SAUDI ARABIA Law and Practice Contributed by: Dana Halwani and Leanne Farsi, Derayah LLPC
4. Employment Law 4.1 Nature of Applicable Regulations Main Statutes The main Saudi statutes governing relations between employers and employees are: • the Labour Regulation (Royal Decree No M/51 of 23 Sha’ban 1426 Hejra correspond - ing to 27 September 2005), as amended most recently by Royal Decree No M/44 of 8 Safar 1446 Hejra corresponding to 12 August 2024; and • the Labour Regulation Implementing Rules (Ministerial Resolution No 1982 of 28 Safar 1437 Hejra corresponding to 6 April 2016), as amended most recently by Ministerial Resolu - tion No 115921 dated 19 Sha’ban 1446 Hejra corresponding to 18 February 2025. The Labour Regulation lays down certain man - datory minimum standards for the treatment of employees, and any agreement reducing an employee’s minimum rights is void. The Nitaqat System The basic rule under the Labour Regulation is that Saudi employees shall not represent less than 75% of the total workforce, but that the Minister of Labour may decrease the percent - age temporarily. In 2011, the Saudi Ministry of Labour – now the Ministry of Human Resources and Social Development (HRSD) – implemented a detailed list of quotas, known as the Nitaqat system, which are determined by the business sector and size of the business entity, with the percentages of Saudi employees currently classed in Red, Low Green, Medium Green, High Green and Platinum sections. These quotas are updated frequently.
prepare a declaration stating that they have investigated the financial position of the com - pany, confirming that the assets of the company are sufficient to discharge its debts at the end of the liquidation period proposed, and that the company is not in default under the Bankruptcy Regulation (Royal Decree No M/50 of 28 Jumada Awwal 1439 Hejra corresponding to 14 February 2018) as amended by Royal Decree No M/89 of 9 Rajab 1441 Hejra corresponding to 4 March 2020. This declaration must be presented within 30 days from the date of its separation to the partners, the general assembly or the sharehold - ers for the passing of a resolution to dissolve the company. Article 242 (2) provides that in a situation where the partners, the general assembly or the share - holders pass a resolution to dissolve the com - pany, when it is apparent from the declaration that the assets of the company are not sufficient to discharge its debts or that the company is in default under the Bankruptcy Regulation, they shall be liable by way of joint liability for any debt outstanding against the company. Therefore, if a company continues trading while insolvent, eventually the shareholders may be held personally liable for the company’s debts, which can only be evaded by either infusing new capital or making an application for a procedure under the Bankruptcy Regulation. Under the Bankruptcy Regulation, a company’s manager, member of its board of directors or board of managers, or any of its officers or any other per - son participating in the establishment or man - agement thereof, or an analogous person, risks imprisonment of up to five years and/or a fine of up to SAR5 million, by “continuing to carry on the activity of the debtor in the absence of the possibility of avoiding liquidation”.
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