Kingdom of Saudi Arabia
Mohsin Khan Partner
Hayat Rafique Senior Associate
Sabeeha Moolla Professional Support Lawyer
In line with the Saudi Arabian government's Vision 2030 to enhance the Kingdom's labour market, the Ministry of Human Resources and Social Development (MHRSD) announced in August 2024 that the Saudi Council of Ministers had approved amendments to the Labour Law of 2005. These amendments, following extensive consultations, were designed to create a more attractive and competitive employment landscape in the Kingdom. As we enter 2025, it's crucial to note that these significant amendments to the Labour Law will come into effect on February 18th, 2025.
The amendments make several references to the “Executive Regulations” whose purpose is to supplement, clarify and expand upon various provisions of the statutory amendments. At the time of this article's preparation, the amended Executive Regulations have not yet been published in final form. We anticipate their release shortly, as the Ministry of Human Resources is currently updating the Executive Regulations to align with the new amendments to the Labour Law.
This article provides a summary overview on some of the key amendments made to the Labour Law.
Definitions: The following definitions have been added to Article 2 of the Labour Law:
Manpower activity – “the service of providing labour to work for a non-employer through an establishment licensed for those purposes”.
Resignation – “A written disclosure by a worker, under no coercion, expressing their wish to unconditionally terminate a fixed-term employment contract, with the acceptance of the employer”.
Contract duration for non-Saudi nationals – Article 37 of the Labour Law will be amended to confirm that, if a non-Saudi national is employed on an indefinite term contract, then the contract duration is deemed to be for a one-year fixed-term commencing on the date when employment started and renewed for the same period thereafter. This amendment will change the current position under the Labour Law which provides that the fixed-term is based on the expiration of the employee’s work permit and will likely address the uncertainty that often arises when non-Saudi nationals are employed on indefinite term contracts.
Training policy – Employers must develop and implement a policy for training Saudi nationals to enhance their technical, administrative, vocational and other skills. The Executive Regulations will provide further details regarding the relevant training requirements.
Probation period – The parties can agree that the probation period will be a total of 180 days from the outset of employment instead of the current position of 90 days which may be extended by written consent. Both parties will equally have the right to terminate the contract during the probation period. The Executive Regulations will provide further details regarding the periods of leave that will not be included in the probation period duration.
Accommodation and transportation – Employers must either provide accommodation and transportation or pay a cash allowance in lieu of the accommodation and transportation. This amendment will impose a statutory obligation to provide housing and transport allowances where the employer does not provide accommodation and transport.
Equal opportunities – Employers must ensure equal opportunities and ensure that there is no discrimination on grounds of race, colour, sex, age, disability, marital status or any other form of discrimination. The protection against discrimination will apply to both employees and applicants.
Right to appeal – Article 72 of the Labour Law will be amended to confirm that an employee now has 30 days to internally appeal against a disciplinary sanction. If the employer rejects the appeal or does not make a decision within 15 days of receiving the appeal, then the employee can submit a claim regarding the disciplinary sanction to the Labour Court within 30 days from the date of rejection or expiry of the specified period, whichever comes first. The above timeframes do not include official public holidays. Employers will now need to incorporate an internal appeal process into their disciplinary procedures.
Termination – Bankruptcy has been added to Article 74 of the Labour Law as a lawful reason to terminate the employment contract.
Notice period – Article 75 of the Labour Law will be amended to reduce the notice period for a Saudi national to terminate their indefinite term contract for a valid reason to 30 days’ notice (noting that the notice for an employer to terminate remains at 60 days).
Resignation – As mentioned above, resignation has now been defined in the Labour Law and has been added as a valid reason for termination under Article 74 of the Labour Law.
A new provision has been included in Article 79 of the Labour Law, which provides further details on how a resignation may work in practice:
Acceptance: Following an employee’s resignation, if an employer does not accept or respond within 30 days, then the resignation is automatically deemed accepted.
Right to delay: An employer may delay the acceptance of resignation by 60 days provided that there is a valid reason to do so (i.e., due to the interests of work ) and the employer provides the reasons in writing within the first 30 days of the employee’s resignation.
Right to withdraw: An employee has the right to withdraw the resignation within seven days provided that the employer has not already accepted it.
Deferred resignations: An employee cannot specify a future date for their resignation to take effect.
Effective date of resignation: The employee’s employment ends on the earlier date on which: (i) the resignation is accepted by the employer; (ii) the date 30 days after submission of the resignation if there is no response from the employer; or (iii) upon the expiration of the delay period if a justified delay was issued by the employer.
An employee whose contract ends by resignation will be entitled to all rights stipulated in the Labour Law.
Overtime – Article 107 of the Labour Law will be amended to allow the parties to agree to provide the employee with time off in lieu instead of overtime pay for any approved overtime. The Executive Regulations will provide further details in this regard.
