Saudi Nitaqat initiative’s new nationalisation targets present challenges for employers

Employment law expert Sarah Lawrence discusses Saudisation and the new rules on getting approval for terminating employment

The Kingdom of Saudi Arabia has been grappling with unemployment issues for a number of years. With more than 60 per cent of the Kingdom’s population aged 20-39 and with a high unemployment rate of approximately 11.6 per cent, the challenge is to ensure the job market is protected for future generations of local nationals.

To help with this, the Ministry of Labour and Social Development has proposed taking an even more stringent approach with its Nitaqat program.

Nitaqat was first introduced back in 2011 to require organisations operating in the Kingdom to meet certain Saudisation percentages to be able to also recruit expatriates to work in Saudi Arabia. There have been several discussions in recent months regarding how Nitaqat can be revamped to meet its aims of increasing work and training opportunities for the Kingdom’s own local nationals.

In the summer of 2016, it was proposed that a new ‘balanced Nitaqat’ would be introduced where organisations would effectively be given more credit for employing Saudi nationals into senior and well-paid positions and for employing female Saudi nationals.

However, this proposal has not yet been implemented. Instead, with effect from August this year, organisations in a number of sectors (including, in particular, banking and finance and information technology) will be required to adhere to much stricter Saudisation percentage targets to remain able to obtain new work visas for expatriates.

The percentage increases differ between sectors and depend on the overall number of employees within each organisation. Going forward, Nitaqat will also apply to businesses with more than six employees (previously it was more than 10) and changes have also been proposed to the sizing classification of employers with the introduction of varying degrees of ‘small’ and ‘medium’ organisations and higher percentage targets for those organisations falling into the larger end of the category. Businesses with operations in the Kingdom should evaluate their current number of Saudi national employees and check their compliance against the new percentage requirements.

Labour authority approval for the termination of Saudi nationals

New legislation has also recently been introduced in the form of Ministerial Resolution No. 50945, which came into immediate effect earlier this year. The new resolution requires organisations to seek labour authority approval for the termination of Saudi nationals for certain ‘no fault’ dismissals.

Employers with more than 50 employees in the Kingdom will be required to seek approval for the collective terminations of local nationals. We understand ‘collective terminations’ are those involving one per cent of the total number of workers at the company or 10 or more employees being terminated within a rolling 12-month period.

In seeking approval from the labour authorities to terminate local nationals in these circumstances, organisations will need to provide supporting financial information to justify such termination(s), demonstrate the steps taken to avoid the dismissal(s) and be able to justify why a Saudi national is being terminated over any expatriate workers engaged to carry out the same or a substantially similar role.

Importantly, organisations need to bear in mind the longer time scales for completing termination processes that this new legislation could cause, bearing in mind that the labour authorities have to be notified at least 60 days before any termination can take place and the authorities then have at least 45 days to consider the position.

The labour authorities could also outright reject termination requests in respect of local nationals, which could render the dismissals unlawful, leaving employers liable to pay arbitrary dismissal compensation.

Sarah Lawrence is a partner in the labour and employment practice at Squire Patton Boggs in Dubai.

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