Legal opinion regarding inquiries about the current situation

Legal opinion regarding inquiries about the current situation in light of the economic conditions in Egypt due to COVID-19 outbreak

Under the current economic circumstances and the losses incurred by companies in combating the threat of the newly discovered coronavirus (COVID-19), we list hereunder the provisions of the Articles that the employer can proceed with.

First, with regard to the closing down the establishment wholly or partially Under the provisions of Article (196) of the Egyptian Labor Law No. 12/2003, which provides that: The employer, for economic necessities, shall have the right to close down the establishment wholly or partially, downsize it or reduce its activity which might affect the size of labor therein, according to the conditions, terms and procedures prescribed herein in the present law.

Also, Article (197) of the same Law stipulates how to implement the provisions of the previous Article: In applying the provisions of Article (196) of this Law, if Ten employees are employed by the employer, the employer shall:

1. Submit a request for closing down, downsizing or reducing activity of the establishment, to a committee to be formed for that purpose.

2. The request shall comprise the reasons it is based on in doing that, as well as the numbers and categories of employees to be laid off.

3. The committee shall issue its decision duly substantiated within at most thirty days from the date the request is submitted to it. If the decision is issued accepting the request, it shall comprise an indication of the date of its execution.

4. The concerned party may complain against that decision before another committee to be formed for that purpose. The complaint against the decision accepting the request shall result in staying its execution. A decree of the competent minister shall be issued forming each of the said two committees and determining their powers, the procedures to be followed before them, and the dates and procedures of submitting the complaint.

Article (198) of the same Law also added that in the event of a decision issued approving the closing down of the establishment wholly or partially: The employer shall notify the workers and the concerned trade union organization of the request submitted and the decision issued for closing down the establishment wholly or partially, downsizing it or reducing its activity. The said decision may be executed effective the date to be determined by the committee examining the request or the complaint, according to each case.

Also, Article (199) of the same Law regulates the method of laying off employees in the event of a decision issued approving the closing down of the establishment wholly or partially In case of partial closing down, downsizing or reducing activity of the establishment, if the collective agreement in force at the establishment does not comprise the objective criteria for choosing the employees to be laid off, the employer shall:

1. Consult in this respect with the trade union organization, after the issue of the decision and before its execution. The seniority, family burdens, age, and vocational abilities and skills of the employees shall be within the criteria that may be drawn upon in this respect.

2. In all cases, these criteria shall observe balancing between the interest of the establishment and those of the employees.

Second: with regard to reducing wages instead of closing down the establishment, the provisions of Article (201) of the Labor Law provides that:

Subject to the provisions of Article (198) of the present Law, and in the cases where the employer has the right to terminate the employment contract for economic reasons, the employer may – instead of using that right – modify the conditions of the contract temporarily, and may in particular assign the employee a non-agreed upon work even if it is fundamentally different from the employee’s original work. The employer may also reduce the wage of the employee up to not less than the minimum wages. If the employer modifies the conditions of the contract according to the previous clause, the employee may terminate the employment contract without being committed to send a notification. The termination of the contract in this case shall be considered a substantiated termination on the part of the employer.

The employee shall be entitled to the compensation prescribed in the following Clause: in terminating the contract for economic reasons according to the procedures indicated in Articles (196) to (200) of the present Law, the employer shall pay to the employee whose contract is terminated a compensation equivalent to the comprehensive wage of one month for each of the first five years of service, and one and a half months for each year after the first five years.

(In this case, the employee shall be entitled to the wage computed against the employee’s annual leave balance only. The employee shall be entitled to one month for the first five years of his employment and one and a half months for each of the remaining years of employment)

Items that the employer may not pay within the wage according to the above: Article (1) of the Labor Law provides that the following shall be considered a wage: any bonus given to the employee in addition to his wage, and all that is paid to him due to his honesty or efficiency, once these bonuses are prescribed in the individual or collective employment contracts or in the work articles of association, as well as that which has become customarily payable once fulfilling the qualities of generality, continuance, and constancy.

The bonus shall mean an amount of money or anything other than cash given to employees on certain occasions or at certain times, for example what the employer gives to the employees on holidays or at the end of the fiscal year. The bonus shall not be related to the success of the business and its profits.

As for the reward, it is a type of bonus that the employer grants to the employee in recognition of his honesty, loyalty, or competence. It is like the rewards given to the employee who achieves a savings in the use of raw materials, or who completes his work on time, or who regularly attends to work on time. It is called in business as incentive rewards. The reward for a worker may be in recognition of production increase over a certain rate, and in such a case it is called production increase reward.

The basic principle is that bonuses and rewards are a donation from the employer to the employees, and shall not therefore be considered part of the wage. However, this description changes and they become part of the wage, if the employer becomes obliged to pay them, regardless of the source of this obligation. The obligation of the employer to pay them means that the employer shall not have the choice to revoke them or reduce their value.

Periodic Annual Increase of Wages
It is an amount of money or anything other than cash given to the employee at regular intervals, often one year, and therefore is often called the annual increase. This amount may be determined by a percentage of the basic wage of the employee, 10% for example. The periodic increase is added to the basic wage, which results in this wage being increased by the amount of the increase.

The rule is that the employer shall not be obliged to grant his employees a periodic increase unless there is a provision for such an obligation in law, in the individual employment contract, the collective employment contract, or in the regulations of the establishment, or that it is customary to grant it. In other words, the increase may be based on a legal provision, a clause in an employment agreement or a customary procedure.

This is a summary of all inquiries that arise under the current circumstances by the employer.

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