A look at Bahrain's recent legislation on employment

I. A Review Of The Labour Law

It has been almost two years since the introduction of the Labour Law for the Private Sector Law No.36 of 2012 (the “New Labour Law”). This legislation repealed and replaced the more archaic Labour Law for the Private Sector – Law No. 23 of 1976 – as amended (the “Old Law”). The New Labour Law is seen as a milestone for the private sector by the Ministry of Labour, as it was hoped that its introduction will revitalise the private sector labour market, whilst further enhancing the rights of employees and simultaneously protecting employers’ rights.

However, it is important to note that the New Labour Law imposes onerous provisions on employers and has given rise to additional costs and strain on the operation of their business. The most significant changes are the provisions relating to employees’ leave entitlements, their end-of-service leaving indemnity, the rights of female employees and penalties. These sweeping changes have given rise to much controversy since the law’s implementation. The impact of the New Labour Law will be examined by discussing the aforementioned changes in turn.

Leave Entitlements: Annual Leave: The change in the number of annual leave days to which an employee is entitled has been the subject of considerable debate over the past two years. The New Labour Law grants an employee who has completed one year of service an entitlement of 30 days, accruing at the rate of 2.5 days each month. The Old Law provided 21 days increasing to 28 days following five consecutive years of service. The provision governing annual leave fails to stipulate whether the 30 days are calculated on the basis of calendar days or working days which has inevitably given rise to great uncertainty and distress among employers, who are concerned that their companies would suffer if their staff were given 30 working days off every year, in addition to the generous public holidays and weekends. On April 14, 2013, the Cabinet of Ministers reached a decision that the reference to “days” should be construed as “calendar days”, until this point is subjected to legal clarification.

Meanwhile, pending the resolution of this uncertainty, the advice we provide is to apply 30 calendar days, unless the employee has a contractual right to a higher leave entitlement, in which case that must be applied, as the New Labour Law does not permit the employer to diminish any of the employees already established legal and contractual rights.

Contingency Leave: This is an addition to leave entitlement under the New Labour Law. This provides employees the right to take leave on a last-minute basis in the case of an emergency causing an urgent need for the employee to remain off duty. Such leave may be taken for a period not exceeding six days during the year, with a maximum of two days in each case. However, the leave taken will be deducted from the employee’s annual leave days, reducing any additional costs on employers. Nevertheless, this new entitlement could still hinder an employer’s business, as an employer can take such leave on short notice, leaving the employer with the burden of finding a replacement to cover the workload, and thus impacting on business operations. 

Educational Leave: Educational leave provides for an employee the right to leave for the purposes of sitting an examination at any educational level, subject to the employee giving 30 days’ advance notice. This provision is a further burden on employers.

Sick Leave: The increase of sick leave entitlement allowing 15 days of sick leave on full pay and 20 days on half pay also increases costs for employers, coupled with the burden of making employees cover provisions to ensure business operates to the best standards possible, despite the reduced workforce.

Female Employees: The New Labour Law enhances the rights of female employees and replaces the archaic views under the Old Law to ensure that women are placed on equal footing with male employees, as they “shall be subject to all the provisions governing the employment of workers without discrimination between them where their employment conditions are similar” (Article 29 New Labour Law). The New Labour Law is thus arguably more aligned with international standards and better equipped for modern day society.

Furthermore, the New Labour Law has increased paid maternity entitlement from 45 days to 60 days. It has also increased the permitted period for nursing, allowing women two one-hour periods per day to nurse their newborn until they reach the age of six months, at which time a female employee is entitled to a further two half-hour periods for nursing, until the child reaches one year of age. In addition, female employees are permitted to take up to six months without pay up to three times throughout their period of service for the purposes of child care, until the child reaches six years of age.

These enhanced rights for female employees have led to considerable concerns for employers. The increased maternity period means employers must continue to finance women’s paid leave for a longer period, which could inevitably prove to be a costly endeavour for employers. Furthermore, females could take longer periods of absence, requiring employers at short notice to replace their female employees temporarily. Whilst the New Labour Law seeks to enhance female rights, there is an inherent risk that this provision may backfire by making employer’s reluctant to employ females, especially if they have young children. Nonetheless, there is the argument that this provision will allow female employees to strike a balance between child care and their employment, with many female workers being able to successfully hold down full time positions whilst also taking care of their family.

Leaving Indemnity & Summary Dismissal: Under the Old Law, employees dismissed summarily under Article 113 were not entitled to any leaving indemnity entitlements; however, the New Labour Law now allows an employee who has been terminated for a justified cause under Article 107 to be entitled to leaving indemnity.

