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.”
Monday, October 11, 2010
Focus on Labor Law: Fixed-Term Employment Contracts
Monday, September 20, 2010
Royal Decree Relaxes Foreign Shareholding Restrictions
Real Estate Law Update
A recent amendment to Omani land use laws could well prove to be a tipping point in the liberalization of the real estate sector in Oman. The Land Law of 1980 and its subsequent amendments originally paved the way for corporate ownership of land, by permitting wholly Omani (or GCC) owned companies and public joint stock companies with at least 51% Omani shareholding to own land in the Sultanate.Yet even after the enactment of the Land Law, corporate ownership of land remained highly restricted, as Omani companies with foreign ownership – even joint stock companies with greater than 51% Omani shareholding – could not own and utilize real property except for limited purposes complementary to their business objects. For example, these companies could use land only for installing a showroom, warehouse or business office, for providing staff accommodation, or for other administrative purposes. Only wholly Omani owned companies were permitted to engage in real estate development as a business object.
Trading and investing in real estate development, as well as the reselling of real estate property, remained the exclusive preserve of wholly Omani owned companies with related real estate objects until 2004, when these business fields were opened up to wholly GCC owned companies. However, ownership of land in the Sultanate by companies with non-Omani GCC shareholding is subject to conditions which include a well-defined timeline for development of the land along with restrictions on reselling the land without first completing the planned developments to the property. Real estate companies with non-Omani shareholding had to content themselves with usufruct rights over land granted by the Government or by private parties. Usufruct as a beneficial interest in land is time-bound and has limited assignability, which can be a deterrent to undertaking long-term real estate development projects.
These restrictions are now changing. The recent amendments to Omani land use laws issued by Royal Decree 76/10 seek to relax the foreign shareholding restrictions as well as the limitations on the usage of land. The amendments enable public and closed joint stock companies with a minimum of 30% Omani shareholding to own land in the Sultanate. More significantly, the amendments allow these companies to engage in real estate development as a business object, a key permission that previously had been restricted to wholly Omani (and later, GCC) owned companies. Although the amendments do not purport to grant ownership rights to companies that are not in the real estate development sector, they represent a watershed event for real estate development companies that are executing various ITC and non-ITC projects in Oman. (Integrated tourism complexes, or ITCs, are large-scale planned developments that usually include residential properties, hotels, shopping and entertainment facilities.)
Pursuant to the amendments, real estate companies must do the following in order to own land:
- obtain prior approvals from the relevant government authorities for a specified real estate project;
- not dispose of the land within four years of the registration of ownership;
- obtain a building permit for the land;
- register the sale of units only after the completion of construction of the units and the basic infrastructure related to them; and
- have real estate development as a business object stated in its commercial registration.
The amendments also increase the permitted foreign shareholding in companies for entitlement to usufruct. Omani companies with up to 70% foreign shareholding and a minimum of 30% Omani (or GCC) shareholding are now entitled to usufruct over land for national development projects.
Furthermore, the amendments amend the Law on Ownership of Real Estate in Integrated Tourism Complexes, authorizing the Ministry of Tourism (with the prior approval of the Ministry of Finance) to exempt investors in tourism projects – including ITC projects – from the payment of usufruct fees for five years in relation to the undeveloped project area. The amendments make it obligatory to commence an ITC project within two years of securing the land. Lastly, another significant development is that the amendments allow the developer to subdivide the project land in coordination with the Ministry of Tourism, with the proviso that the subdivision will be in accordance with the designated purpose for which it was earmarked.
Monday, September 13, 2010
Anti-Corruption Laws & Compliance by Infra Co's
Curtis partner David Seide and associate Adil Qureshi recently authored an article for Infrastructure Journal entitled "Anti-Corruption Laws & Compliance by Infra Co's."
The article discusses the tremendous increase in anti-corruption prosecutions and penalties directed at the energy and infrastructure sectors in recent years.
