Improving contractual relationships to build an attractive job market

The new regulation will allow expatriate employees in Saudi the possibility to switch jobs if they wish to before the end of their contracts

Working late in a small office in Barcelona. Image used for illustrative purpose.

Working late in a small office in Barcelona. Image used for illustrative purpose.

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Saudi Arabia - The Labor Reform Initiative (LRI) announced by Saudi Arabia’s Ministry of Human Resources and Social Development last week is part of the Kingdom’s plan to create an attractive job market by improving contractual relationships between employees and employers.

It is yet another step taken to achieve the goals of the National Transformation Program: To develop human capital and empower people by fostering a competitive but fair working environment.

The initiative, which comes into effect March 14, 2021, will have a positive effect on the expatriate workforce in the Kingdom’s private sector, as it mainly deals with the rights of parties in a contractual relationship.

It will help foreigners acquire a residency status that is not tied to any specific employer or employment status — a key reform in the sponsorship system, bringing Saudi Arabia closer to labor market regulations in advanced economies. It will also ensure the protection of the rights of foreign workers in the Kingdom by enforcing a transparent contract system.

Once the new regulation is in place, foreign employees will no longer need their employers’ approval to join any other organization, as long as the former fulfill all contractual obligations.

Under the new initiative, worker-employer relationships will be based on a standard contract that will need to be certified by the government and that will allow workers to apply directly for services via an e-government portal, instead of needing mandatory approval from employers.

The new regulation will allow expatriate employees the possibility to switch jobs if they wish to before the end of their contracts, provided they inform their employers about their plans ahead of their resignation.

The exit and reentry visa reforms will allow expatriate workers to travel outside Saudi Arabia without their employer’s approval after submitting a request. The final exit visa reforms allow foreign workers to leave Saudi Arabia after the end of their employment contract without the employer’s consent. The employer will, however, be notified electronically of their departure.

Two government portals — Absher and Qiwa — have been designated for all the above-mentioned procedures.

The LRI outlines that employees must bear all consequences, financial or otherwise, if they break the employment contract.

This initiative will help reduce labor disputes that sometimes arise due to disagreements between parties to a contract.

Employers will also be required to digitally document employee contracts to reduce the disparity between Saudi workers and expatriates.

All these measures will help build an environment of trust, which is necessary for growth and prosperity.

The current sponsorship system leaves room for many legal violations in the transfer of sponsorship, exploitation of a Saudi sponsor, commercial cover-up, and immediate deportation of foreigners.

Many instances of exploitation have been reported in relation to the issuance of residency permits due to the associated material costs. Such incidents are high in the case of small and medium enterprises.

While some hold that abolishing the current system may lead to an increase of violations and may have little to no impact, as an employer would simply replace a sponsor, the digitalization of employment contracts and the strict enforcement of the new regulations are a step in the right direction. They will help reduce all sorts of exploitation and irregularities, whether committed by a Saudi or a foreigner. To this end, authorities should continuously review different scenarios to ensure that any loopholes are addressed.

• Dimah Talal Alsharif is a Saudi legal consultant, head of the health law department at the law firm of Majed Garoub and a member of the International Association of Lawyers. Twitter: @dimah_alsharif

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