Mixed views: A look at the new labour law

The most-discussed topic in Bahraini law presently is the introduction of the New Bahrain Labour Law, the Labour Law for the Private Sector Law No.36 of 2012 ("New Labour Law"). This law became effective from September 2, 2012; it repeals and replaces the old Labour Law for the Private Sector (No. 23 of 1976, as amended). Regulations implementing this law are also expected to follow soon after, which will become effective within six months of the date of their issue.

The New Labour Law is conforms more closely to international standards, and it aligns Bahrain’s domestic law with several of the Arab and international labour treaties and conventions to which it is a signatory that have come into effect since the introduction of the old Labour Law in 1976.

The long-awaited New Labour Law has been met with mixed views; employers and business are finding that the new changes incur additional costs, including more entitlements and time off for employees. On the other hand, employees are pleased with the changes because their rights have been expanded.

Despite the difficult conditions that Bahrain is currently suffering, in which many businesses have been compelled to scale down by cutting back on staff numbers, the New Labour Law grants employees considerably more rights. This may put further financial pressure on businesses in Bahrain, eventually compelling businesses to cut back further.

However, the New Labour Law has certainly introduced some positive changes, including further recognition of women’s rights, anti-discrimination rules and an expeditious framework for the resolution of labour disputes.

The New Labour Law has also introduced set compensation calculations for unjustified and unfair terminations, which vary depending on the type of employment contract. This provision is expected to result in fewer disputes actually being brought to the courts, and this should also reduce the number of frivolous cases that are filed by disgruntled employees.

COMPENSATION: Previously, the compensation an employee is entitled to in the event of his or her unfair dismissal or unjustified termination was calculated on the basis of custom and market practice. The old law did not specifically provide a set method of calculation. This made it difficult to resolve disputes between employers and employees without resorting to litigation, therefore lengthening the dispute resolution process between the parties and increasing associated costs.

One of the advantages of the New Labour Law is that it provides a clear mechanism for calculating compensation – we believe this is the reason we have recently witnessed many more out-of-court settlements. The law will free up the courts to deal with legitimate claims, as terminated employees will be compelled to seriously consider the personal costs of hiring lawyers when they have been paid their fair compensation as determined under the new regulations.

UNJUSTIFIED & UNFAIR TERMINATION: The compensation entitlements in the event of unjustified termination are as follows: Indefinite period of employment: If the employer terminates a contract of employment of an indefinite duration within the first three months from its effective date, the employee will not be entitled to any compensation. This guideline relates to the established probation period of three months and the right for either party to terminate the contract on giving the other one day’s notice during the first three months.

However, in the event that it is established that the termination during the first three months was an unfair dismissal in accordance with the definition of unfair (Articles [104] and [105] of the New Labour Law), then the employee will be entitled to compensation equivalent to one month’s wages.

If the employer terminates a contract of employment for an indefinite duration without cause, or for an unlawful cause after the first three months following the commencement of employment, the employee will be entitled to the equivalent of two days’ wages for each month of service. The minimum compensation shall be one month’s wage, up to a maximum of 12 months’ wages. Furthermore, if the termination is also considered to be a legally unfair dismissal, the employee would be entitled to a further one-half of the compensation determined for the unjustified termination aforementioned. It is important to note that when calculating the amount of compensation due, fractions of a month are deemed a complete month. Definite contract of employment: If the employer terminates a contract of employment of a definite duration without cause or for an unlawful cause, the compensation will be the equivalent of the wages for the remaining period of the fixed term.

However, the New Labour Law allows the parties to the contract to mutually agree to a lesser amount, provided that the agreed amount is not less than three months’ wages or the remaining period of the contract, whichever is less.

In the event the contract of employment was entered into for the completion of specific work and the contract was terminated without cause or for an unlawful cause prior to its completion, the employee would be entitled to the wage for the remaining period required for the completion of the agreed work (unless the parties agree a lesser compensation amount, provided it is not less than three months’ wage or the remaining period thereof), whichever is less.

Since the introduction of the New Labour Law and the different formulas used to determine the amount of compensation, we have witnessed many more employers switching to indefinite contracts rather than risk a larger compensation award under a definite-term contract.

The New Labour Law additionally recognises that employees who have worked for more than five continuous years with the same employer, irrespective of the type of contract issued, will be deemed to be employed under an indefinite contract.