Download the article.
Friday, September 3, 2010
Focus on Corporate Law: Minority Shareholder Rights
It is common for Omani companies to have at least one minority shareholder – i.e., a shareholder that owns less than 50% of the company’s shares. Some companies are formed with minority shareholders as part of the original ownership structure, such as a joint venture company in which the majority partner owns 70% of the shares and the minority partner owns 30% of the shares. Other companies add minority shareholders at a later stage, for example by granting a minority interest to a new investor in exchange for an infusion of capital.
For any such company, minority shareholder rights represent a key corporate governance issue. The minority shareholder will desire legal protections to ensure that the majority shareholder cannot use its voting control over the company to abuse the minority shareholder’s interests. Protections for minority shareholders not only promote fair and responsible governance, but also encourage investment by giving parties comfort to invest in companies in which they will not be able to exert voting control.
Minority shareholder rights mainly come in two forms: (i) rights conferred by statute, and (ii) contractual rights between the minority shareholder and the company’s other shareholders, enshrined either in the company’s charter or in a shareholders’ agreement.
Statutory Rights – the Commercial Companies Law
In Oman, statutory protection for minority shareholders generally is limited to requirements under the Commercial Companies Law that certain key corporate decisions be made by a unanimous vote of the company’s shareholders. The requirement of shareholder unanimity effectively grants the minority shareholder a “blocking right” over the covered actions.
For LLCs
The Commercial Companies Law provides particularly robust blocking rights with respect to limited liability companies, or LLCs. For an LLC, a unanimous shareholder vote is required to:
In addition, the Commercial Companies law states that, unless the company’s constitutive contract provides otherwise, a unanimous shareholder vote is required before the company’s managers:
Finally, approval by a majority of the company’s shareholders representing at least 75% of the shares is required for certain other key actions by an LLC, such as amending the constitutive contract, transforming the LLC into a joint stock company, or dissolving the company. Although this “super-majority” voting requirement does not necessarily grant minority shareholders blocking rights, it often will do so in practice – e.g., for minority shareholders that hold a greater than 25% shareholding (in Oman, many minority shareholders have a 30% interest in the LLC), and for smaller minority shareholders that act together and have a combined shareholding in excess of 25%.
For SAOCs
The Commercial Companies Law does not provide such extensive blocking rights for minority shareholders of closed joint-stock companies (“SAOCs”), likely because SAOCs are already subject to more rigorous corporate governance standards. However, the Commercial Companies Law does require that certain key actions by an SAOC be taken at an extraordinary general meeting (“EGM”). This serves to protect minority shareholders, as EGM resolutions must receive 75% of the votes cast in order to be adopted. Capital increases by issuance of preferred shares, or amendments to the company’s articles of association, for example, require approval by an EGM resolution.
Contractual Rights – Company Charter and Shareholders’ Agreement
Beyond the safeguards provided by the Commercial Companies Law, minority shareholders may obtain additional protection from contractual terms agreed to by the company’s other shareholders. Those rights typically would be enshrined either in (i) the company’s charter or (ii) a shareholders’ agreement.
From the perspective of enforceability, it is preferable to include minority shareholder rights in the company’s charter, as in Omani courts it is normally quicker and easier to pursue claims based on violation of the company’s charter than claims based on breach of a shareholders’ agreement. However, as a practical matter, it may be difficult for the minority shareholder to include the provisions it desires in the company’s charter, as the Omani Ministry of Commerce and Industry is often reluctant to permit a company to deviate significantly from the terms of the model charter that is used for registration purposes.
Thus, it is common for minority shareholders to insist on entering into a separate contract with the company’s other shareholders to set out protections for the minority shareholder. This contract, called a shareholders’ agreement, typically will include provisions on such matters as:
Company charters and shareholders’ agreements are key legal documents that should be meticulously crafted and reviewed to protect shareholders’ rights. We strongly recommend that companies and investors seek professional legal advice in preparing such documents.
