Article 77 of the Saudi Labor Law

Article 77 of the Saudi Labor Law

Safi H. Jannaty

DR. ALI AL-GHAMDI’s recent column on Article 77 of the Saudi Labor Law and the mass termination of employees presented a very balanced viewpoint on the issue. It also added to our knowledge by reporting that the Shoura Council has decided to set up a special committee to look into the provisions and confusion surrounding Article 77.

I agree with Dr. Al-Ghamdi that this decision is a step in the right direction. In fact, there is nothing in the world that cannot be resolved by means of proper deliberations and by bearing in mind the points of view of all stakeholders.

However, regardless of whatever recommendations the committee may suggest, there are a few issues that need to be discussed to understand the core issues that revolve around the termination of employment contracts in the Kingdom.

First of all, the last Amendments to the Labor Law that included revisions to Article 77 were issued in the official gazette in April, 2015. There was no uproar at that time nor was the issue of the termination of the employment of Saudis debated with the intensity that it is now.

The matters revolving around Article 77 have snowballed due to the recent sacking of a large number of Saudi employees by a few companies. However, as we will see, this termination of employment may not be related or linked to Article 77, which mainly deals with the termination of the employment contract by either party for an invalid reason.

Secondly, a closer scrutiny of Article 77 reveals that if the Article is seen in conjunction with the provisions under other Articles of the Labor Law, it cannot be singled out to be the source of dismissals and a tool in the hands of employers to terminate employment. In the majority of cases, employment contracts are drawn up for a period of one year. Since the employer has the right to make the period of probation six months, of course, with mutual consent, he could terminate employment during the first three or six months and if the employee continues, the employer could wait for another six months for the contract to expire on its own.

As the issue of the determination of penalties or damages was not covered in regulations earlier, most employment contracts drawn up a year ago did not have such provisions. Therefore, in the absence of specific damages or penalties in case of the termination of the employment contract for an invalid reason, Article 77 does not affect those employees who are working on a definite period contract as the provisions under Article 77 stipulate payment of the entire wages for the balance period of the contract. Naturally, employers will not consider terminating such employees, as they will, in all cases, be paying them wages for the balance period. As far as unspecified period contracts are concerned, employees in those cases usually have proven their dedication and sincerity to employers after three or four years of employment and employers will not be inclined to terminate such employees unless there is a valid reason. In such a scenario, Article 77 will not be applicable.

Thirdly, other reasons can be used to terminate employment. In fact, the companies that decided to terminate Saudi employees in large numbers would rightly argue that they had taken such a decision for a valid reason. Completion of project or nonrenewal of an existing project or not receiving new projects, all come under the category of “valid reasons” and therefore, they must have been justified in terminating the employment under Article 74 and therefore those terminations have nothing to do with Article 77.

The aforesaid events also result automatically in the termination or conclusion of activities for which employees were hired, which again fall under the purview of Article 74 and not under Article77.

As far as the valid reasons that an employee could provide, they are almost unlimited, and in no known cases have employers been able to enforce upon employees any penalty for termination of contract as it would be almost impossible to prove that the termination by the employee was for an invalid reason.

Needless to say, many times employers have sustained damages or losses due to sudden resignation by employees. In the case of expatriate employees, usually, the employer forces the employee who resigns to continue working until a replacement is found since the employer has the power to issue an exit-only visa and the employee prefers not to initiate legal action against the employer. In the ase of Saudi nationals, there are no such restrictions.

Fourthly, the Human Resources Development Fund (HRDF) reimburses to employers the wages of Saudi nationals to the extent of 50 percent for a period of the first two years, thereby encouraging companies to hire Saudis. Moreover, the work permit fee for expatriates that is poised to increase by geometric proportions year after year is another reason for employers not to hire expatriates.

Fifthly, the enterprising nature of capitalism dictates that employers should have the ability to hire and fire employees, of course, without discrimination on any grounds. In the absence of such powers, it becomes difficult for businesses to prosper and without the commercial incentive or interest that can only be achieved by optimal deployment of resources including human resources, people will not invest in the market and economies will not grow. Therefore, provisions or options for employers to terminate employment upon completion of an activity or for any other valid reason are necessary.

Finally, an important point that cannot be ignored at any time and in any place is the fact that employers hire employees not just for their ability to perform the required work. They also expect the elements of sincerity and dedication on the part of employees. There should be proper means to evaluate and appraise the knowledge and skills by independent bodies. The criteria and requirements for both Saudis and expatriates should be one and the same. This will give surety and confidence to employers.

Furthermore, the only measure of sincerity and dedication is the discipline and productivity of employees and again there should be no difference between nationals and expatriates in this respect. Once such parameters and benchmarks are fixed and followed, whatever incentives remain to hire expatriates will vanish.

Safi H. Jannaty,