Over the last few days, there have been a number of significant developments in Saudi Arabia that the government is instituting to mitigate the impact of COVID-19 on the private sector. These are in addition to the general government initiatives to assist small and medium sized enterprises that we previously reported on 22 March 2020, and the seven Ministry of Human Resources and Social Development (MHRSD) initiatives for all private sector entities, including lifting the suspension of the wage protection system, lifting the temporary suspension imposed in relation to amendment of activities, making secondments available via Ajeer, etc.

The two key recent developments are: (i) the government to support Saudi national employees (by paying a portion of their wages); and (ii) the Minister of the MHRSD issuing a Ministerial Decision to regulate the contractual relationship between employees and employers in light of COVID-19 which amends the Labor Law’s Implementing Regulations.

Government to support Saudi national employees in the private sector

The General Organization for Social Insurance (GOSI) administers an unemployment insurance scheme for Saudi national employees, whereby the employer and the employee each contribute an amount equal to 1% of the employee’s wage, as registered with GOSI, to GOSI. (The employee’s contribution is deducted by the employer from the employee’s monthly salary and paid to GOSI on the employee’s behalf.) A Royal Order was issued on Friday, 3 April 2020 to approve exceptions to the Unemployment Insurance Law to mitigate the impact of COVID-19.

What is the support and who will it cover?
  • An employer can apply to GOSI to request it to support up to 60% of its Saudi national employees’ wage (corresponding to the wage amount that is registered with GOSI: basic salary plus housing), for three months (May through July).  
  • An employer who employs five employees or less, can apply to support all of its Saudi national employees (up to 60% of their wage).
  • An employer who employees more than five Saudi national employees, can apply to support 70% of its Saudi national employees (up to 60% of their wage).
  • An employer shall be exempt from paying the Saudi national employee’s wages (for an employee who benefits from this support), and shall be barred from compelling the employee to work during the compensation disbursement period.
  • An employer must continue to pay employees’ wages who are excluded from this initiative (i.e. non-Saudi national employees and any Saudi nationals who do not benefit from this initiative).
  • Once the compensation period ends in July (unless extended for a further period), employers must resume paying beneficiary employees their full wage. 
  • A beneficiary employee’s subscription will be suspended, the calculation of the current compensation period will be suspended, and the employee will be temporarily excluded from pension and insurance coverage. The employer will not be required to pay insurance contributions for the beneficiary employee. After the compensation period ends, the employee will be re-registered automatically, from the month following the last month he received compensation. 
Who can apply and how?

The support applies to private sector employers that are affected by COVID-19. Such employers must:

  • have been subscribed to GOSI’s unemployment insurance prior to 1 January 2020 (and such subscription must still be valid); and
  • be up to date with the payment of their employees’ wages during the first quarter of the year. Employers who are not registered with the wage protection system (mainly entities with 11 employees or less) can apply to benefit from the support without having to register with the wage protection system. However, the relevant employer will need to provide a statement that it has paid it’s employees’ wages during the first three months of 2020.

The support will not apply to sectors that are not as greatly impacted by the COVID-19 crisis, such as:

  • financial sectors, including Saudi Arabian Monetary Authority licensees such as banks, finance companies, insurance companies, insurance brokers and Capital Market Authority licensees;
  • telecom companies;
  • foodstuff markets; and
  • any other sectors GOSI sees fit.

An employer can apply to GOSI for the support, through its online GOSI portal, starting from Wednesday, 8 April 2020. Once the employer’s application is approved, the relevant employees shall be invited to apply for the support. The compensation will be disbursed to employees, for the three month period (May through July), starting on Friday, 1 May 2020.

A competent committee at GOSI will review the performance of this initiative and issue its recommendations, before the end of June 2020, on whether there will be a need to extend this initiative to cover the most affected businesses as the situation develops.

MHRSD Decision on the contractual relationship between employees and employer

On Monday, 6 April 2020, the MHRSD announced an important decision to mitigate the repercussions of COVID-19 and measures taken to combat it on employers and employees. The government considers that circumstances that require the reduction of working hours or any other precautionary measures imposed by the government to limit the impact of COVID-19 to constitute a force majeure under the Labor Law (the Announcement). This is significant because, although force majeure is listed as a reason to terminate an employment contract in the Labor Law, the term force majeure is not defined in the Labor Law or any of its accompanying regulations or ministerial decisions. Although the Announcement does not provide a comprehensive definition of force majeure, it clearly contemplates the measures the government is taking to limit the impact of COVID-19 as a force majeure event under the Saudi Labor Law. 

Furthermore, the Minister of the MHRSD has issued Ministerial Decision number 142906 dated 13/08/1441H (corresponding to 6 April 2020) amending the Implementing Regulations of the Labor Law issued under Ministerial Decision No. 70273 dated 11/04/1440H (corresponding to 19 April 2019) (the Amendment). The Amendment extends the Announcement by considering the procedures the government may adopt regarding an event or circumstance requiring a reduction in working hours, or precautionary measures that limit exacerbating events or circumstance as a force majeure (the Amendment does not expressly refer to COVID-19). In the event, the government adopts such procedures, then employers are authorized to agree with their employees to:

  • reduce the employee’s wages in proportion to the number of working hours;
  • grant employees paid annual leave from their accumulated unused annual leave days; or
  • take unpaid leave. 

Although the Announcement is not explicit, it appears that if, at any time during the six month period following the implementation of the COVID-19 precautionary measures, the employer and employee are unable to agree, in good faith, on one of the above solutions to mitigate the impact of COVID-19, either party would be justified in terminating the contract. If the employer is the party terminating the contract, it would be justified only if it is not receiving benefits from the government to subsidize the employee’s salary (which currently only applies to Saudi nationals). Any such termination would be with full benefits.

Should you have any queries or require any assistance, please do not hesitate to contact us.

Author

Abdulrahman AlAjlan has 16 years of litigation and commercial experience in Saudi Arabia. He represents clients at the Sharia Courts, the Board of Grievance, the SAMA Committee, Labor Committee, Committee for Negotiable Instruments and all other courts and tribunals. Abdulrahman has extensive arbitration experience, both as an arbitrator and also representing clients in arbitration proceedings.

Author

George Sayen has been involved in handling Saudi Arabian legal matters since 1987 and has resided full time in Riyadh since 1988. He is actively involved in advising both Saudi Arabian and foreign clients on a wide range of corporate and commercial and regulatory matters, including corporate/commercial transactions, major projects, M&A, employment, joint ventures, government contracting and competition law.

Author

Dr. Nasser Alfaraj joined Legal Advisors Abdulaziz Alajlan & Partners in June 1998 and has been involved in a broad spectrum of Saudi legal matters. Nasser primarily represents foreign entities doing business in Saudi Arabia in corporate, labor and commercial matters. Nasser also advises on Islamic law including structuring of Islamic finance deals.

Author

Christiana O'Connell-Schizas is a senior associate of Legal Advisors Abdulaziz Alajlan & Partners in association with Baker & McKenzie Limited. She joined the firm at the beginning of 2014 and is actively involved in advising both Saudi Arabian and foreign clients on a wide range of corporate, commercial and employment matters and M&A transactions.

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