Is Salary Reduction Permissible Under the Oman Labour Law?

General Overview

In the current challenging economic climate, many companies in the region are not only working towards maximizing their earnings but also trying to reduce costs whilst retaining their valued employees. One of the many ways that some of the companies are looking to reduce their operating costs is by reducing the financial package and benefits of various employees.

The Omani Labour Law (promulgated by Royal Decree 35/2003, as amended) is the primary law regulating employment-related issues (the “OLL”); the OLL mainly sets out specific article(s) on the obligations and the duties of the employers towards the employees’ rights and benefits in the workforce.

Whether Salary Reduction is Permitted under the OLL

Article 5 of the OLL provides that all employers shall at least maintain the minimum standards and conditions of employment set out in the OLL. The standards and terms of service under which the worker was employed before the coming into force of this law shall not be reduced if the worker continues in the service of the employer after it has come into force.

Based on the interpretation of the law, it is clear that demoting an employee in any form may be construed as a violation of the OLL which states that benefits, once awarded to an employee, may not be reduced or taken away. Consequently, reducing the salary of an employee or demoting him or her in any form, e.g., by changing their designation or reducing their grading, may be interpreted as reducing the overall financial package/benefits for the purpose of the OLL.

However, in practice, many companies in this jurisdiction may generally seek a written approval from the employee prior to salary reduction. This may reduce the potential for claims that may arise or can be filed by aggrieved employees. Therefore, in order to safeguard a company’s best interests, it is prudent for a company to first discuss, on a one to one basis, any potential salary reduction with the relevant employee. If the employee agrees to the change, the company should seek to obtain a written confirmation of the same from each such employee. This, however, is not a guarantee that the written confirmation from the employee would be construed by the Ministry of Manpower or the Omani courts as the employee waiving his or her rights to remedy for breach under the OLL.

Further, it is advisable for companies seeking to reduce employees’ salaries to discuss the company position and intention with the relevant governmental authority, i.e., Ministry of Manpower, and obtain its prior written approval.

In conclusion, companies in Oman are generally not entitled to reduce an employee’s benefit once granted. In practice, the company may reduce the employee’s benefits, if it has first received a written undertaking to do so from the relevant employee. However, there is no guarantee of how Omani courts may construe such letter of undertaking, although obtaining the signed consent of the relevant employee may reduce the potential claims that may arise or can be filed by the affected employee.