LAWFUL TERMINATIONS: The New Labour Law has also provided for justified terminations where the old law was silent; in turn, this led to many cases being litigated through the courts. Poor performance: The New Labour Law now provides a specific provision which grants the employer the right to terminate an employee in the event of their poor performance. The right to justifiably terminate the employee is subject to the employer giving the employee a minimum notice period of 60 days for poor performance. The notice period is given in order to allow the employee a reasonable time – at least 60 days – to achieve the required level of performance prior to termination. Should the employee fail to comply or reach the required standard of performance, the employer may terminate the employee’s contract after giving him the required notice of termination as provided in the employee’s contract of employment. Termination pursuant to this provision will not render the employee entitled to any compensation. Redundancies: Under the old law, the term redundancy was not recognised. Compensation under the old law was uncertain, as the courts would determine levels of compensation taking into account all the circumstances surrounding the termination, as well as the market and the company’s customary practice. We therefore typically saw a very wide range of compensation awards being granted to redundant employees, making it difficult to anticipate the likely compensation that may be awarded for such terminations.

Since 2008 we have witnessed many companies suffer from the global financial crisis, which compelled them to cut back on their costs and ultimately led to redundancies. The New Labour Law allows an employer to terminate an employee in the event of the total or partial closure of their establishment, its scaling down or replacement of the production system, therefore affecting the size of the workforce.

However, such termination should take place only after giving the Ministry of Labour notice of such termination and the reasons for the termination 30 days prior to serving notice of termination on the employee. Adherence to such a provision will enable the employer to benefit from only having to pay half of the compensation that would ordinarily be awarded for an unjustified termination as provided hereinabove. Retirement age: Another major development under the New Labour Law is the provision providing for a retirement age, which is 60 years of age for both male and female employees. The termination of an employee’s contract on reaching the age of 60 would be construed as lawful and justified termination, not entitling the employee to compensation in accordance with the provisions of the law. However, if the parties to the contract mutually agree to continue the employment relationship after the age of 60 years, the New Labour Law allows for this to occur as well.

FEMALE EMPLOYEES: The provisions of the New Labour Law with regards to the rights of female employees are clearly more favourable than those of the old law. The old law specifically prohibited women from working during certain hours and in certain occupations (unless otherwise prescribed in an order by the relevant ministers); the New Labour Law does not impose such restrictions, unless otherwise prohibited pursuant to a resolution of the minister of labour. The default position has therefore been amended so as not to discriminate against females and permits them to work during any hour of the day and in any occupation unless provided otherwise. A non-discrimination clause has also been specifically inserted in the new law which provides that "female employees shall be subject to all the provisions governing the employment of employees without discrimination between them where their employment conditions are similar”.

Other enhanced rights for women include an increased period of maternity leave. Female employees were previously entitled to 45 days of maternity leave, whereas the New Labour Law now grants them 60 days. The period permitted for nursing has also increased to allow a female employee two one-hour periods per day to nurse her newborn up until her child reaches 6 months of age, after which she is entitled to a further two half-hour periods for nursing until her child reaches one year of age. The period for nursing under the old law was limited to only one hour per day up to two years after giving birth, on production of regular medical certificates which confirm that the female employee is still nursing her child.

Female employees have also been given the right to take up to 6 months without pay up to three times throughout their period of service with the employer for the purposes of caring for her child of not more than six years of age. The old law did not provide for such a right. It is feared that such new enhanced rights, which permit female employees to take considerably long periods of absence from work, may possibly result in the employment of fewer women.

WAGES & BASIC WAGES: The old law did not distinguish between the components of the employee’s gross wage and their basic wage. The New Labour Law does, however, and in turn this has caused a major impact on the calculation of employees’ end-of-service indemnity entitlements on the termination of their employment. Under the old law, end-of-service indemnity was payable on the gross salary, which included all the employees’ monthly allowances, in addition to their basic pay.

The New Labour Law, however, provides that an employee’s entitlements in relation to the calculation of his leaving indemnity payment are to be calculated only on the basis of the employee’s most recent basic wage, in addition to social allowance, if any.

The definition of “basic wage” is the consideration (or salary) fixed in the contract of employment, which is paid to the employee on a regular basis, in addition to any increments thereof. The indemnity calculation under the New Labour Law therefore excludes all the employee’s allowances, which were ordinarily calculated as part of the final indemnity payment.

This is seen to be a major advantage for employers, as the amounts payable to employees on their termination have been very much reduced, because they need not take employees’ additional allowances into consideration when calculating termination benefits.

LEAVE ENTITLEMENTS: Leave entitlements are as follows. Annual leave: The number of annual leave days to which an employee is entitled is a subject of much debate recently. The New Labour Law provides that an employee who has completed at least one year of service is entitled to annual leave on full pay for a period of not less than 30 days, accruing at the rate of two and a half days for each month (as opposed to 21 days increasing to 28 days after 5 years of service under the old law).

