Last year witnessed continued legislative developments in the labor and employment field with a strong emphasis across the GCC on eliminating illegal working, promoting the employment of nationals and regulating the provision of employee benefits such as health insurance. These trends are set to continue into 2014 and in a three-part series, analysts at Clyde & Co, Al Ruwayeh & Partners (ASAR) and Jihad Al Taie Law Office examine the key developments expected to take place in the coming months.
This particular analysis underscores the new labor regulatory environment that will affect Saudi Arabia and the United Arab Emirates.
KINGDOM OF SAUDI ARABIA
The aim of recent labor reform (starting with the introduction of the Nitaqat system in August 2011 is to ensure an integrated labor market, where the gap between employing in the private sector and the public sector (certainly for KSA nationals) is closed. In return for opening up its markets, KSA is requiring foreign businesses (as well as Saudi employers) to invest in Saudi nationals and promote local employment. With 75% of the population being under 25 years of age, the imperative to create jobs and maintain job security for future generations is paramount.
Unlawful working
Alongside, Nitaqat and other 'Saudization' measures, KSA witnessed its biggest crackdown on illegal workers in March 2013, the subsequent six-month amnesty ended on November 3, 2013, during which three million foreign workers rectified their immigration status, voluntarily repatriated or were deported. Labor inspections continue amid a determination to reduce illegal working.
A draft ministerial resolution was announced in January 2014, providing for penalties of SAR 10 million (USD 2.7 million) and a five-year prison sentence for employers falsifying their Saudization targets by adopting measures such as employing shadow KSA national employees.
Unemployment benefit
Legislation providing for unemployment benefit insurance was published on July 1, 2013 (expected to be implemented in the first six months of 2014), and provides for employer and employee contributions of 1% of basic salary and housing allowance to be made to GOSI, to cover unemployment allowance for up to six months.
Labor law amendment
In early 2012, over 80 proposed amendments to the Labor Law were published and have been debated at great length. Most recently on December 17, 2013, the minister of labor announced that within three months, the working week would be reduced to five days/40 hours.
Also in December 2013, the Shoura Consultative Council discussed and approved the following amendments to the Labor Law:
- Unauthorized absence
Amendment of the Labor Law's article 80 with respect to termination for unauthorized absence. The current article provides for termination without notice and payment of end-of-service gratuity, if an employee is absent for 10 consecutive days (provided a written warning is issued after five days) or for 20 non-consecutive days (provided a written warning is issued after 10 days). The amended provision provides for unauthorized absence of 30 non-consecutive days (with a written warning issued after 20 days) and 15 consecutive days (with a written warning issued after 10 days). - Contracts
Fixed term contracts will convert into unlimited term contracts upon the third renewal of a fixed term (currently this is on the second renewal) or if the total length of service under a series of fixed term contracts is four years (currently the period is three years).
- ·Compensation for unjustified termination
To provide a statutory formula for calculating compensation for unjustified termination of employment; the proposed formula being:
o 15 days' remuneration for each year of service where the employment contract was unlimited.
o Payment for the remainder of the term where the employment contract was for a fixed term.
o Provided that in either case, the compensation is no less than two months' worth of remuneration.
Once discussed by the Shoura Council, the measures require a Council of Ministers resolution followed by a Royal Decree to come into effect.
Introduction of a minimum wage
One of the key barriers sighted by private sector employers is the high wages Saudi nationals require in comparison to non-nationals, particularly those from South East Asia performing more junior and manual roles. A structural impediment therefore to employing Saudi nationals is the absence of a minimum wage applicable across the private sector for all employees (meaning that the attraction of employing a non-national (i.e. the lower headcount cost) would not apply. To date, such a measure has not yet been discussed. However, the Ministry of Labour has published an intention to promote higher wages through Nitaqat through the following:
- A Saudi national on SAR 6,000 to SAR 12,000 (USD 1,600 to USD 3,200) will count as two employees.
- The minimum wage under Nitaqat will be raised to SAR 4,000 (USD 1,100).
- The average total for applicable quotas will be calculated over a 26-week reference period.
- Other legislative developments in 2014 will be:
- Continued transition of all immigration services to an electronic system.
- Continued implementation of the wages protection system with the second stage enforced on December 1, 2013.
- An increase in the bank guarantee for obtaining recruitment licenses; the current requirement of SAR 300,000 every two years will increase to SAR 450,000 every year.
- The replacement of Labour Committees and the Supreme Labour Appeals Committee with Labour Courts integrated into the Shariah Court system. Any complaint will first have to be raised with the labor office in the region in which the employee has been carrying out his work for a confidential pre-conciliation process. Once a complaint is submitted (whether in person or electronically) a dispute hearing should be scheduled within a week and the parties have 21 days to reach an amicable agreement, failing which the dispute will be referred to the courts. If an agreement is reached, it will be documented and enforceable within five days of the date of the settlement agreement.
The Ministry of Labour has also recently launched the 'together' or 'ma'an' online portal, which enables employers to submit feedback on proposals and recently led to the ministry delaying the implementation of a proposal to cap expatriate employees' work and residency authorization to six-seven years.
UNITED ARAB EMIRATES
The Emirate of Dubai announced compulsory health insurance provision for employees in December 2013 to be introduced on a staggered basis according to the number of employees employed within an organization.
Minimum earning requirements were increased for individuals to sponsor parents or grandparents (AED 20,000 or USD 5,442 a month) with additional requirements to provide rental agreements to evidence an ability to provide adequate housing for dependents.
In January 2014, Sheikh Mohammed has made several announcements confirming his vision for 'Emiratisation' and a desire to increase the rate of UAE national's employment in the private sector tenfold by 2021. The minister of labor Saqr Ghobash has also stated in interviews in January 2014, that legislative amendments to the UAE labor laws are being considered in order to enhance the attraction of the private sector for UAE nationals, including potential amendment of the regulation of working hours, the working week, leave entitlements and holidays.
On 20 January 2014, the UAE Cabinet endorsed a draft law providing for mandatory military service for all Emirati males between the ages of 18 and 30, for nine months to two years. The details of the scheme for those in existing employment are yet to be announced, however, press reports state that time spent on military service will be counted for the purposes of calculating employee benefits, continuous service and pension entitlements.
In January 2014, there was also an announcement that the government will introduce legislation providing for self-employed UAE nationals to be enrolled in the state pension scheme - the aim being to encourage more UAE nationals to set up their own enterprises and SMEs.
Sara Khoja is partner at the Dubai office of Clyde & Co. She qualified in England and Wales in 2002 and specializes in employment law. She joined Clyde and Co's Dubai office in 2008, establishing the specialist team. She provides employment advice for the Middle East region, in particular the Arabian Gulf Cooperation Council member states.
© Zawya 2014
