Oman’s Long-awaited New Labour Law is Finally Issued
Haleem Amir MohammedSenior Counsel, Head of Litigation - Oman
Sabrina SaxenaSenior Counsel,Employment & Incentives
After several years in the making, the new Oman Labour Law (Sultani Decree No. 53/2023) (the “New Law”) was published in the Official Gazette on 25 July 2023 and came into effect on 26 July 2023. The New Law repeals and replaces the old labour law (Sultani Decree No. 35/3003) (the “Original Law”) and seeks to address changes in the work environment, align Oman labour relations with international best practices, and recognise the need for atypical and/or flexible working structures. The New Law is the most significant amendment to the Oman labour legislation since the Original Law’s enactment.
Private sector employers must reconcile their positions in accordance with the provisions of the New Law within six months from 26 July 2023 (i.e., by 25 January 2024) (the “Deadline”).
The New Law puts an end to a number of speculations and uncertainties that were being debated among the members of the legal and the business communities. We summarise several key changes in the New Law below.
Termination of unlimited and limited term contracts & compensation cap
The provisions of the New Law clarify that any termination of an unlimited employment contract must be for a ‘justified reason’. Conversely, where an employee is engaged on a limited term contract, the contract will terminate at the end of term (unless renewed). Contrary to the Original Law, the New Law provides that a limited term contract does not become a contract for an indefinite term even if renewed, unless the employment continues form more than five years. Instead, the term of the contract remains fixed for the same duration as the previous term.
While the reasons for terminating employment without notice and end of service gratuity largely remain the same, the New Law introduces minor adjustments. The period of absence from work because of assaulting the employer or the employer’s representative has been removed and the commission of an immoral act during business hours has been instead included as a legitimate reason to terminate an employee’s employment for gross misconduct.
Unlike the Original Law, the New Law provides for a 12 months’ gross salary cap for compensation if the court finds that the termination is unjustified and elected not to order reinstatement of the employee.
The New Law permits termination of employment if the employee fails the required level of competency. However, the employer is required to notify the employee of the employer’s concerns and provide the employee suitable period of not less than six months to reach the required level of competency. If the employee fails to reach the required level, the employer may terminate the employment relationship if notice is given to the Ministry of Labour three months prior to the date of termination. Where the terminated employee is an Omani national, the New Law imposes an obligation to employ another Omani national to replace the terminated employee.
The New Law clarifies that the termination of (i) an unlimited employment contract must for a ‘justified reason’; and (ii) a limited term contract terminates at the end of term unless renewed, meaning that where an employee’s employment is terminated during the term, they would be eligible for compensation for the remainder of the term not worked.
Unlike the Original Law, the New Law recognises redundancy as a valid reason for termination and provides an employer with the ability to terminate an employee’s employment contract for economic reasons related to the employer after meeting certain conditions and obtaining the necessary approval.
Upon (i) partial closing down of an establishment; (ii) reducing the size of its activity; and/or (iii) replacing one production system with another in a way that affects the size of the workforce, an employer may be entitled to justify the termination of certain employees’ employment. This being said, the New Law provides that care must be taken not to terminate the contract of an Omani national employee who possess the same competence and experience as a non-Omani. Similarly, to a termination for poor performance, the employer is required to notify the Ministry of Labour of a proposed termination three months prior to the date of termination. Where the redundancy involves more than two Omani employees, the employer will be required to comply with additional requirements, such as obtaining necessary approvals from the Omani authorities.
The New Law defines the term ‘economic reason’ as suffering financial losses for two consecutive years. This is separate to the redundancy position above. It’s essential to note that the mere failure to achieve profits or closure of company activity or branch due to feasibility issues does not qualify as a financial loss; rather, the employer must be able to adduce actual financial loss.
Any termination for economic reason must be preceded by obtaining approval from a committee to be established by the Ministry of Labour. The New Law does not provide for specific period for the committee to issue its decision on the application to be submitted in this respect. Decisions issued by the committee rejecting or granting approvals are final unless objected against before the Court of Appeal within 30 days of the decision. If the committee is satisfied of the existence of an economic reason, the committee has the right to explore with the employer alternative options instead of termination of employment (such as redeployment and so on).
An important change for employers to be aware of from a financial liability perspective is that the New Law increases the end of service gratuity benefit for expatriate employees from 15 days' basic salary for each of the first three years of service to 30 days’ basic salary for each year of service.
Additionally, the New Law reduces working hours and provides cap for compensation if the termination of an employment contract is found to be ‘arbitrary’ , and reinstatement of the employee is not ordered by the Labour Court in the event of a dispute.
The New Law introduces a number of significant changes to an employee’s leave entitlements:
Although the number of annual leave days remains unchanged, employees have the right to carry over no more than 30 days of leave balance (save as where the employer requires the employee to work for business operation purposes resulting in the employee being unable to take his annual leave). Although emergency leave (as provided in the Original Law) has been repealed, new types of leave have been introduced and an employee’s entitlement to certain types of leave have been increased. For example, employees may now request, and (subject to the employer’s agreement), ‘special’ unpaid leave.
Additionally, female employees may request unpaid leave for up to one year to provide care for their child. Moreover, male employees are now entitled to paternity leave for seven days.
The New Law also increases the duration of the maternity leave and sick leaves significantly.
Importantly, the New Law reduces the daily working hours from 8.5 hours to eight hours and consequently reduces the weekly hours from 45 hours to 40 hours.
During the validity of the employment contract, the New Law prohibits employees from engaging in any business activity that is similar to the activity or activities undertaken by their employer.
Additionally, the New Law introduces regulations in regard to an employee’s non-compete obligations post-employment. If the employee is engaged in a role that may result in the employee having the ability to compete with the employer as a result of confidential and proprietary information obtained by the employee arising from their employment, the New Law provides that both the employer and employee may agree to sign a non-compete agreement (which should comply with various conditions set out in the New Law).
The New Law imposes various obligations on employees, including refraining from accepting gifts, commissions, or money from third parties, withholding original documents without approval from their employer, and mistreating or disrespecting colleagues.
In addition, the New Law includes a dedicated chapter to regulate the settlement of collective labour disputes, strikes, and lockouts. It also repeals a whole chapter in the Original Law that dealt with employing workers in the mine and quarry sector. At this stage, it remains to be seen as to whether the New Law will be applicable to this sector or whether separate regulations will be issued.
The New Law overhauls the legal framework for employment in Oman and introduces significant changes employees’ entitlements, which employers will have to plan for administratively and financially. The New Law gives employers additional rights for terminating employment in limited circumstances. It may take some time to test the provisions of the New Law before Oman courts and build a jurisprudence which is based on judicial precedents issued by Oman courts.
Employers should be aware of the provisions of the New Law, and ensure that employment contracts, internal policies and procedures and other employment related documentation are reviewed and updated ahead of the Deadline to ensure compliance with the New Law. This process can be administratively burdensome, especially for large organisations. As such, it is important for employers to proactively consider the changes that need to be made in order to provide sufficient time to implement the changes amongst their workforce. It is important to ensure that employees feel supported throughout this process in order to effect the changes smoothly and efficiently.
We look forward to working with you to ensure that you are fully compliant with the New Law, whether in respect of reviewing and updating employment contracts, handbooks and policies, delivering presentations or a workshop to staff to explain the changes to the New Law, and how the New Law will affect their employment.
For further information,please contact Haleem Amir Mohammed Ahmed.
Published in August 2023.