The New Labour Law has increased protection for all employees, as the calculation of leaving indemnity is the same regardless of who terminated the contract, length of service, or reason for termination. We are of the view that the reasoning behind this change is to apply fair treatment to employees upon termination, without diminishing their rights in cases where an employer may contemplate summary termination of employment for cause in an attempt to avoid payment of leaving indemnity.

Penalties: Another change in the New Labour Law that has a considerable effect on employers is the imposition of tougher penalties against employers who fail to comply with the New Labour Law. Companies are being warned to strictly implement the provisions of the New Labour Law or risk being subjected to tough penalties. The fines range from BD50 ($133) to BD1000 ($2650) and imprisonment of up to three months for certain offences. Furthermore, the penalty shall apply for each breach and is multiplied according to the number of employees subjected to the breach. It also imperative to note that the Ministry of Labour is clamping down on repeat offenders, who will be subject to twice the penalty. Such provisions, whilst heavily favourable to employees, are placing a significant burden on employers and their businesses. 

Conclusion: It appears that the New Labour Law heavily favours the interests of the employee over that of the employer. The provisions discussed arguably raise a significant burden on employers financially and in terms of their business operation. Nonetheless, the New Labour Law has also introduced some positive aspects namely, providing a clear mechanism for calculating compensation upon termination, leading to an increased number of out of court settlements taking place and thus reducing litigation costs for employers. Overall, the aim of the New Labour Law is to ultimately introduce more efficient and effective employment regulations that are in line with current international standards and best practices. It is also expected that fewer disputes will be processed through the courts, which should in turn reduce the number of frivolous cases filed by disgruntled employees. 

II. A REVIEW OF RESIDENCY IN BAHRAIN

Self-sponsorship Scheme for Expatriates in Bahrain: Bahrain pioneered the Middle East’s oil production in 1932. However, aware of the new resource’s finite nature, the kingdom sought to diversify its economy at an early stage by moving beyond traditional industries such as pearl diving and fishing. Today, Bahrain is recognised as a leading regional financial centre with a highly regarded regulatory system. Without a doubt, the journey thus far has been highly influenced by the influx of foreign professionals and experts who together with Bahrainis invested their time, efforts and dedication to bring the kingdom to where it stands now. The island hosts a diverse, multicultural population that, according to the Central Informatics Organisation Census in 2010, totals 1.23m, 54% of which are expatriates.

Bahrain is a liberal state for the region, and it offers a vibrant blend of traditional and modern social mores. The standard of life here is quite high and it is not uncommon for expatriates to want to continue living in Bahrain after they retire. This article aims to assist expatriates considering their options for continued residence in Bahrain. The Ministerial Order No. 74 of 2007 (the “Order”) governs the selfsponsorship residence regime. In accordance with the Order, a residence permit can be issued to foreigners who either, (i) have retired from work; (ii) own free-hold real estate in Bahrain; or (iii) have investments in local companies. These three options and their conditions are discussed further below.

Retirement Residence Permit: Expatriates who have worked in Bahrain, or in any other GCC country, are eligible to apply for a residency permit and remain domiciled in Bahrain as retirees, provided that their duration of work was at least 15 years. Applicants can have worked in the private or public sector. This policy allows married couples to remain in the country without local sponsorship. However, their adult children will continue to need such sponsorship. To be eligible for this permit, expatriates must meet the following conditions:

• The applicant must have a place of residence in Bahrain. For this purpose, the applicant may own a residential property or have entered into a lease agreement for a residential property in Bahrain.
• The applicant must have a source of income sufficient enough to support him and his dependents.
• The applicant must have a fixed deposit of at least BD5000 ($13,250), or an equivalent amount in another currency, in a Bahraini financial institution. This is required to be confirmed by a certificate from the financial institution.
• The applicant and his dependants must have medical insurance.
• The applicant must not have any criminal record.

This is to be supported by a character certificate to be issued by the Criminal Investigation Department (CID).

Property Ownership Residence Permit

An expatriate may be issued an entry visa and residence permit under personal sponsorship by virtue of owning a residential property in Bahrain, provided that the total value of such a property is not less than BD50,000 ($132,500).

The value of this property must be supported by a certified copy of the property documents confirming that value of the property to be BD50,000 ($132,500) or greater. The purchase of the property may be facilitated by a finance facility from a Bahraini financial institution. Further, the property may be mortgaged as security in favour of the lending financial institution.

Investment Residence Permit: Similarly, an expatriate may be issued an entry visa and residence permit under personal sponsorship by virtue of his or her investments in any financial institution or other corporate entity in Bahrain, provided that the invested capital is not less than BD100,000 ($265,000) or an equivalent amount in another currency. The investment can be made in any company which is involved in the business of tourism, health, education and training, among other sectors, or in any investment project established in the kingdom. The investment must be supported by a certified copy of the company’s constitutive documents which confirm the applicant’s shareholding to the prescribed extent.

