Abdullah Al Nabhani, Ali Al Rashdi
A business may need fewer employees because part of its operations is closing, a major contract has been reduced, its production model has changed or it is facing sustained financial losses.
Oman’s Labour Law, Royal Decree 53/2023, allows employment to be terminated in certain circumstances of this kind. But there is an important distinction: not every workforce reduction is an “economic cause” under the Labour Law, and different legal requirements may apply depending on why the business needs to reduce staff.
Employers considering redundancy in Oman should therefore identify the real reason for the proposed reduction before deciding how to proceed.
Key Considerations for Employers
- Oman’s Labour Law permits termination in certain redundancy situations, but the legal requirements depend on the reason for reducing staff.
- Two consecutive years of financial losses are required for an “economic cause”. This requirement does not apply to every reduction in business activity.
- Complete or partial closure, bankruptcy, reduction of business activity and changes to production systems affecting workforce requirements are separately addressed under Article 43(4).
- A workforce reduction based on an economic cause requires committee approval under Articles 44 to 46.
- For an approved economic workforce reduction, Article 46 requires a fair standard for selecting the employees whose contracts will be terminated.
- Omani employees have specific protection under Article 43(4) in certain situations involving non-Omani employees with the same competence and experience.
- The correct legal route should be identified before individual termination decisions are communicated.
Can an Employer Make Employees Redundant in Oman?
Yes. The Labour Law expressly recognises circumstances in which changes to a business can lead to termination of employment.
Article 43(4) covers complete or partial closure of an establishment, bankruptcy, reduction in the size of its activity and replacement of one production system with another where this affects the size of the workforce.
There is a separate route where the proposed workforce reduction is based on an “economic cause”. This is dealt with under Articles 44 to 46 and requires approval from a special committee.
The distinction matters. Redundancy may be used commercially to describe many forms of restructuring, but those situations do not necessarily have the same legal basis under Oman’s Labour Law.
Does an Employer Need Two Years of Financial Losses to Make Employees Redundant in Oman?
No. The two-year requirement applies to the statutory concept of an “economic cause”, not to every redundancy situation.
Article 1(22) defines an economic cause as a financial loss suffered by the employer for at least two consecutive years. The definition also makes clear that failure to make profits, or closing an activity or branch because continuing it is not feasible, is not in itself a financial loss for this purpose.
Article 43(4), on the other hand, separately deals with matters including closure, reduction in the size of the employer’s activity and changes to production systems affecting workforce requirements.
Consider a company whose principal contract is renewed with a substantially reduced scope. A complete function may disappear and the jobs attached to it may no longer be required. Whether that situation falls within Article 43(4) or another provision cannot be answered simply by asking whether the company has suffered losses for two years.
This is why restructuring, redundancy and termination for economic reasons in Oman should not be treated as interchangeable legal concepts.
When Does a Workforce Reduction Require Committee Approval?
Where the proposed reduction is based on an economic cause, Articles 44 to 46 require the employer to obtain approval from the committee established under Article 45.
The employer must establish the economic cause and identify the number of employees it proposes to reduce. The committee may approve or reject the application.
Its decision is final unless a grievance is filed before the Court of Appeal within 30 days from the date on which the employer is notified of it.
The Law also allows the committee, where an economic cause is established, to agree with the employer and employees on alternatives to termination. These can include temporary changes to working time or wages, or unpaid leave, within the framework set by Article 45.
For employers, the important point is that an economic-cause reduction is not simply an internal restructuring decision. It involves a statutory process before employees can be reduced on that basis.
What Evidence Matters in a Redundancy?
The evidence will depend on why the workforce is being reduced.
Where an employer relies on an economic cause, the Law requires that cause to be established before the committee. Where Article 43(4) is relied upon, the relevant issue may instead be the closure, reduction of activity or change to the production system and its effect on the workforce.
In practice, a dispute may therefore turn on whether the stated business change actually occurred and whether it explains the termination in question. The relevant records will depend on the particular restructuring.
