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Egypt: Managing Covid-19

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A Q&A with the Matouk Bassiouny & Hennawy team on the ability to furlough employees, reduce salaries, freeze annual raises and other key employment issues under Egyptian law in light of Covid-19.

Covid-19 is fundamentally impacting day-to-day business operations worldwide. Many offices have been shut down and many companies have ordered employees to work from home, while taking steps to remain virtually open. Consequently, the world economy has come to a halt and there is no doubt that there will be adverse pressure on business revenues, which will mean that businesses may not be able to sustain current payroll costs.

Below Matouk Bassiouny & Hennawy has compiled a list of commonly asked questions surrounding labour laws in Egypt, the impact of the pandemic on labour relations in Egypt and employers' abilities to take certain economic measures that could have an impact on their employees.

Can an employer unilaterally reduce salaries?

Generally, no. Apart from limited reductions for disciplinary reasons, employers cannot unilaterally reduce salaries.

There are two limited exceptions to this rule in the Egyptian Labour Law. The first is where there is a compelling event or circumstance, outside an employer's control, which prevents employees from working despite showing up for work. In such cases, employers may reduce the salaries by up 50% of an employee's salary for the duration of the event or circumstance.

A second exception is in cases where the employer has the right to terminate the employment contract for economic reasons (an issue further addressed below). Employers may instead decide to decrease employees' wages, as long as they do not go below the statutory minimum wage. However, employers must first obtain approval from a governmental committee assembled for this purpose. We note however that this is a lengthy and bureaucratic process as the committee does not convene regularly and current lockdown measures may even prolong that process. In any event, if this course of action is pursued, employees have the right to terminate employment contracts and are entitled to an end-of-service compensation. This compensation is equivalent to the gross salary of one month for each of the first five years of employment, and the gross salary of one and a half months for each year exceeding that.

It is possible that the Covid-19 pandemic could fulfil both of these exceptions, however this must be determined on a case-by-case basis, taking into consideration the economic impact of the pandemic on an employer's business.

Can an employer freeze salaries?

Egyptian Labour Law states that all persons governed by the Labour Law are entitled to a minimum annual raise of 7% of their basic salary. The basic salary referred to here is not the employee's actual basic salary, but rather the salary upon which social insurance contributions are calculated. This is currently capped at EGP7,000 ($441) per month, and therefore the annual increase is actually EGP490 or less.

Apart from this minimum annual raise, employees are not normally entitled to a salary increase except if a salary increase is stipulated in a contract or internal regulations, in which case it becomes mandatory; if a salary increase has become an acquired right, in which case it also becomes mandatory – a salary increase would become an acquired right if the same salary increase has been granted generally (namely to all employees or to a class of employees) for at least three consecutive years; or if there is a collective labour agreement that stipulates an annual increase between representatives of employers, such as the Egyptian Tourism Federation and Egyptian Banks Federation, and representatives of employees, such as union organisations. These latter types of annual increases usually range between 10% – 20% of the basic salary on which social insurance is calculated.

These circumstances are not impacted by the Covid-19 pandemic, and as such employers can only freeze salaries if none of the above circumstances are fulfilled.

Can an employer reduce variable compensation that is based on performance ratings?

In most cases, yes. However, if an employee has earned the same bonus year after year, while maintaining the same performance rating, there is a risk that the employee could claim that they have acquired a right to the same bonus payment.

Once again, this is not impacted by the Covid-19 pandemic.

Can an employer force employees to take vacation time?

Yes. Employees are entitled to a minimum annual leave of 21 calendar days. This is increased to 30 calendar days if they have been employed for more than 10 years or they are over 50 years old.

It is up to the employer to determine the dates of annual leave according to work requirements and circumstances. An employee is obliged to take leave on the date and for a period of an employer's choosing. If an employee refuses in writing to take the leave specified by the employer, the employee's right to financial compensation for unused leave is forfeited.

Can an employer lay off employees for economic reasons?

In principle, yes. Employers may use their discretion to fully or partially close down their establishment, or reduce its size or activities, and accordingly, the size of their workforce. In order to do so, the employer must follow a specific set of procedures whereby they must submit a request to the competent committee at the Ministry of Labour, along with sufficient evidence that the establishment is facing unexpected economic circumstances under which is has become inevitably necessary to cut down its workforce.

If the committee approves the request, the employer will have the right to lay off certain employees with compensation or modify their employment terms (reduce their salaries). The employer must notify the employees, as well as the relevant union organisation, of the request and the decision issued by the committee to totally or partially close down the establishment or to reduce its size or activities.