Furthermore, the applicant must also have a place of residence in the kingdom. For this purpose, the applicant may own a residential property or have entered into a lease agreement for a residential property in Bahrain.

To be eligible for a Property Ownership or an Investment Residence Permit, expatriates must meet the following conditions:

• The applicant must have a fixed deposit of at least BD15,000 ($39,750), or an equivalent amount in another currency, in a Bahraini financial institution. This is required to be confirmed by a certificate from the financial institution. This confirmation is required to be submitted after every six months and at the time of renewal of the residence permit.
• The applicant must have a source of income sufficient enough to support himself and his dependents which shall not to be less than BD500 ($1325) per month.
• The applicant and his dependants must have medical insurance.
• The applicant must not have any criminal record.

This is to be supported by a character certificate issued by the Criminal Investigation Directorate. While the application requirements may appear to be straightforward, these permits come with their own set of inherent issues. Firstly, these permits may be revoked for a variety of reasons. Examples include public security and order, national interest, applicant’s reliance on false information for the residence permit and non-compliance with any of the initial conditions of the application. Secondly, although they are renewable, these permits are only valid for a period of two years. Thereafter, and subsequently after every two years, the applicant has to apply for renewal. In terms of the documentation requirements and timeline, the renewal process is as involved as the initial application. The periodic nature of resident permit extensions and the risk of non-renewal is a source of concern for applicants, especially those with long-term investments in the country.

III. A REVIEW OF CORPORATE LAW

Distributorship Agreements: To help promote foreign investor confidence and Bahrain’s “business friendly” credentials, the kingdom replaced its main law of 1975 governing distributorship arrangements, the Commercial Agencies Law promulgated by Legislative Decree No. 10 of 1992 as amended by Legislative Decree No. 8 of 1998 and Legislative Decree No. 49 of 2002 (“Agency Law”).

Following the introduction of the Agency Law, King Hamad bin Isa Al Khalifa launched Economic Vision 2030 in 2008 to provide a clear direction for the continued development of Bahrain’s economy. The Agency Law is part of a larger legal framework intended to support the three guiding principles of Economic Vision 2030, namely: sustainability, fairness and competitiveness.

The Bahraini Commercial Agent: Commercial agents under the Agency Law must be Bahraini individuals or Bahraini companies with at least 51% Bahraini ownership. Thorough due diligence of a potential agent should be carried out. If the commercial agent is a natural person, he or she must:

• Be a Bahraini national;
• Not have been convicted of a felony relating to honour or integrity or any economic crime unless he or she has been reinstated; and
• Not have been adjudged bankrupt unless he or she has been reinstated. If the commercial agent is a corporation it must:
• Be validly incorporated and registered in accordance with the applicable laws, rules and regulations in Bahrain;
• Be licensed to carry out of all or some of the business activities under the Agency Law and the activities covered by the agency agreement;
• Be a majority-owned Bahraini company (no less than 51%);
• Have its main office address in Bahrain; and
• Hold a valid commercial registration with no pending violations.

The Agency Agreement: The Bahraini commercial agent must register its agency agreement with the Commercial Agencies Register at the Directorate of Company Affairs in the Ministry of Industry and Commerce. Any unregistered agency agreement shall not be recognised by the Agency Law.

The agency agreement must be written and must include, without limitation, the names and nationalities of all the parties, goods and/or services that are covered by the agency agreement. It must also define the term of the agreement, the respective rights and obligations of the parties, a termination procedure, and any special terms and conditions that have been agreed upon by the parties. Termination: Two important questions for foreign investors are: How can I terminate my distributorship agreement? And what liability will I be exposed to if I do? Parties are permitted to terminate a distributorship agreement either with a clear cause or for convenience, but in either case, termination by a party of a registered agency agreement shall trigger the right for the other party to claim compensation under the Agency Law.

When claiming termination compensation, if the claimant is a locally licensed agent, it may be entitled to receive compensation if it can prove that its business activities have resulted in an obvious success in promoting the principal’s products in Bahrain and that the agent has been prevented from making a profit due to the principal’s termination of the agreement. It is difficult to determine the amount of compensation that the courts may award as each case is decided on its own merits.

