February 13, 2017

KSA: New regulation on termination of KSA nationals’ employment by reason of redundancy

On 30 January 2017, the Ministry of Labour and Social Affairs announced a new resolution limiting the ability of employers in the Kingdom to termination KSA national employees employment by reason of redundancy. The new resolution is far reaching and whilst it has not been published in the Kingdom's legal gazette, it has been published in a number of national Arab newspapers and states that it is effective from the date of publication.

The resolution is aimed at regulating and in so far as possible limiting the collective termination of KSA nationals by reason of redundancy. In any cases other than an employer's bankruptcy and the closure of the employing establishment entirely, the resolution prohibits large and medium sized entities from making collective redundancies of KSA nationals for any reason without first informing the local labor office at least 60 days prior to serving written notice of termination.

Under the resolution, collective dismissal means, terminating groups of KSA nationals for reasons related to the employer and not to the employees (in other words for restructuring or redundancy purposes).  A group will exist if the proposed terminations are of more than 1% of the KSA national employees or a total of ten employees whichever is greater within one year from the date of the last termination of a KSA national.

When notifying the local labour office of the intended dismissals, an employer must include the following documents and information with its notice:

  • a financial study from the employer explaining the reasons for the proposed collective dismissals;
  • Name and numbers of KSA nationals who will be terminated with the job description and reasons for termination for each one;
  • Name and numbers of none KSA nationals with their job description who are at the same level of the KSA nationals who will be terminated; and
  • The procedure or steps taken by the employer to avoid the terminations.

Within 45 days of the notice, the labor office will evaluate the risks and issue an opinion to the employer about its proposal. The opinion will be based on the following:

  • The financial position of the employer;
  • The possibility of finding alternative solutions by replacing none KSA nationals with KSA nationals.
  • The possibility of finding alternative positions for the KSA nationals within the entity, or in another entity owned by the employer.
  • The possibility of a settlement with the KSA national employees who will be terminated.

A commission for reviewing employer notices and providing opinions on such notices, will be formed in each labor office around the Kingdom and its members will be as follows:

  • The manager of the labor office
  • Representative of the HRDF branch
  • A legal counsel

The commission has the power to do the following:

  • Call the employer's representative to discuss the reasons for proposing collective dismissals as well as how the employer can justify terminating KSA national employees;
  • Propose an alternative, in consultation with the employing entity to avoid the termination;
  • Review the employer's notice and assign a legal expertto give his opinion; according to the Labor Law and its implementing regulations, and in accordance with this resolution and other rules and regulations;
  • Reject the notice and the reasons for terminating KSA national employees;.
  • Accept the notice and the entity's reason for terminating KSA national employees.
  • Develop a plan to address the effects of the termination of KSA national employees if the commission is convinced by the reasons presented by the employer for the collective dismissals.

The Ministry of Labour may also impose penalties for companies that violate this resolution, including blocking the employer's ability to apply for new work permits or transfer sponsorships to it for a period of between 30 -360 days depending on the seriousness of the violation. If an employer breaches the resolution and effects collective dismissals of 15 to 20% of his Saudi national workforce without prior approval, it will be barred from applying for new work permits, accepting visa transfers or being able to object to its employees transferring sponsorship without its approval for 540 days. Where an employer collectively dismissed over 20% of its Saudi national workforce without following the new resolutions requirements, these penalties will also apply, in addition to a bar on the employer being able to renew existing work permits, for 720 days – in effect for almost 2 years.

The new resolution marks an innovative development in KSA Labour Law and produces a more rigorous procedure regarding collective dismissals than exists anywhere in the GCC.  It contrasts somewhat with some of the amendments to the KSA labour law introduced in October 2015 which included the removal of the right to reinstatement for KSA national employees and the introduction of a statutory formula for compensation for unjustified termination (now contained in the current article 77 of the Labour Law). Amendment of Article 77 of the KSA Labour Law is much anticipated in the near future and the new resolution would indicate a willingness to provide further protection for employees.