An issue in Oman which can cause many problems is the simple letter offering employment. To minimise these problems, it is important to bear several points in mind.
First, it can be helpful to make offers of employment time-limited, so that the recipient of the offer must decide whether to accept the offer within a reasonable timeframe, and cannot argue that the offer is still existing many months after the offer was made.
Furthermore, it is important to explicitly state in the offer letter that the offer of employment is subject to the fulfillment of certain standard conditions, such as the employee’s completion of a three-month probationary period (as set out in Oman’s Labour Law, Sultani Decree No. 35/2003), a reference check by the employer, and the employee’s passing of a medical examination.
In addition, it may be helpful to explicitly list in the employment offer letter examples of employee misconduct which would be grounds for fair and justified dismissal of the employee pursuant to the Labour Law.
The employment offer letter should be signed by both the employer and the employee before the employee begins work.
Tuesday, April 12, 2011
Focus on Litigation: Employment Letters
Monday, October 11, 2010
Focus on Labor Law: Fixed-Term Employment Contracts
For most companies, entering into contracts that are well drafted and carefully negotiated is key to carrying out their business smoothly and successfully. Often, some of a company’s most important contracts are those with its own employees.
Employment contracts can be of indefinite duration or for a fixed term. As this article discusses, while employment contracts are typically of indefinite duration, fixed-term contracts can offer companies distinct advantages in some cases.
Employment Contracts of Indefinite Duration
In the Sultanate of Oman, as in other countries, employment contracts are typically entered into for an indefinite duration. This embodies the company’s and the employee’s shared good-faith intention to form a lasting relationship in which the employee is committed to the company, and the company is committed to the employee for the long term.
The difficulty for the company can be that, if the employment relationship sours or the economic viability of the business turns down, terminating an employee may often require more than simply providing the required notice. (The Omani Labor Law specifies that the notice period shall be a minimum of 30 days for workers employed on a monthly basis, or a minimum of 15 days for all other workers. The Labor Law further provides that if an employment contract specifies a longer notice period than the statutory minimum, the longer notice period specified in the contract shall apply). Beyond giving the required notice, companies may often find themselves facing unfair dismissal suits by the terminated employee.
There are a number of ways that the company can successfully defend against an unfair dismissal suit. If the employee has committed acts considered by the Omani Labor Law to be gross misconduct acts – including using a false identity, intoxication or assault at the workplace, or heavy absenteeism – the company may terminate the employee without having to pay damages (indeed, the Omani Labor Law provides that in the specified cases the company need not provide notice or pay end-of-service gratuity either). Furthermore, companies often succeed in defending against unfair dismissal claims by arguing that lay-offs in a money-losing division were economically necessary.
However, notwithstanding the foregoing, Omani courts are generally inclined to be highly protective of employees. And whether they would ultimately win or lose, most companies try to minimize the risk of unfair dismissal suits being brought against them in the first place. One way to mitigate this risk is by using fixed-term contracts.
Fixed-Term Employment Contracts
The Omani Labor Law allows for employment contracts to be for a fixed rather than unlimited duration, and explicitly provides that fixed-term contracts shall be effective, stating “The contract of work shall terminate [upon] … the expiry of its period or completion of the work agreed upon.” The Omani courts, in turn, are generally very respectful of fixed-term employment contracts. While the courts often hear unfair dismissal cases brought by employees whose contract of indefinite duration was terminated, the courts are unlikely to countenance unfair dismissal claims by employees who were asked to leave the company upon the expiration of their fixed-term contracts. Although the Omani Labor Law in general favors employees, its respect for fixed-term arrangements is one of the areas where the law is protective of employers.
Although they can be used in a variety of circumstances, fixed-term contracts are naturally most useful for hiring employees that will be working on a single, discrete project with a well-defined timeframe. Fixed-term contracts may also be especially useful to foreign companies that only plan to operate in Oman for a limited period of time. By lowering the risk of unfair dismissal claims, fixed-term contracts could help to protect against overhanging liabilities that could interfere with the company’s plans to smoothly conclude its affairs in the Sultanate.
There are subtle but important nuances to the Omani Labor Law, such as the requirement that a fixed-term employment relationship must be severed at the expiration of its term, lest a continuing relationship be deemed by the Labor Law to constitute a renewal of the employment contract for an indefinite period. In light of these complexities, we recommend that you consult with legal advisors in drafting your employment contracts, particularly for senior-level employees; employment contracts are truly a field where “an ounce of prevention is worth a pound of cure.”