IV. REVIEW OF ANTI-BRIBERY LAWS

Anti-Bribery Laws Recently Extended to the Private Sector in Bahrain: Up until February 14, 2013, under the Penal Code, the offence of bribery had been limited to public sector workers and officials. Almost a year ago, the Bahrain legislature introduced Law No. 1 of 2013 with Respect to Amending Certain Provisions of the Penal Code, promulgated by Legislative Decree No. 15 of 1976 (the “Amendment”), which detailed that the offence of bribery had been extended to the private sector. Bahrain’s Penal Code, promulgated by Amiri Decree No. 15 of 1976 (the “Penal Code”), criminalises bribery of civil servants in public service, defined as:

• Persons in a position of authority and staff of ministries, departments and local administrative units;
• The armed forces personnel and servicemen;
• Members of councils and public representative units (whether elected or nominated);
• Every person authorised by a public authority to perform a particular task to the extent of the duties entrusted;
• Chairmen or members of board of directors, managers and all staff of public institutions and organisations; and
• Chairmen and members of board of directors, managers and staff of units belonging to public institutions and organisations.

Term and nature of the relevant employment as well as remuneration do not have any bearing on the offence of bribery. Subsequent to the Amendment, the law was extended to criminalise bribery in the private sector, and persons subject to anti-bribery laws now include:

• Workers who are defined as every natural person employed for a wage of any kind and under the employer’s management and supervision;
• Every person who does work or provides a service in any capacity without being under the management and supervision of the person for whom he performs the work or service;
• Private corporate persons; and
• Boards of directors, boards of trustees, chairmen, deputy chairmen and all members of the board irrespective of designation or formation.

Under the Penal Code, as amended, it is now an offence to offer gifts or privileges to civil servants, company employees, board members, or corporate trustees of a private corporation, and it is illegal for them to accept the same, with consideration for the purpose of doing an act, or omitting to do an act, involved in their duties, or a promise to give a gift or privilege of any kind with consideration to performing work or abstaining from performing the same, in breach of their duties or in a manner detrimental to the interests of the employer or firm.

It will be considered immaterial whether the official, employee, board member or corporate trustee actually intends to perform or abstain from performing the act in question, and whether the act or omission does not constitute part of their duties, even if the perpetrator has alleged or wrongly believed that it was within their duty, and whether the bribe has been demanded or offered after having completed the act or omitted any action in violation of the duties of their office, or in relation to corporations, in a manner detrimental to the interests of the employer or private corporate person. Sanctions: An official, employee, board member or corporate trustee who asks for or accepts a bribe for acting or omitting to act in relation to his duties shall be liable for a term of imprisonment not exceeding 10 years. Offering a bribe to an employee, board member or corporate trustee is also punishable by imprisonment not exceeding a term of 10 years, although offering the same to an official in the public sector is punishable by imprisonment limited to a maximum term of three years.

Apart from confiscation of the bribe, fines shall also apply equivalent to the amount of the bribe, requested, accepted, promised or offered, subject to a minimum fine of BD100 ($265) in the public sector and a minimum of BD500 ($1325) and maximum of BD10,000 ($26,500) in the private sector.

Conclusion: The introduction of the Amendment is a large step towards the prevention of bribery and corruption. The Amendment brings Bahrain in line with other developed countries, which are perceived to have more sophisticated anti-bribery and anti-corruption legislation. The Amendment has filled a gap which had previously existed under the Penal Code, whereby prior to the Amendment, sanctions on bribery were limited to the public sector. Thus, in extending such sanctions (even somewhat stricter sanctions in some parts) to the private sector, the Amendment has provided a better legal framework to curtail bribery on a wider scale, which in turn serves as a deterrent. Furthermore, the enactment of the Amendment introduces and reinforces the anti-bribery culture in corporations.

In 2012, prior to the Amendment, Transparency International ranked Bahrain as 53rd out of 176 countries and scored a 51 on a scale of zero to 100, where zero indicates a country is perceived as highly corrupt and 100 means it is perceived as very clean. In 2013, after the Amendment had been effected, Bahrain was ranked 57th out of 177 countries and scored a 48 on the same scale.

In this regard, it may be said that there is still much work to be done and that alongside improving the legislation, a competent investigating authority is needed for more effective and efficient investigation and enforcement of crimes related to corruption and bribery solely. Pursuant to Law No. 16 of 2002, as amended by Law No. 49 of 2010, the National Audit Court of Bahrain is currently the organisation responsible for the enforcement of anti-bribery laws in the public sector, and it independently investigates suspicious activities and reports its findings to the Public Prosecution Office for prosecution. Furthermore, a new agency is in the process of being formed, the Anti-Corruption Authority, which will be responsible for the investigation and prosecution of offences related to corruption and bribery. Bahrain continues its efforts to combat corruption, and the Anti-Corruption Directorate of the General Directorate of Anti-Corruption and Economic and Electronic Security launched the National Anti-Corruption Campaign in June 2014. This is part of the Ministry of Interior’s strategy to support community partnerships and interactions with different segments of society to combat corruption and enhance awareness of its dangers for individuals and society.