If the employer's collective labour agreement does not include objective criteria for selecting which employees should be laid off, the employer must consult the relevant union organisation after the issuance, but before the implementation of the decision. Seniority, family burdens, age, professional capabilities and skills of employees are among the criteria that can be used as determining factors. In all cases, these criteria must take into account the balance between the interests of the employer and employees.

Affected employees can file a grievance against the decision to cut down the workforce to a separate committee, which would convene solely for this purpose. If such a grievance were to be filed, the decision to cut down the workforce would be suspended until a ruling on the grievance is issued. The committee considering the grievance would then also determine the date of implementation of the decision to cut down the workforce.

Employees laid off through this process are entitled to an end-of-service compensation equivalent to the gross salary of one month for each of the first five years of service and the gross salary of one and a half months for each year exceeding that.

That being said, this is also a lengthy and bureaucratic process. These committees do not convene regularly, and Covid-19 lockdown measures may further prolong the process.

Can an employer impose a short-term furlough or reduce employee working hours by a certain percentage, with a corresponding percentage of reduction in pay?

In our view, an employer cannot unilaterally impose these types of measures on employees. If an employer wishes to pursue this course of action, they must seek the approval of the government committees, the processes for which are outlined above in the first and fifth question.

What are the employer's health obligations in light of Covid-19?

Under the Egyptian Labour Law, employers must take all necessary measures to protect employees from the risk of infection with bacteria, viruses, fungi, parasites and other biological hazards whenever the nature of the work exposes the workers to the conditions of their infection. Employers must take preventative measures to minimize the negative risks that arise from (or are aggravated by) their absence, such as those related to first aid and hygiene.

Failure to abide by this rule incurs a penalty of imprisonment for a minimum period of three months and/or a minimum fine of EGP1,000, not exceeding EGP10,000. The penalties double in cases of repeat offences.

Both penalties of imprisonment and fines are obligatory if failure to abide by the regulations of safety, professional health and security in the workplace results in death or major injury.

On the March 14 2020, the Ministry of Health and Population issued decree no. 145 of 2020, which lists Covid-19 under the first section of infectious diseases stated in law no. 137 of 1958. According to this law, employers must now inform the competent health authority of any employee that is infected or suspected of being infected with Covid-19. Employers are otherwise are subject to penalties (namely, a fine or two months imprisonment).

Overall, there are certain limited measures that employers can take in response to Covid-19 in regard to their payroll costs. It is difficult to predict how the government and courts would respond to businesses resorting to such cost-cutting measures on a mass scale. It also remains to be seen whether the government will step in with certain bailout measures to prop up eligible employers during the pandemic, such as a wage subsidy scheme.

Omar Bassiouny

Founding partner and head of corporate and M&A, Matouk Bassiouny

Cairo, Egypt

Tel: + (202) 2796 2042 (ext.102)

Omar S Bassiouny is a founding partner of Matouk Bassiouny and heads the regional corporate and M&A practice group. Omar focuses on all corporate matters including M&A, public takeovers, restructuring and cross-borders transactions. In addition to corporate, Omar has significant experience on all aspects of investing and doing business in Egypt and the MENA region. He is consistently ranked in top tiers and bands by legal publications in the areas of corporate law and M&A, among other things for his considerable expertise in setting-up joint-ventures and new projects in Egypt and Dubai, as well as for ensuring compliance with local laws and corporate governance. Omar is also recognised for his negotiation skills and business sense.

Ahmad Farghal

Senior associate, Matouk Bassiouny & Hennawy

Cairo, Egypt

Tel: + (202) 2796 2042

Ahmad Farghal is a senior associate at Matouk Bassiouny & Hennawy. He is an Egyptian lawyer with 10 years of experience based in Cairo. Ahmad's practice focuses on M&A, capital markets and general corporate and commercial. He also has experience with oil & gas, public-private partnerships (PPP) and public tenders, and dispute resolution and arbitration.

Ahmad has acted on some of the largest and most complex transactions in the Egyptian market. His client roster includes internationally renowned firms and institutions such as Shell, RWE Dea, Credit Suisse, UBS, European Investment Bank (EIB) and the EBRD. Ahmad was awarded an LLM in international economic law, with merit, from the University of Edinburgh on a Chevening Award Scholarship (UK Foreign and Commonwealth Office scholarship).

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