Wednesday, May 19, 2010
Focus on Employment Law: Probation Periods
Probation periods are a well-known and basic feature of many employment arrangements in Oman. Sometimes, however, the Omani law provisions relating to probation periods can cause problems for companies.
Typically, an employer has the right to terminate an employee during the probation period and, in such circumstances, the employee is only paid for the actual days he or she has worked. Under Article 24 of the Omani Labor Law, the duration of probation cannot be longer than three months for those workers paid monthly, and cannot be longer than one month for employees paid other than monthly.
What is less commonly known is that Article 24 of the Labor Law also requires the giving of seven days notice for the termination in probation to be valid.
Companies that are unaware of this requirement often delay making a decision until too late in the probation period. In the past, Omani courts have had to consider the situation in which written notice was given four days before the end of a three-month probation period. The court held that the notice was invalid as, under the law, the seven-day notice period must expire before the end of the three-month period.
Similarly, in another case, an Omani court decided that a termination was unlawful even though Article 24 had been complied with in full. In that case, the court said it was unfair to terminate someone within the first week of a probation period. The judicial view was that the worker deserved a greater length of time in probation before it could be determined that he was not good enough at the work.
Another problem can arise in the situation in which a probation period is not detailed in the employment contract. There is a tendency for Omani courts to rule that the worker has a right to believe that there is no period of probation if the contract is silent about probation.
Finally, Article 24 also states that no employee can be subjected to more than one probationary period by the same employer. Therefore, an additional probation period cannot be imposed upon renewal of an employee’s employment contract or upon the employee’s change in position or status within the company.
Friday, November 6, 2009
Legal Issues in Retention of Employee Passports
The practice of employers retaining their employees’ passports has been justified on the grounds of “safekeeping” and as a foolproof method of ensuring that an employee does not leave the country without the prior knowledge of the employer. Some employers are also known to deny free access to their employees to use their passports or to travel freely. A passport is a formal government document that certifies one’s identity and citizenship and permits a citizen to travel abroad. As a matter of fact, most governments prefer that their citizens exercise caution in agreeing to handover their passports to employers or to any other persons. In most countries, retaining the passport of a person without appropriate judicial authorisation is not permissible. The courts in many GCC countries have consistently held in cases filed by aggrieved employees that passports should not be retained by employers. Further, retention of passports may also be an infringement of the Forced Labour Convention of the International Labour Organisation (ILO) which requires member-states ratifying the Convention to undertake to suppress the use of forced or compulsory labour in all its forms within the shortest possible period. Forced or compulsory labour is defined as all work or service which is extracted from a person under the menace of any penalty and for which the person has not offered voluntarily. In the UAE, government circulars have been issued periodically proscribing the practice of retaining employees’ passports. A similar circular was issued in November 2006 in Oman by the Ministry of Manpower upholding the right to retain one’s passport but without prescribing a penalty [or private right of suit] for its infringement. Consequently, enforcement is no easy task. The ostensible justification that employers hold forth is that their employees may be controlling substantial parts of their assets and withholding their passports gives them the leverage to counter any attempt to misuse the authority vested in the employees. But this is a restraint on the right to free movement and could give undue advantage to the employer in a dispute. Further, the Supreme Court has ruled that foreign workers are no longer required to obtain the permission of their employers to seek new employment in Oman. The impact of this ruling could remain largely illusory if the employer retains the passport of the employee seeking new employment. Retention of the employees’ passports may be an efficacious means to exercise control over the employees but it is clearly not a legal option available to employers. This underscores the need for employers and governments to devise a legally enforceable mechanism to remove the uneven bargaining power between parties.
Thursday, October 1, 2009
IWPP Finance in Oman and the GCC
After years of remarkable expansion followed by a precipitous decline in the wake of the global financial crisis, the credit market for international water and power projects (IWPPs) in Oman and the GCC appears poised for a recovery.
While 2008 saw a project volume in the Middle East of about US$50 billion, nearly six months passed before the GCC saw its first IWPP financing of 2009. Bahrain’s Addur IWPP closed on 29 June, raising US$2.1 billion and bringing the overall project volume for the region to US$6.7 billion for the year.
The financial crisis forced project lenders to write down the value of project debt, driving up the cost of borrowing. Further, it wiped out the secondary market for project loans as banks shunned the formerly popular practice of packaging debt in off-balance sheet vehicles.