To align with Vision 2030, Saudi Arabia's Labour Law amendments aim to create a more competitive and equitable employment landscape, introducing significant changes such as enhanced training policies, equal opportunities, and updated leave entitlements.
Paternity leave – Article 113 of the Labour Law will be amended to confirm that a male employee is entitled to three days’ paternity leave to be taken within seven days following childbirth. Previously there was no time limit on when employees had to utilize their paternity leave.
Bereavement leaves – Article 113 of the Labour Law will be amended to include three days’ bereavement leave for all employees following the death of a sibling. The current Labour Law only includes ascendents and descendants.
Maternity leave – Article 151 of the Labour Law will be amended to increase the period of paid maternity leave for female employees to 12 weeks. It will remain mandatory to take six weeks of maternity leave following childbirth, and maternity leave can be taken no earlier than four weeks before the expected date of delivery.
Fines – The amendments introduce fines of between SAR 200,000 and SAR 500,000 that may be issued to entities that are providing manpower services without being properly licensed to do so, or bringing non-Saudi nationals into KSA without the proper work authorisations.
In addition to the specific articles mentioned above, amendments will also be made to provisions relating recruitment activities and maritime workers, among others.
Conclusion
To align with Vision 2030, Saudi Arabia's Labour Law amendments aim to create a more competitive and equitable employment landscape, introducing significant changes such as enhanced training policies, equal opportunities, and updated leave entitlements. It is important for all KSA companies to review their contracts, employee handbooks and any other employment policies and procedures to ensure compliance with the amendments to the Labour Law.
Al Tamimi & Company’s dedicated KSA Employment team advise on the full range of employment-related matters and issues, and are available to assist with the changes that employers will need to make in light of the amendments to the Labour Law.
Emad Salameh Partner, Head of Office - Riyadh
Ahmed Amonette Senior Associate
As we move into 2025, the Saudi legal landscape is poised for further transformation driven by the Civil Transactions Law (the “CTL”). This comprehensive legislation, which came into effect at the end of 2023, marked a key shift in the Kingdom's approach to contractual disputes and judicial discretion. The CTL aims to create a more predictable and consistent legal framework, balancing the need for codified legislation with the flexibility to address unique circumstances. This article explores what we can expect in 2025 in light of the CTL and its implications for future legal transactions in Saudi Arabia.
A More Predictable Legal Framework
One of the primary objectives of the CTL is to reduce the unpredictability that has historically characterized judicial rulings in Saudi Arabia. Prior to the CTL, contractual disputes were resolved based on uncodified Shari'ah principles, which allowed for broad judicial discretion. This often led to inconsistent and contradictory judgments, particularly in cases where no applicable written legislation was available. The CTL addresses this by mandating that the judiciary shall not exercise its discretionary powers when applicable legislation exists.
As we look ahead to 2025, the CTL is poised to further solidify its role in creating a more predictable and consistent legal framework for contractual disputes in Saudi Arabia.
Limited Judicial Discretion
While the CTL aims to minimize judicial discretion, it recognizes that limited discretion is necessary in certain circumstances. Several articles within the CTL explicitly provide for instances where the judiciary can exercise its discretionary powers. For example:
Deceptive or Exploitative Contract Terms: Article 68 allows a court to reduce the obligations of a deceived contracting party or nullify the contract if the other party exploits an apparent weakness or urgent need.
Nullification of Contracts: Article 81 permits a court to invalidate a contract on its own initiative if it is void.
Adhesion Contracts: Article 96 enables a court to amend arbitrary terms in adhesion contracts or exempt the adhering party from them, as required by equity.
Onerous Obligations: Article 97 allows a court to reduce a debtor's onerous contractual obligations to a reasonable extent if exceptional circumstances arise that could not have been anticipated at the time of contracting.
Enhanced Contractual Clarity
The CTL provides detailed regulations on various aspects of contracts, including their validity, effects among contracting parties, invalidity, termination, and compensation for damages. This comprehensive approach aims to reduce the number of contractual disputes and the time required to resolve them. For instance, Article 1 of the CTL explicitly states that its provisions are applicable to all matters addressed by the law, both in letter and context. In the absence of a specific text, the 41 defined general principles of interpretation shall be applied, further reducing the opportunity for judicial discretion.
Implications for Future Legal Transactions
Since the CTL was published, its influence on legal transactions and dispute resolution in Saudi Arabia has become evident. The effects on dispute resolution in Saudi Arabia are as follows:
Increased Predictability: By limiting judicial discretion and providing clear guidelines for contract interpretation, the CTL has enhanced the predictability of judicial rulings. This fosters greater confidence among businesses and investors in the Saudi legal system.
Reduced Disputes: The detailed provisions of the CTL help to reduce the number of contractual disputes by providing clear rules for contract formation, performance, and termination. This leads to more efficient resolution of disputes when they do arise.
