The amendments are intended to modernize the Saudi labor market, enhance worker rights, streamline employer responsibilities and ensure conformity with contemporary labor practices. Overall, the amendments give the impression that, in keeping with international trends, MHRSD seeks to reduce differences in the way that gender, nationality, pregnancy and physical disability affect the employment environment. For instance, more regulations respecting the rights of persons with disabilities have recently been introduced in KSA. The amendments to the Labor Law also reflect this trend, which is a welcome development and testament to KSA’s position of leadership in the region on such cutting-edge topics as accessibility for all.

Equally interesting is what was not amended. When Article 77 was introduced in the 2015 amendments to the Labor Law, it afforded employers a new avenue to limit their liability for unlawful termination to a fixed penalty of 60 days salary. This was met with much controversy in the market, and many have discussed its repeal and abrogation; but it seems that Article 77 has now found a permanent home in the Labor Law given that the legislature again opted not to remove or amend it.

In addition, no material changes have been made to benefits (annual leave, end-of-service award, weekends, etc.), to investigations and disciplinary procedures, and regulatory penalty schemes.

However, amendments to the Implementing Regulations are yet to be released and may introduce additional nuances.

New horizons for employee-employer relations

A number of new concepts have been introduced under the new amendments, providing greater clarity regarding the rights of both employers and employees.

• Resignation: The amended Labor Law introduces a new definition and concept of “Resignation”; in addition, while the notice period has generally been 60 days, the amendment introduces a new 30-day notice period when an employee is resigning in some cases. This is a more employee-friendly change, while the employer is still bound by the 60-day notice period (or payment in lieu).
• Leave in lieu of overtime: Unpaid overtime is a frequent claim confronted by employers in the Labor Courts and requires employers to keep clear and organized books and records. Now, with the consent of the employee, employers may grant an employee paid leave days instead of overtime pay. The Implementing Regulations will set out the requirements in further detail. Employers should consider whether this consent can be obtained in the employment contract from the outset and, if so, extending the employee’s annual leave by a corresponding time so as to reduce the potential claims for unpaid overtime in the Labor Courts.

Rights and obligations

The amendments have modified and clarified certain rights enjoyed by both employers and employees, including the following:

• Probation Period: The amendments clarify that an employee’s probation period must be explicitly stated in the employment contract and may not exceed 180 days. Both the employer and employee must also have the right to terminate during the probation period. Under the previous law, the probation period was required to be 90 days with the possibility of extension for a further 90 days by a separate written instrument, and only the employer had the right to terminate during probation. The Implementing Regulations will provide further details, including how leave days are accumulated and which holidays count toward the 180-day period.
• Employment of Non-Saudis: The law has retained the requirement for employment contracts of non-Saudi nationals to be fixed-term (i.e., no unlimited term contracts). Where the contract does not specify duration, the term was previously assumed to be the length of the work permit issued to the employee by MHRSD. However, under the new amendments, the duration of a contract with no specified term is considered to be for one year from the employee’s start date. If the employment contract continues after the expiry of said period, it is deemed renewed for a period of the same duration. Employers should be sure to include Art. 77 protections in the contract so that employees cannot claim remaining wages until the end of the term.
• Accommodation and transportation: Though not required under the prior version of the law, it has long been standard in the Saudi labor market for employers to provide housing and transportation allowance to employees, especially expatriates. It is now enshrined in the Labor Law that employees must provide these services or an equivalent “suitable” housing and transportation allowance.
• Insolvency: Under the prior iteration of the Labor Law, bankruptcy or insolvency were not expressly listed as lawful grounds for termination of an employment contract, leading to confusion among distressed companies regarding their obligations to employees. However, under the new amendments, an employee’s contract may be terminated upon issuance of a decision or final court judgment to that effect in an insolvency proceeding.
• Maternity leave: Paid maternity leave has been increased from 10 weeks to 12 weeks. This is also in line with KSA’s consistent efforts to provide adequate and equal employment opportunities for women.

Conclusion

The amendments announced by MHRSD align with consistent and ongoing improvements in the KSA’s legislative system which have been witnessed across all sectors. Employers should work carefully with their legal counsel to stay abreast of any additional upcoming changes to the Implementing Regulations, review their company’s employment contracts, amend their employment policies and procedures to ensure they comply with the amended Labor Law and take advantage of the latest protections and liberalizations granted to employers.

Authored by: Jonathan Burns*, Abhishek Banerji, Ellen Ray