International oil and gas companies operating in the Gulf are well-versed in dealing with fluctuating oil prices.
However, the combination of low prices and the stringent measures implemented globally to combat the spread of Covid-19 means these firms are facing huge challenges resourcing their operations.
The main challenge facing many companies is to reduce their employment costs in light of a sudden drop in revenues and business activity. In order to safeguard jobs, most companies and employees are agreeing arrangements such as reduced working hours and salaries, reduced benefits, unpaid leave or deferral of salaries and bonuses.
Whatever is agreed, it is important that the terms of any arrangements are recorded in writing and, depending on the jurisdiction, registered with the local labour authorities.
Failing to do so could result in significant financial liabilities arising out of claims brought by employees in the local labour courts.
Where pay cuts are insufficient, companies are reducing headcount, either by mutually agreeing the termination of an employee’s contract, or by dismissal. The potential cost of termination varies depending on the jurisdiction:
• Qatar – A fairly straightforward and low risk jurisdiction, as long as the employer complies with their obligations to provide notice of termination and pay end-of-service benefits.
• UAE – the potential liability for “arbitrary dismissal” is up to three months’ pay (in addition to the employee’s other statutory and contractual entitlements such as notice pay, holiday pay and end of service gratuity).
• Saudi Arabia – the potential liabilities for “invalid” termination will depend on the terms of the employee’s contract, but could extend to payment of the remainder of the worker’s fixed-term employment contract or, in the case of Saudi nationals, 15 days’ pay for each year of service (in addition to the employee’s other statutory and contractual entitlements, such as notice pay, holiday pay and end of service gratuity).
Increased protections for citizens
For a number of years now, the Gulf states have focused on increasing the employment of their citizens in the private sector and so there are tight restrictions on terminating the employment of nationals in most Gulf jurisdictions.
It is perhaps no surprise, therefore, that governments have been quick to ensure that the citizens’ jobs are not affected by the current situation. Saudi Arabia has prohibited private sector companies who are in receipt of government financial support from dismissing Saudi nationals and the UAE has established a specific committee to assess cases dealing with the termination of employment of UAE nationals. It is safe to assume that the dismissal of UAE nationals will only be permitted in limited circumstances.
Unlawfully terminating the employment of Gulf citizens can result in significant financial liabilities. Perhaps more importantly, however, a company’s trade licence could also be suspended and/or their access to the local labour authority could be blocked, either of which would cause significant operational difficulties.
Government support initiatives
Broadly speaking, international companies are not receiving any direct financial support from Gulf governments. While this has attracted criticism from some quarters, it is perhaps not surprising given that the Gulf markets are predominantly tax-free environments and so there is no “taxpayer” to fund private sector bailouts.
However, the Gulf governments have implemented a variety of initiatives to support private sector employers in light of reduced business activity:
• Saudi Arabia – the Human Resources Development Fund will subsidise 30% to 50% of the monthly wage (up to a maximum of SAR 15,000) of Saudi national employees.
• UAE – the Ministry of Human Resources & Emiratisation has established a “virtual labour market”, where companies can make available “redundant” employees for temporary hire by other companies.
• UAE – the Abu Dhabi government has granted a pensions “holiday” for all Abu Dhabi companies, exempting them from making statutory pension contributions for Gulf nationals for a period of three months.
• Bahrain – the Social Insurance Organisation will pay the salaries of registered Bahraini employees in the private sector for a period of three months.
Travel / immigration
One of the unprecedented challenges facing energy companies in the Gulf has been logistical, with rigorous immigration restrictions implemented across the region to combat the spread of
Covid-19. Broadly speaking, all Gulf countries effectively closed their borders without warning overnight, resulting in many key workers being trapped outside their country of residence or place of work.
Most of the Gulf countries are now operating “repatriation flights” enabling individuals to return to their home countries, but entry bans are still largely in place,
meaning that companies still face significant difficulties resourcing projects with the requisite personnel.
Key Takeaways for companies operating in the Gulf
• Understand the ways in which employment costs can be reduced in compliance with local laws
• Always seek legal advice before dismissing employees, especially citizens
• Understand the initiatives put in place by local authorities to support private sector employers
• Identify a reliable source of information to keep up to date with immigration developments
• Ensure all employees understand the restrictions imposed by local authorities and their reporting obligations if they contract Covid-19
• Ensure all employees’ contact information is up to date and communicate with staff regularly
Ben Brown, partner, Addleshaw Goddard (Middle East) LLP