Saudi Arabia: Labour Law

It is strongly characterized by the so-called Saudization program which aims to increase the percentage of Saudi local employees and reduce the rate of foreign employees. A foreign employee can only be hired if no equally suitable Saudi employee is available. In 2011 the current Minister of Labour decided to implement the so-called Nitaquat System that supports the Saudi nationalism scheme. However, Saudization quotas will not apply to companies which choose to set up or relocate their headquarters in Saudi Arabia. 

 

In terms of duration, there exist two different types of employment contracts in the KSA: fixed-term contracts and unlimited term employment contracts. Foreign employees may only be employed on fixed-term employment contracts. If the parties agree to an unlimited term employment contract, the employment contract will be trea­ted as a fixed-term contract due to terminate on the expiry of the foreign national’s work permit. Only Saudi nationals may be employed under an unlimited term employment contract. 

 

Both parties are obliged to fulfill different kinds of duties. The employee e.g. has to keep confidential the tech­nical, industrial and trade secrets of his employer. The labor contract must be in writing and in duplicate. The employer has to pay attention to the health and safety of their workers. An employee who suffers a workplace injury is entitled to receive compensation. Employees should be covered under health insurance and must be compensated if they get sick or disabled.

 

Saudi Arabia has introduced a minimum wage for citizens, which currently amounts to SAR 4,000. However, there is no minimum wage for foreign nationals. 

 

High-income expats that are often from Europe and North America, usually receive attractive compensation and benefits packages. This includes further attractive incentives such as rent allowance, relocation expenses, healthcare and annual return tickets to their home country.

 

The working week is Sunday to Thursday. An employee shall not work more than eight actual working hours in any one day, or no more than fortyeight hours a week. During Ramadan working hours shall not exceed six hours a day or thirtysix hours a week. Employees with one to five years of service receive 21 days of annual leave. Employees with more than five years of service are entitled to 30 days of annual leave. 

 

It is possible to include non-compete provisions in an employment contract. The KSA Labour Law permits non-competition clauses up to a maximum duration of 2 years. Moreover, the non-compete provision should be limited in terms of geographic scope and the type of business being restricted. 

 

In the past, employers have limited the ability of foreign employees to join a competitor by refusing the em­ploy­er’s consent. The Labour Reform Initiative provides employees with better protection. The Saudi labor reforms (Resolution No. 51848/1442) are aimed at increasing employee mobility which took effect on 14 March 2021.

 

The resolution allows foreign employees to leave their jobs without the consent of the employer upon the ex­pi­ra­tion of their employment contracts. They can leave their jobs prior to the expiration of the employment contract as far as the employee has been in the country for at least a year and has given 90 days’ notice to the employer. In certain cases, foreign workers are allowed to change their jobs within the first year of employment. Besides, employees are now entitled to apply for and obtain exit/re-entry permits and the final exit permit by themselves without having to obtain permission from their employer. 

 

Unlimited term employment contracts may be terminated for valid reason. There are no guidelines as to the scope of a valid reason. A valid reason usually exists in the event of poor performance or misconduct. The employer has to give no less than 60 calendar days’ notice in writing. If the employer does not follow those rules, the KSA labour court may award the employee invalid termination compensation that would be payable in addition to the employee’s statutory and contractual entitlements. 

 

The KSA labour law assumes that an employee’s employment will continue until the end of the fixed-term employment contract. Any termination prior to the expiry would likely be considered as invalid, unless it is for a reason comparable to gross misconduct. To avoid significant payouts, the employer is recommended to include a provision in every employee’s employment contract which regulates an amount of compensation payable in the event that the dismissal is declared invalid. A termination with notice is not provided for a fixed-term employment contract. 

 

The Saudi labour law regulates that an employer must provide a dismissed employee with a statutory end of service reward or indemnity. However, the employer does not have to pay the reward or indemnity, if e.g. the employee assaults the employer, the employee discloses work-related confidential information or trade secrets or the employee is dismissed during his contractual probationary period. 

 

An employer may demand that an employee stays at home and does not undertake their duties during all or part of their notice period. Nevertheless, the right to place an employee on garden leave should be contained in the employment contract.