The capital that commercial banks were willing to lend came at a higher cost and decreased tenor. Whereas tenors running from 15 to 20 years at 100 bps over Libor were once common, the Addur project received debt at a tenor of eight years at 350 bps over Libor. Today, the cost of capital averages at 250 bps over Libor.
The revival of IWPPs in the region has been driven by loosening credit conditions linked to new trends in IWPP finance. Specifically, banks are making increasing use of hard or soft mini-perm structures. In a hard mini-perm, debt is offered at a short tenor, in the range of seven years, requiring early refinancing. In a soft mini-perm, a longer tenor is used, but incentives are used to encourage the lender to refinance well before maturity.
Another key trend has been the rising profile of export credit agencies and international development banks. Export credit bodies provide access to large amounts of relatively inexpensive capital and offer added confidence to commercial banks. Development banks have also played a key role by providing an additional source of capital and a backstop for project debt.
Finally, banks have been favoring government supported projects. For instance, an IWPP with a concession or off-take agreement is a stronger candidate for financing given its relatively secure future cash flows. Additionally, governments may guarantee the obligations of state-owned parties entering into such agreements.
Increasing electricity and water demand has led the government of Saudi Arabia to tender projects in form of engineering, procurement, construction (EPC) contracts, rather than build, own, operate (BOO) or build, own, transfer (BOT) contracts.
Oman aims to avoid such a measure. Continuing on its program of privatization, Oman expects to see the close of a club financing of an IWPP in Salalah this year. RFPs have been released for projects at Barka, Sohar, Duqum, and Ghubrah, with another for an IWPP in Mirbat on the way. Additional projects are being studied, including a solar plant in the south of the country.
In past projects, the Oman Power & Water Procurement Company (OPWP) has entered into off-take agreements. In the case of the Barka and Sohar IPPs, the OPWC will purchase the output under a 15-year agreement.
IWPP finance and execution in Oman implicates a range of complex legal issues, including:
In addition, it is often necessary to put in place all the project agreements in order to obtain IWPP finance. Depending on the project, these agreements may include:
As the credit market revives -- and as the oil prices rebound -- Oman grows increasingly likely to meet its goal of increasing output through an ambitious program of privatization.
Monday, June 29, 2009
Focus on: Labor Unions
In 2006, an amendment to the Labor Law was issued that permits the establishment of trade unions in Oman. Since then, the number of labor unions in Oman has steadily increased. Currently, there are more than 55 labor unions across the Sultanate according to the General Federation of Oman Trade Unions (GFOTU). This represents a dramatic increase over 2007 and 2008 levels.
Trade unions are organizations of employees that work together to achieve common goals. In Oman, trade unions may work to defend employee rights, improve financial and social situations, and represent employees in work-related matters. The trade unions have also formed the GFOTU, which is an independent body that oversees labor unions in Oman established under the new law, and which promotes labor rights and the interests of unions.
As the number and visibility of labor unions increases in Oman, there are several issues for employers and employees to consider.
Employers should make themselves aware of the laws and what actions are permitted and prohibited with respect to trade unions. For example, it is unlawful for an employer to terminate an employee based on the employee’s membership or role in a trade union. In addition, employers may be subject to fines or imprisonment if they interfere with an employee’s right to carry out trade union activities.
Conversely, employers may look to trade unions as a resource for facilitating communication between the employer and the employee. Trade unions have the advantage of organization, which means an employer can communicate information about company policy, safety matters or other work matters to the union, which can disseminate this information to all employee members.
Employers have taken different approaches to the increase in labor unions in Oman. Some employers, seeking to gain the communication and policy benefits of labor unions, have actually sought to help employees form labor unions. Other employers have taken a more passive approach and waited to see the impact of the labor unions rather than actively promoting their formation.
Similarly, employees should consider the legal requirements for forming a union, as well as the rights and restrictions associated with trade unions under Omani law. For example, while trade unions have the right to bargain collectively or engage in peaceful strike action in order to improve their financial or employment situation, there are limits on what actions the employees may take. Specifically, employees planning to engage in a peaceful strikes must notify the employer at least three weeks prior to the date of the strike. Further, employees working at establishments that provide basic services to the public are not permitted to strike.
With the rapid increase in labor unions in the Sultanate, employers and employees should consult the law before taking any steps to form a union or before setting union-related policy. While labor unions can provide substantial benefits to both employers and employees, it is important to ensure that the correct laws and regulations are followed in order to achieve the maximum benefits.