Monday, July 13, 2009
Doing business in Oman FAQ: Bankruptcy
The financial crisis has resulted in many companies encountering difficulties in maintaining profits and even staying solvent. In Oman, courts may declare a company facing financial difficulties as bankrupt or insolvent if (i) its financial state is in disorder; and (ii) it has ceased to discharge its commercial debts. The bankruptcy declaration may be ordered by the court based on the court’s own initiative, upon application by the debtor company, or by one of the company’s creditors. Omani courts often appoint an administrator for managing the debtor’s assets while the bankruptcy application is pending.
Once a company has been declared bankrupt by an Omani court, the company may be liquidated. The court will usually appoint a liquidator for effecting the transfer of the company’s remaining assets. The liquidation is usually effected by way of judicial sale or public auction.
In distributing the assets of a bankrupt company, all expenses of the administrator or liquidator, including compensation, must be paid from assets of the bankrupt company before any distribution is made to creditors. Thereafter, creditors are ranked pursuant to the Law on Recovery of Government Debts [RD 32/94] in the following order of priority:
As a general rule, debt of secured and unsecured private debts is subordinate to debt owed to the government even if the government debt arose later and is not secured. The Government is generally known to give up its priority ranking in favor of employees.
Unlike the bankruptcy law of some countries, the Omani laws for bankruptcy and liquidation are very straightforward. The focus of the law is to protect creditors as much as possible and ensure the insolvent company is liquidated efficiently.
Wednesday, July 1, 2009
New Law Alert: Taxation
A new income tax law for Oman was issued on 25 May 2009. The new law will apply to a company’s accounting periods which begin on or after 1 January, 2010.
The main highlights of the new income tax law are:
The new tax law includes modifications that are generally favorable to companies doing business in Oman. Companies likely will be particularly interested in the tax reduction for branches of foreign companies, as this was previously a significant drawback for companies in deciding whether to form a branch in the Sultanate.
Monday, March 9, 2009
Environmental Law
The United Nations (UN) Environment Programme has credited Oman with having one of the best records in environmental conservation, pollution control and maintenance of ecological balance. Oman is even stated as having one of the world’s most rigorously “green” governments. Oman’s biodiversity is catered for by varying topographic features, with vast arid deserts in the West, to a belt of grass and woodland in the mountainous region of the South, with the Arabian Sea in the East.
Oman has ratified many international treaties related to environmental protection, including the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and Their Disposal, the UN Convention on the Law of the Sea, the UN Framework Convention on Climatic Change, and the UN Agreement on Prevention of Desertification in Countries Facing Severe Arid Conditions.
Environmental problems currently faced by Oman include:
- • high levels of soil and water salinity in the coastal plains;
- • scarcity of water due to prolonged drought in certain areas;
- • industrial effluents seeping into the water tables and aquifers; and
- • desertification due to high winds driving desert sand into arable lands.
Oman’s environmental regime is primarily regulated by the Law on the Conservation of the Environment and Combating of Pollution (Royal Decree No. 114/01), 2001. Although its forerunner (of the same name − Royal Decree No. 10/82) now stands repealed, it enabled the enactment of a series of environmental legislation, most of which continues to be in force today.
Legislation for wildlife protection and nature conservation is mainly comprised of three Royal Decrees and two Ministerial Decisions:
- The Law on the Protection of National Heritage (Royal Decree No. 6/80), 1980;
- The Law on the Protection of Marine Biological Wealth (Royal Decree No. 53/81), 1981;
- The Law on the Conservation of the Environment and Combating Pollution;
- Ministerial Decision No. 4/76; and
- Ministerial Decision No. 128/93.
- The Protection of Arabian Oryx (Royal Decree No. 4/94), 1994;
- Establishing the Turtle Sanctuary (Royal Decree No. 23/96), 1996; and
- Establishing Animal Reserves and Natural Parks (Royal Decree No. 48/97, No. 49/97, and No. 50/97), 1997.