However, the provision fails to specify whether the 30 days are calculated on the basis of calendar days or working days, which has created much uncertainty among employers. The Cabinet of Ministers have recently, however, published a statement that construed “days” to be calendar days. Contingency leave: A provision was established under the New Labour Law which gives the employee a right to take leave on a last-minute basis in the case of an emergency calling for their urgent need to remain offduty. Such contingency leave may be taken for a period not exceeding six days during the year with a maximum of two days in each case and the same is set off against the employee’s annual leave days. Educational leave: As opposed to the default position where the employer has the right to schedule the employee’s annual leave days in accordance with the business’s requirements and conditions, an employee is given the right under the new law to schedule his leave in the event that he has to sit for an examination at any educational level (provided that notice of the same is given to the employer at least 30 days before the employee proposes to take such leave). Therefore, an employer is not entitled to deny the employee from taking his leave in the event that this provision applies. The previous law did not cover such circumstances. Sick leave: Employees now receive enhanced sick leave entitlements which have increased to 15 days’ sick leave on full pay, 20 days on half pay (previously 15 days) and 20 days on no pay (previously 15 days). The employee’s entitlements to sick leave on full or half pay may be accumulated for up to 240 days during the employee’s service (previously182 days).

SUMMARY DISMISSAL: Under the old law, Article 113 provided for reasons which justify a summary dismissal. On being summarily dismissed under the old law, the employee would forfeit his/her right to receive any notice period, compensation and end of service indemnity payments. However, under Article 107 of the New Labour Law, an employee who is summarily terminated for cause, while still not entitled to any notice and compensation, is nevertheless now entitled to receive full leaving indemnity entitlements, irrespective of the reason for termination.

LEAVING INDEMNITY: Employees not subject to the Bahrain Social Insurance Laws (expatriate employees and Bahraini employees with salaries in excess of BD4000 [$10,525]) previously received a reduced leaving indemnity if they resigned prior to completing five full years of service measured against what they would have received had the employer terminated their employment (unless the termination was for cause under Article 113 of the old law).

The calculation of leaving indemnity under the New Labour Law, however, would be the same regardless of who terminated or reason for the termination. Employees are entitled to half a month’s wage for the first three of years of service and one month’s wage for each year of service thereafter. The indemnity is payable pro-rata for incomplete years of service. We view this as an effort on behalf of lawmakers to apply fair treatment to employees on termination, without diminishing their rights in cases of voluntary resignation.

DELAYS IN SALARY PAYMENTS: Employers are required to pay their employees their wages on time each month. Failure to do so shall require the employer to compensate the employee for any delays in payment of monthly salaries at the rate of 6% per annum for wages that are delayed for six months or less from the date of entitlement. The rate of 6% shall be increased at the rate of 1% for each month's delay thereafter up to a maximum of 12% per year.

PENALTIES: Tougher penalties will be applied against employers who fail to comply with the new law. The fines range from BD50 ($131) up to BD1000 ($2631); imprisonment of up to three months is the punishment for certain offences, such as failure to implement adequate health and safety policies. The penalty shall apply for each breach and is multiplied according to the number of employees who are subject to the breach. It is worth noting that the Ministry of Labour are clamping down on repeat offenders, who will be subject to twice the penalty.

LABOUR DISPUTES & LITIGATION: Labour disputes under the old law were initially filed with the Ministry of Labour, who would mediate between parties in an attempt to amicably settle the dispute. Failure to reach a settlement would lead to the dispute being transferred to the Labour Court for determination, which could take several years before final resolution. The New Labour Law attempts to both minimise the number of cases that go through the courts (by setting calculations for compensation awards for certain terminations) and considerably decrease the length of time for determining such labour disputes.

The procedure for settling labour disputes has changed in that all claims must now be filed with the Labour Case Administration Office. A Labour Case Administration judge will hear the case and prepare a report in the hope of attempting an amicable settlement. In the event the parties do not reach an amicable settlement, the Labour Case Administration judge refers the matter to the High Civil Court who will hear the dispute on an urgent basis within two months from the date of filing the case.

However, subject to a resolution of the Labour Case Administration office chief, such period can be extended for an additional two months at the request of the case administration judge.

The New Labour Law requires the High Civil Court judge to hear the case on an urgent basis and to render its judgment within 30 days from the date of the first hearing. The High Court judge's decision is final, and the parties may only appeal to the Court of Cassation on matters of law.

Previously, the parties had a right of appeal to the Court of Appeal. At the time of drafting, it was envisaged that this entire process would not take any more than three to four months to complete.

However, from our experience of cases under the New Labour Law, it has actually taken approximately six months up to final determination. This is still a much faster system that will inevitably mean disputes being resolved expeditiously, and we expect to see considerably fewer litigious claims and more amicable settlements under the New Labour Law.