Thursday, April 2, 2009
Doing Business in Oman: End of Service Benefits
Companies and employees both should be aware of their rights and obligations when an employee leaves the company. For example, depending on the individual circumstances, the company will probably be required to pay an “end of service benefit” to the employee. Article 39 of the Labor Law (Royal Decree 35 of 2003) states that expatriate employees are generally entitled to an end-of-service gratuity payment on the termination of their employment contract and provides the calculation for the gratuity. The gratuity is calculated as follows: Length of Employment Gratuity 1 to 3 years 15 days basic salary 3 years or more 1 month basic salary The gratuities are calculated based on the final basic salary, and any fraction of a full year is paid on a pro rata basis. No end of service benefit applies to employees who have been employed for less than a year.
for each year of service
for each year of service
If the employer establishes and operates a separate fund scheme approved by the government, then the expatriate employee may be entitled to receive the higher of the amounts payable under Article 39 or the separate fund payments, but not both.
Foreign companies operating in Oman or seconding employees to Oman should take steps to avoid possible “double dipping” by employees. This could happen to if an employee attempted to take advantage of a pension scheme operated by the employer outside of Oman, as well as the benefits payable under Article 39.
Tuesday, March 17, 2009
Employment Law
The Omani Constitution guarantees Omani nationals the right to work, prohibits compulsory labour (except for the performance of public services for a fair wage), prohibits discrimination between citizens and generally addresses all employment issues. The Omani Labour Law (the Law) (Royal Decree 35), 2003, governs specific labour and employment-related issues. In addition to the Constitution and the Law, Ministerial Decisions issued by the ministry of manpower (the ministry) and the Social Insurance Law also apply to the private sector workforce.
The Law does not apply to civil servants, military, security or police personnel, or domestic service/household employees. Civil servants are covered by the Civil Service Law, and military and police personnel are covered by the Military Service Law. Domestic service/household employees are covered by Ministerial Decisions.
The Law aims to enhance and safeguard the interest of employees and regulate the relationship between employees and their employers in Oman. It contains various articles which provide for basic salary and associated minimum benefits, as well as gratuities, contractual and other rights. Employers may also offer additional benefits and generous terms of employment to their employees under individual contracts of employment.
Employee Rights
Article 35 of the Constitution provides that “every foreigner who is legally resident in the Sultanate of Oman shall have the right to protection of his person and his property in accordance with the constitution.” Additionally, in accordance with the laws and prevailing practice in Oman, employees are normally entitled to the following minimum benefits:
Basic salary
This critical component of an employment contract is usually determined by the parties during negotiation. However, in the case of some expatriates, their respective governments may stipulate the minimum basic salary expected prior to their recruitment and employment in Oman. In the case of Omani nationals working in the private sector, the minimum basic salary and associated benefits for certain categories and positions are set out in various Ministerial Decisions released from time to time by the ministry.
The Law stipulates a maximum of nine working hours per working day, or 48 hours per week. In the event that any additional hours are worked, the employee is entitled to receive overtime pay.
Accommodation, housing allowance and transportation
Although the Law is silent on the amount of allowance or rates to be paid to expatriate employees with respect to accommodation and local transportation, there exists an established practice pursuant to which employers either pay housing allowances and local transportation allowances, or provide the necessary local transportation and accommodation. The manner and method of distributing such allowances is subject to mutual agreement between parties as set out in the employment contract.
Paid leave
All employees, regardless of their nationality, are entitled to an annual leave of at least 15working days with full basic salary after completion of one year of continuous service. This leave is then increased to 30 days for each subsequent year of service. They are also entitled to sick leave, provided that a certifying medical note is obtained from a physician or medical practitioner. Additionally, the employees are entitled to special leave for specific events or occasions, such as marriage, death of a close family member, or a pilgrimage. All female employees are entitled to a minimum of six weeks’ maternity leave, after the employee has completed one year of continuous service with the employer.
End of service gratuity and social insurance benefits
Pursuant to the Social Insurance Law, the Public Authority for Social Insurance (PASI) will pay social service benefit to Omani national employees who have subscribed to the national insurance scheme and have properly vested in the scheme. Private employers are required to make monthly contributions (currently about 10.5 per cent) towards the PASI Fund. Employees and the Omani government contribute the requisite balance into the insurance fund. At the end of their service, Omani employees are entitled to receive social service benefits based on their last drawn aggregate basic salary.