The Law on the Conservation of the Environment and Combating of Pollution
The Law on the Conservation of the Environment and Combating of Pollution defines terms such as “the environment”, “environmental protection”, “pollution/pollutants”, “hazardous material”, “dumping”, etc. This law makes it mandatory for an owner of a place of work to obtain a license before setting up an establishment, and to follow the procedure specified by the ministry to minimize waste at the source of pollution, thus preventing pollution. It also stipulates that such owners should refrain from carrying out or permitting any discharge and release of environmental pollutants in excess of the standards specified by the ministry, but excludes from its purview any emergency measures to save lives or to safeguard the place of work. The owner must maintain a register on the quantity, nature, and method of effluent discharge at the establishment.
This law prohibits the discharge of hazardous material, sewage and waste into wadis (dry riverbeds), aquifers, rain water disposal networks, falaj (water management systems) and their channels, and the use or disposal of treated sewage water without permission. Ships and vessels are barred from discharging oil and other environmental pollutants into the Exclusive Economic Zone of Oman. Penalties for the violation of this law range from OMR 200 to OMR 1 million, with imprisonment in certain instances. Annexure 1 of this law lists certain endangered species, the hunting of which results in penalties ranging from imprisonment for six months to five years, and/or a fine of OMR 1,000 to OMR 5,000. Annexure 2 details other animals the hunting of which attracts a penalty of OMR 100 to OMR 1,000, and/or imprisonment for not more than three months.
The Petroleum Law
The Petroleum Law (Royal Decree No. 42/74), 1974, makes it mandatory to obtain prior approval before engaging in the exploration, extraction, exploitation, storage or distribution of petroleum or mineral resources. Prior approval is also needed to undertake activities involving processing plants, pipelines, storage tanks, storage facilities, ports, jetties, offshore platforms or installations, sea and marine loading facilities, pumps or pumping stations.
This law requires licensed operators to conduct their operations in a manner that minimizes air and water pollution and, which is safe to the health and wellbeing of their employees and the public. Any person violating this law is liable for loss or damage suffered by a third party or the government, directly or indirectly as a consequence of the violation. The compensation for such loss or damage is not limited to the direct loss incurred and includes consequential and economic loss.
Terms such as “operator”, “due diligence”, “waste”, “unsafe act”, etc, are all defined in this law.
Licenses
An application for an environmental license must be accompanied by a comprehensive environment feasibility report, assessing the benefits of granting the license as compared to the probable damage or adverse impact on the environment.
Ministerial Decision No. 209/95 on Environmental Permits for Industrial and Commercial Establishments provides that permit holders must comply with the conditions set out in their environmental permit. Notwithstanding the penalties prescribed in other environmental laws, a breach of this provision would be subject to an initial fine of 100 Omani Rials (OMR), with 15 days to rectify the breach, failing which a further fine of OMR 50 per day for three weeks is applicable, as well as the closure of the establishment for continued breach. This law empowers the relevant authority to suo moto (rectify any breach posing risk to the public and the environment), at the expense of the permit holder.
Main Areas of Environmental Concern
Hazardous and non-hazardous waste and substances
Ministerial Decision No. 17/93 on the Management of Solid Non-Hazardous Waste deals with solid or semi-solid material, such as household waste and solid materials from commercial and industrial establishments, which does not pose any danger to the environment or public health if its disposal is effected in a safe and scientific way. Solid non-hazardous wastes must be stored, collected and transported to a site designated by the relevant authority for this purpose. The relevant authority is the relevant municipality that falls under the ministry of regional municipalities and water resources.
Ministerial Decision No. 18/93 on the Management of Hazardous Waste includes in its definition of “hazardous waste” any waste from commercial, industrial or other activities, which by nature, composition or quantity or for any other reason is hazardous, or threatens to be hazardous to the
environment. All hazardous waste must be labeled and packed according to the relevant regulations, and stored in approved storage facilities until it is removed in accordance with the terms of the license issued by the ministry.