This concern predates the current Labour Law. In Supreme Court Labour Contestation 54/2005, decided on 5 December 2005, the Supreme Court held under the former Labour Law that an employer’s right to terminate was subject to notice and the existence of a justification for unilateral termination.
The current statutory framework is materially different and that judgment does not interpret Articles 43 to 46 of the present Law. It nevertheless illustrates why the reason relied upon for termination can matter when a dismissal is challenged.
For that reason, the legal basis and supporting records are best considered as part of the restructuring decision, rather than after termination has been announced.
How Are Employees Selected for Redundancy?
For a workforce reduction approved under Articles 44 and 45, Article 46 requires a fair standard to be used when selecting the employees whose contracts will be terminated.
The Law gives lower performance ratings as one example, but it does not prescribe an exhaustive list of selection criteria.
What constitutes a fair standard may therefore depend on the workforce, the positions affected and the circumstances of the restructuring. This is an area where the facts can be as important as the general statutory rule.
Can an Omani Employee Be Made Redundant While a Non-Omani Employee Is Retained?
Article 43(4) gives Omani employees specific protection in certain circumstances.
Except in cases of complete closure or bankruptcy, the provision requires the employer to take into account the requirement not to terminate an Omani employee who has the same competence and experience as a non-Omani employee working with that employee in the establishment.
This can become important where a restructuring affects positions occupied by both Omani and non-Omani employees.
Whether the statutory comparison is satisfied will depend on the employees concerned and their actual circumstances. Employers should therefore consider this issue before making final selection decisions.
What Notice Applies to Redundancy in Oman?
The answer depends on the statutory basis for termination.
Article 43 permits termination in the circumstances listed in that Article after notifying the employee. Where Article 43(4) applies, the employer must also notify the Ministry of Labour of the reason for termination at least three months before the termination date.
The economic-cause procedure is different. Once a workforce reduction has been approved under Articles 44 to 46, Article 46 requires the affected employees to receive at least three months’ notice.
Other statutory or contractual notice provisions may also be relevant. The applicable requirements should therefore be considered against the particular basis for termination and the employment contract concerned.
Do Redundant Employees Have Priority if the Business Recruits Again?
Employees terminated following an approved economic-cause workforce reduction have a statutory priority in certain circumstances.
Under Article 46, they have priority for re-employment in the same establishment if a job later becomes available whose requirements are suitable for their qualifications.
This should be kept in mind where an employer expects its staffing requirements to increase again after a reduction.
What Happens if an Employee Challenges the Redundancy?
A dismissed employee may submit a complaint to the competent authority within 30 days from the date of notification of the dismissal decision.
If the competent court finds that the dismissal was arbitrary or contrary to the Labour Law, Article 11 provides for reinstatement or compensation of between three and twelve months, calculated on the employee’s last gross wage and taking account of the employee’s circumstances and length of service. Other statutory entitlements may also be due.
A genuine commercial reason for reducing staff does not therefore answer every issue that may arise in a redundancy dispute. The statutory ground, procedure and circumstances of the individual termination may all become relevant.
For more on termination disputes, see Bait Al Qanoon’s article on wrongful dismissal under Oman’s Labour Law.
What Should Employers Consider Before Announcing Redundancies?
The first question is why the business needs fewer employees. That reason determines whether the proposed reduction may fall under Article 43(4), the economic-cause procedure in Articles 44 to 46, or another provision of the Labour Law.
The position can become more complicated where a restructuring affects a substantial workforce, involves both Omani and non-Omani employees, or follows a major change to a contract, business activity or production model.
There is no single redundancy process that applies to every restructuring in Oman. The correct approach depends on the commercial reason for reducing staff and the circumstances of the employees affected.
Bait Al Qanoon advises employers on workforce restructuring, redundancy and related employment disputes in Oman. Employers should consider the applicable legal requirements before communicating termination decisions.