Tuesday, December 30, 2014

Restructuring an Entity: The Right to Transfer Employees from a Group of Entities under Omani Law

Generally as a matter of Omani law, an Employer (as defined by the Oman Labour Law, as promulgated by Royal Decree 35 of 2003 (“OLL”) is entitled to restructure and/or re-organise its business and consequently the workforce, for economic, technical or structural reasons. Further a Supreme Court decision in Oman has held that an Employer has the absolute power and authority to reorganise its business, be responsible for the management of the same for the realisation of profits therefrom and to assume responsibility for any failure of its business.

The OLL does not prescribe any formal criteria to be followed in respect of restructuring or reorganizing a business. If as an example, pursuant to a decision of the current shareholders of Entity A, Entity B and Entity C, restructure their ownership to incorporate a new Entity D, employees of Entity A, B, or C may be transferred to Entity D.

Responsibilities of the Employer

In continuation of the example above, if employees are to be transferred to Entity D, their pre-existing contracts of employment would need to be terminated and the employees would need to be hired under new contracts of employment by Entity D. In order to safeguard the Employer’s interest and mitigate any legal claims that may arise in the future, it is recommended that the previous Employer obtain written consent to the transfer from each employee.

It is worth highlighting that as per Article 47 of the OLL, in the event of a merger, dissolution or liquidation of a company, the employment contract shall remain existing and the successor company shall be jointly liable with the previous Employer for discharging all obligations prescribed by law, subject to the existing rights of the employee.

Transferring employees in line with Omanisation

Companies registered under Omani laws are subject to “Omanisation” requirements which set the percentage of Omani nationals that the company must employ and the applicable training requirements. The percentage of Omanis to be employed depends on the industry in question and the positions to be filled. The Ministry of Manpower (“MOM”) is adjusting the respective Omanisation quotas sector-wise on a regular basis. An Employer should seek approval from the MOM prior to the transfer and ensure that both the previous Employer and new Employer remain compliant with the Omanisation requirements subsequent to such transfer. The OLL provides that labour clearances to Employers and labour cards to employees will only be issued, conditional upon the following:

  1. Omani’s are not available for employment for the required positions or professions for which the labour clearance is sought;
  2. The Employer has achieved the prescribed percentage of Omanisation;
  3. The expatriate employee possesses professional competence, technical skill or qualifications required by Oman;
  4. The expatriate employee enters Oman legally after satisfying the conditions set out in the Expatriate Residence Law of Oman, as promulgated by Royal Decree 16 of 1995 (as amended);
  5. The expatriate employee is medically fit and is not suffering from any infectious diseases or short-terms ailments;
  6. The expatriate employee has entered into a contract of employment with the Employer; and
  7. The prescribed fee for labour clearance and labour card has been paid.