The Law Regulating the Circulation and Use of Chemicals (Royal Decree No. 46/95), 1995, defines a “chemical substance” as a substance listed as “dangerous” in the international classification standards of dangerous substances that have an effect on public health and the environment. However, this law excludes “explosives”, the use and circulation of which is
governed by separate legislation. A license is mandatory for the use, manufacture, import, export, transport, storage and circulation of a chemical substance.
Ministerial Decision No. 145/93 on Wastewater Re-Use and Discharge prohibits the discharge of wastewater or sludge into the environment, in whatever form or condition, without a permit to do so. It also provides for regulating the quality of wastewater and its reuse. Before reuse, the
wastewater or the sludge is required to be tested to determine its pH value and the quantity of various metals in it. Those with high concentration of metals are disposed of in landfills with prior approval of the ministry. Wastewater may only be discharged where its re-use is not possible.
Royal Oman Police Civil Defence Regulations deals with public protection and safety in commercial establishments, addressing the following:
- • Specific and detailed requirements applicable to establishments involved in the use and storage of petrochemical products and the production of gas;
- • Protection of personnel and safety requirements in work places;
- • Transportation for dangerous chemicals; and
- • Training to deal with fire and emergencies.
- • Chalking out contingency plans for disaster management;
- • Measures to be undertaken during emergencies;
- • The conditions for import, manufacture, storage, sale and transport of radioactive or other substances which are dangerous to public safety; and
- • Safety and rescue rules and plans to be adopted during land, sea and air
transportation.
The Law on Marine Pollution Control (Royal Decree No. 34/74), 1974, brought to light Oman’s early concern for the safety of its marine environment. This law prohibits the discharge or release of any pollutant from a ship, shore location or oil transport facility in the Pollution Free Zone of Oman. This zone is the belt of water around Oman’s territorial waters, which stretched for a distance of 38 miles. Any person violating the provisions of this law is subject to a maximum penalty of OMR 25,000 for a single violation, and of OMR 4 million for multiple violations, and may also be deprived, either temporarily or permanently, of all environmental rights granted by the government. Terms such as “operator”, “oil transport facility”, “pollutant”, “pollution control officer”, etc, are all defined in this law.
Air pollution
Ministerial Decision No. 118/04 on the Control of Air Pollution from Stationary Sources stipulates that owners must employ scientific methods specified by the ministry for the prevention of the emission of pollutants, and for their treatment and disposal. This law prohibits the emission of smoke over a specified density, and burning of organic or agricultural waste in the open. Approval must be obtained before installing a chimney, which must conform to the height specifications stipulated depending on its intended use.
Noise pollution
Ministerial Decision No. 79/94 on the Control of Noise Pollution in Public Places prescribes noise levels based on the classification of public places, and identifies the following as external sources of noise:
- • Industrial plants and construction sites;
- • Road traffic; and
- • Airports and the operation of commercial and other aircrafts.
Ministerial Decision No. 80/94 on Noise Pollution Control in the Work Place prescribes noise limits in places of work. Machines, equipment and other noise generating installations are required to be checked for noise emission levels during operation and installation.
Health and Safety in Workplaces
Oman Labour Law (Royal Decree No. 35/04), 2004, has certain health, safety and environment provisions in place, including the provision by employers of first aid facilities to employees in the workplace, and provision of a generally hazard-free workplace. The employee must be apprised of potential hazards in their role, as well as mandatory safety measures. The employers must ensure that a generally hazard-free workplace is maintained, particularly ensuring that:
- • Adequate safety and hygienic conditions prevail in both the workplace and in the places that a worker must visit by reason of his work;
- • Safety checks are done on machinery and equipment in the workplace, ensuring they are in safe conditions; and
- • The stipulated safety measures are followed by their employees.
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