Fairness and Equity: The CTL ensures that courts can still address unique circumstances and achieve equitable outcomes by allowing limited judicial discretion in specific cases. This balance between codified legislation and judicial flexibility promotes fairness in legal transactions.
Legal Certainty: The CTL's comprehensive regulation of contract provisions has provided greater legal certainty for parties entering into contracts. This encourages more robust commercial activity and economic growth in the Kingdom.
As we look ahead to 2025, the CTL is poised to further solidify its role in creating a more predictable and consistent legal framework for contractual disputes in Saudi Arabia. By striking a balance between codified legislation and the flexibility to address unique circumstances, the CTL is expected to continue enhancing the predictability, fairness, and efficiency of legal transactions within the Kingdom. This landmark legislation has already begun to transform the Saudi legal system, instilling greater confidence among businesses and investors. As a result, the CTL is anticipated to play a pivotal role in driving the Kingdom's economic growth and development in the coming years.
Muhammad El Haggan Senior Associate
The Kingdom of Saudi Arabia is the largest economy in the Middle East and a pivotal market for foreign companies. The Saudi Vision 2030 program has amplified international interest in this market by modernizing the economy and making it more attractive to foreign businesses. This surge in interest has led to an increase in contractual relationships between foreign and Saudi companies. However, foreign companies often face challenges when selecting the governing law and drafting dispute resolution clauses in these contracts.
This article considers the key considerations for foreign companies in this context and explores the future of contract enforcement and dispute resolution in Saudi Arabia.
Recent Reforms to Saudi Law and the Judiciary
The introduction of a new Civil Transactions Law (CTL) in 2023 represented a pivotal moment in the formalization of Saudi contract law, effectively tackling the difficulties faced by foreign entities conducting business in Saudi Arabia. While based on the principles of Shari'ah, the CTL is modelled after other civil codes in the region, particularly Egypt and other GCC countries. We provide a more detailed look at the CTL in a separate article titled “The Impact of the KSA Civil Transactions Law on Future Legal Transactions – What to expect in 2025”.
Governing Law Considerations
For contracts likely to be enforced in Saudi Arabia, it is advisable for foreign companies to opt for Saudi law as the governing jurisdiction. Judgments applying foreign law carry risks when it comes to enforcement in the Kingdom, as the Saudi enforcement court will analyse the judgment or award to ensure it does not conflict with public policy and the principles of Shari'ah. Any portion deemed noncompliant would be unenforceable. Choosing Saudi law reduces the risk of non-compliance with local laws, and Saudi counterparts may prefer contracts governed by Saudi law due to cultural and legal familiarity.
The codification of contract law through the CTL, the establishment of Commercial Courts, and the implementation of e-litigation and remote hearings are steps towards a more predictable, efficient, and cost-effective legal environment.
Choosing Saudi Courts or Foreign Courts
Foreign companies should consider selecting Saudi courts as the forum to resolve disputes with their Saudi counterparts due to several factors:
Certainty of Enforcement: Final judgments issued by a Saudi court are automatically enforceable.
Efficiency: The implementation of e-litigation and remote hearings across the Courts of the Kingdom has greatly reduced the time to reach a final judgment, typically between six months to one year.
Cost-Effectiveness: Saudi court litigation is generally more cost-effective compared to foreign jurisdictions.
As regards enforcement, the main criterion for the enforcement of foreign judgments in Saudi Arabia is reciprocity. The burden of proving reciprocity falls on the enforcing party, typically established by a bilateral or multilateral agreement for the enforcement of judgments and/or arbitral awards between Saudi Arabia and the foreign jurisdiction.
Saudi Seated Arbitration
Awards issued by a Saudi-seated arbitral tribunal such as the Saudi Centre for Commercial Arbitration (SCCA) are deemed enforceable in the same manner as Saudi court judgments, while still allowing the parties (and the courts) to partially or fully set aside arbitral awards that do not comply with Saudi public policy and/or the principles of Shari'ah. This is a viable option for foreign companies seeking to apply Saudi law to reduce enforcement risks arising from the application of foreign law with the benefit of greater control afforded by arbitration.
Foreign Seated Arbitration and Foreign Arbitration Rules
Foreign companies may also consider agreeing to arbitration rules of a foreign arbitration institution such as the Arbitration Rules of the International Chamber of Commerce (ICC). While the parties can agree to foreign institutional rules, they can also agree that arbitration proceedings take place outside of Saudi Arabia. However, it is important to note that arbitral awards issued by foreign tribunals are not automatically enforceable in the same manner as awards issued by a Saudi-seated tribunal. Given that Saudi Arabia is a “Contracting State” in the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention), proving reciprocity as regards the enforcement of foreign arbitral awards compared to foreign court judgments should be straightforward.