Pursuant to Article 39 of the Law, expatriate employees are generally entitled to an end-of-service gratuity payment on the termination of their employment contract. The gratuities are calculated based on the final basic salary and consist of 15 days’ salary for each of the first three years of employment with the employer, and 30 days’ salary for each consecutive full year of employment thereafter. A pro-rata amount is calculated for any fraction of a full year worked after the initial year. If the employer establishes and operates a provident fund scheme approved by the ministry, then the expatriate employee may be entitled to receive the higher of the amounts payable under Article 39 referred to above or the provident fund payments, but not both.
Foreign companies operating in Oman or seconding employees to Oman should take steps to avoid possible “double dipping” by employees. This could happen to an unsuspecting employer if an employee attempted to take advantage of a pension scheme operated by the employer outside of Oman, as well as the benefits payable under Article 39.
Medical treatment
All employees, regardless of their nationality, are entitled to certain types of medical treatment at the employer’s expense. However, dental, ophthal- mic, and maternity treatments are excluded from the provision of free services to employees. Notwithstanding, all Omani nationals are entitled to receive free medical treatment at government-owned hospitals and clinics.
Termination of Employment Contracts
The Law specifies two types of employment contracts: an employment contract for a specified duration and an employment contract for an unspecified period (ie. a fixed-term or an indefinite term contract). In the case of a fixed-term contract, neither the employer nor the employee may terminate the contract before its natural expiry, except for the reasons listed under Articles 40 and 41 of the Law (generally, grave violations of conduct), or grave violations of the agreed terms of the employment contract.
If either party terminates an employment contract contrary to the provisions of the Law or the contract, that party may be held liable for payment of damages as a result of such unlawful or unjustifiable termination. For example, in the case of unlawful or unjustifiable termination of an employee, he/she may be entitled to recover damages for loss of salary for the remaining period of the employment contract plus compensation for the time when the employee was in the services of the employer.
Where an employment contract is for an indefinite term and the employee’s salary is paid on a monthly basis, either party may terminate the contract by serving 30 days’ notice in writing prior to the date on which the termination is to take effect. If the employee’s salary is paid on a basis other than a monthly salary, then 15 days’ written notice must be provided, unless a longer notice period has been mutually agreed. If a contract is terminated without regard to the notice requirement, the party terminating the contract may be required to pay compensation equivalent to the full salary payable but for the improper notice period.
Upon termination, an expatriate employee (an Omani employee would be governed by Social Insurance Law), would be entitled to receive end-of- service gratuities for the entire period of his/her services at the rates referred to above. If the period of employment service is less than one year, the expatriate employee may not be entitled to receive any end-of-service gratuities.
The end-of-service gratuity is usually paid in addition to any compensation which the local court may award to an employee whose employer’s action is adjudged to be unfair or abusive towards the employee.
Omani courts have jurisdiction to hear any employment related disputes which may arise between employees and employers. Initially, disputes are referred to the Labour Dispute Settlement Division, which acts as mediator for the employees and employers to reach an amicable settlement of the dispute. Failure to amicably settle could lead to litigation before the Primary Court.
Ancillary issues
The Law encourages the recruitment of Omani nationals to the maximum possible extent, and in furtherance of this objective, the ministry specifies the proportion of nationals that are required to be employed in each private sector. Subject to compliance by a company of its own targets, it may recruit and employ expatriates. In the event that a company fails to meet its targets, it is liable to the imposition of penalties and/or suspension of its rights to obtain employment clearances for expatriate employees.
Any person employed in Oman contrary to the provisions of the immigration laws could expose the concerned parties to imposition of monetary penalties and loss of residency rights. Expatriates may not be employed unless the employer has obtained both a residency permit and employment clearance for the employee.
The Law permits private sector employees to form a representative committee to protect their interests, defend their rights under the law, and represent them in all matters related to their employment affairs. A representative committee has the authority to resolve employment issues, to support issues related to the recruitment of a target number of Omani nationals, to develop and implement training plans, and to monitor company- level representative committees.
All employers are required to retain a file for each employee at their premises, containing a signed employment contract and other relevant legal documents, evidencing a proper employer-employee contractual relation- ship. The files should be available for examination by the ministry.
In addition, all employers are required to maintain Personnel Policy Procedures (PPP) Manuals approved by the ministry. Among other things, PPP Manuals must contain procedures for the resolution of employee grievances.
This article was first published on GMB Research. GMB Research commissions material from a large and growing network of leading local experts and international professional firms. Now covering 30+ countries from South East Europe, CIS and the Middle East as well as parts of North Africa and Asia, GMB Research is a rapidly evolving global resource.
