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Oman labour reforms raise cost concerns for businesses

Oman labour building site Shutterstock/Philip Lange
A building site in Muscast, Oman. The Mena region has the potential to become a global leader in the use of innovative and sustainability-focused construction technologies
  • New law allows firing expats in favour of nationals
  • Concerns raised about increased costs
  • Law will need ‘careful handling’ say experts

Oman’s reforms to its labour laws run the risk of making the sultanate a less attractive place to invest and do business, experts have warned.

New legislation – which aims to enhance worker protection and promote Omanisation – expressly permits the termination of expatriate employees in favour of appointing Omani nationals. 

Concerns have been raised about the law increasing operating costs for businesses.

Oman published its labour law at the end of July. The intention was to strike a balance between employer and employee interests by extending protections for local workers in the private sector and providing procedural rules for redundancy dismissals. 

Redundancy was previously an unrecognised concept under Omani law, although a temporary allowance was agreed during the Covid-19 pandemic.

Scott Cairns, managing director of Creation Business Consultants in Dubai, said the law’s emphasis on work as an intrinsic need for Omani nationals and the stringent conditions it imposes on the recruitment of non-Omani workers could lead to higher labour costs and lower productivity for businesses.

“The new law will need careful handling. It could lead to a scenario similar to that in Kuwait, where the government implemented radical labour market transformations that resulted in the termination of employment for hundreds of expat workers,” he told AGBI.

While the Omani government has insisted that the new reforms are necessary to ensure that Omanis have priority access to jobs, Cairns added that it is important to “strike a balance” between nationalisation goals and creating an environment that continues to attract foreign investors and businesses.

Analysts at BMI agreed. In a research note they said operating costs for businesses are likely to rise because of the reforms and that the increased emphasis on the employment of locals will “serve to limit recruitment options in the medium term”.

International obligations 

BMI said the new law retains provisions that are inconsistent with International Labour Organization conventions, and does not fully consider the rights of migrant workers. 

For example, non-Omanis may be terminated if it relates to Omanisation requirements and involves hiring an Omani replacement for the same role. 

Under the law, employers with more than 25 employees must also provide yearly strategies for localising their workforce. 

Penalties for employers who fail to comply with Omanisation regulations have been doubled, with fines ranging from OR500 ($1,300) to OR1,000 for each Omani who is meant to be employed. 

According to BMI analysts, compliance will be “challenging” given that non-Omanis make up a significant portion of both the overall population (nearly half) and the workforce in the private sector (more than 80 percent). 

They said the sectors most exposed are construction, retail and manufacturing.

Law firm Clyde & Co said that whereas the old law stated that an employer in Oman shall employ Omani nationals to “the utmost possible limit”, the new law now emphasises that work is the right of Omani nationals. 

Another law firm, Trowers & Hamlins, also noted that companies may also be required to contribute financially to a new national training programme for Omanis.

The law introduces several other changes related to new working patterns such as remote working, extended leave entitlements, increased overtime rates and capping arbitrary termination compensation at 12 months gross salary.

Registered trade unions will now be treated as an independent legal entity and have the right to exercise their activities freely. 

However, strikes remain forbidden in establishments offering public services, including essential sectors such as oil facilities, ports, airports and public transport. 

A grace period until the end of January 2024 has been given during which both employers and employees have to ensure compliance. 

Cairns said that while Oman’s labour reforms represent a “positive step” in the long term, they could have some short-term challenges for local companies, particularly smaller businesses. 

“It is too early to say what the full impact of the reforms will be, but it is clear that they will have a profound impact on local firms and the wider economy,” he added.