Multi-tiered Dispute Resolution Mechanisms
As part of the reform of the Saudi legal framework, the Ministry of Justice established the newly formed Commercial Courts in 2020, which have exclusive jurisdiction with respect to commercial disputes. The Commercial Courts Law mandates the parties to opt for an amicable settlement attempt before commencing litigation proceedings. This can take the form of any alternative dispute resolution mechanism such as mediation, conciliation, or adjudication. The Commercial Courts are increasingly interested in documented evidence that the party commencing litigation proceedings has attempted amicable settlement before commencing proceedings. Therefore, it is advisable for parties to agree to the amicable settlement mechanism of their choice to mitigate the high possibility of dismissal of the case.
The future of contract enforcement and dispute resolution in Saudi Arabia looks promising considering recent legal reforms. The codification of contract law through the CTL, the establishment of Commercial Courts, and the implementation of e-litigation and remote hearings are steps towards a more predictable, efficient, and cost-effective legal environment. These developments are likely to enhance the confidence of foreign companies in doing business in Saudi Arabia, fostering stronger and more reliable business relationships.
Selecting the right governing law and drafting dispute resolution clauses in contracts with Saudi counterparts requires careful consideration of various factors. Choosing Saudi law as the governing law can offer benefits such as alignment with local regulations, enforceability, and cultural familiarity. When drafting dispute resolution clauses, parties should consider the choice between Saudi courts and foreign courts, arbitration versus courts, and the selection of arbitration seats. Clear and specific clauses, consideration of language and legal representation, and ensuring enforceability are key to effective dispute resolution and maintaining strong business relationships.
Samer QudahPartner, Head of Corporate Structuring
Omar AlHumaidPartner
Sabeeha MoollaProfessional Support Lawyer
The Kingdom of Saudi Arabia is on the brink of a new era of economic prosperity. With the imminent implementation of its groundbreaking Investment Law on 7 February 2025 (the “New Law”), the Kingdom is poised for change.
This landmark legislation, aligned with Vision 2030 and the National Investment Strategy, is designed to attract global capital, stimulate economic growth, and solidify Saudi Arabia's position as a leading investment hub in the Middle East. The Kingdom aims to create a business-friendly environment that will empower both domestic and international investors by streamlining regulations, offering unprecedented incentives, and prioritizing investor protection.
Effective Date: 7 February 2025
Implementing Regulations: Coming into force simultaneously with the Investment Law.
Alignment with Vision 2030: This is a crucial step in realizing the Kingdom's ambitious economic diversification goals.
Investor-Friendly Environment: The New Law will introduce measures to enhance the ease of doing business, including streamlined procedures, reduced bureaucracy, and clear regulatory frameworks.
Excluded activities: The Foreign Direct Investment (FDI) Committee will issue a List of Excluded Activities annually, providing transparency and predictability for investors.
Strong Investor Protection: Prioritization of the rights and interests of investors, offering robust legal protections and dispute resolution mechanisms.
Regulation of investments: Article 9 of the New Law allows the Ministry to suspend foreign investments to protect national security, but such actions must be justified and follow a transparent process as detailed in the implementing regulations.
Comprehensive Service Center: This center will assist with all manner of procedural matters, facilitating communication between investors and the Ministry and ensuring that investors receive timely and effective support.
Key takeaways
The New Law cancels the previous Foreign Investment Law issued by Royal Decree No. (M/1) dated 5/1/1421 AH. This marks a significant shift towards a more integrated and unified investment framework.
It ensures equal treatment for both local and foreign investors. This change is expected to enhance the competitiveness of the investment environment and attract more foreign investments.
The procedures for establishing and managing investments, based on clear and objective criteria will be simplified.
Introduces a structured approach to granting investment incentives, based on clear and objective criteria. This is a departure from the previous law, which did not have a structured framework for providing incentives.
It provides stronger protections for investors, including protection from expropriation without fair compensation and the freedom to transfer funds. These provisions are more comprehensive than those in the previous law, which did not explicitly address these issues.
The New Law represents a significant step towards creating a more attractive and competitive investment environment in the Kingdom. By unifying the regulations for local and foreign investors, simplifying procedures, and enhancing investor protections, the law aligns seamlessly with the Kingdom's Vision 2030 and its National Investment Strategy. These changes are expected to increase investor confidence, bring in more investment, and promote economic diversification and growth in the region.
Adding to the wealth of legislative change in the Kingdom’s business environment are the updated Commercial Registration and Trade Name Laws, which will also be taking effect in 2025. We explore these in greater detail in a recently issued client alert: New Commercial Registration and Trade Name Laws Take Effect In 2025
(Disclaimer: Please note that this article is based on the draft Implementing Regulations that were available at the time of publication. These may change, and the final version of the Implementing Regulations will be released simultaneously with the Investment Law).
