The Saudi Arabian Ministry of Human Resources and Social Development (“MHRSD”) has issued several resolutions and directives to deal with the measures taken in relation to employee entitlements during COVID-19.
Notably, Article 41 has been inserted in the Implementing Regulation of the Labor Law, which enables the employer and employee – for a period of 6 months – to agree to any of the following:
- a reduction in salary provided that there is a corresponding reduction in working hours;
- placing the employee on paid annual leave (as part of their holiday entitlement);
- implementing a period of unpaid leave.
Article 41 became applicable on 13/8/1441H, which corresponds to April 6, 2020, and only applies whenever the government takes any measures regarding a general situation that warrants a reduction of hours or any precautionary measure to prevent the worsening of such general situation, i.e., in the present COVID-19 times.
In an explanatory memorandum concerning Article 41, the MHRSD noted that the (i) reduction in salary and (ii) placing the employee on a paid annual leave are prerogatives of the employer and not the employee and therefore, may not be challenged by the employee. However, implementing a period of unpaid leave would need the approval of the employee.
We note that Saudi companies can now take any of the measures in Article 41 in whatever order during the 6 months; however, they must have been negatively affected by the current situation.
As for the reduction of salary, it must be in tandem with a reduction in work hours, i.e., a reduction of 20% of pay should correlate with a reduction of at least 20% or more in work hours. In addition, the maximum salary reduction should not exceed 40%.
We note that a company cannot make a salary reduction if it has benefited from any government subsidies in relation to those specific employees included in such subsidies, such as the recent state-sponsored subsidy scheme for KSA nationals.
Any reduction in salary and any granted leave must be made in written form, by signing an addendum to the employment contract with the concerned employees without invalidating the initial employment contract, which will remain applicable for all other terms.
Employers may not terminate their employees during the 6 months, i.e., between April and October 2020. They may only do so if they still cannot pay salaries after:
- such a period has ended,
- they have exhausted all the possible options such as reduction of salary, giving leaves, and
- it is proved that they never benefited from any governmental help or subsidy during that period.
During those 6 months, the limitations of Article 74 of the KSA Labor Law still apply, which only recognizes termination where either the business is shutting or the business unit within which the employee works is closing.
An invalid dismissal during that period will risk an award of arbitrary dismissal compensation payable at the following rates – subject to any scale of compensation agreed in the employment contract which cannot be less than two months pay:
- Unlimited term employment contract: 15 days’ wages for each year of service.
- Limited-term employment contract: payment for the remaining period of the contract.
Employers are encouraged to have a clear plan as to how to deal with employees and their businesses during this period by following the guidelines of the MHRSD and the General Organization for Social Insurance (GOSI).
Employees, whether foreigners or Saudi nationals may always challenge any dismissal, or any decision taken contrary to Article 41 or to the Labor Law, by reverting to the MHRSD and to the labor courts.
Authored by Senior Associate, Jean Abboud