Arbitration in Labor Disputes in the Kingdom of Saudi Arabia has been gaining increasing prominence as part of judicial reform efforts and Vision 2030 to build a flexible, attractive business environment.
In 1435H, traditional labor dispute settlement procedures were abolished in favor of specialized labor courts, while maintaining arbitration as an alternative available to the parties within the new legal framework.
Vision 2030 aims to enhance confidence in the legal system by expediting dispute resolution and promoting a competitive environment,
with arbitration serving as an effective additional tool that contributes to resolving disputes quickly and efficiently without imposing the burdens of prolonged judicial procedures.
Legitimacy of Arbitration in Labor Disputes
According to the Arbitration Law issued by Royal Decree No. (M/34) in 1433H, a clear legal framework for arbitration was established.
The law obliges the court to which a dispute is raised, when a written arbitration clause exists, to refrain from considering the case if the defendant raises the existence of the arbitration clause before submitting any claim or defense.
Accordingly, a written arbitration agreement becomes binding on judicial authorities and arbitration panels, provided its formalities and legal requirements are met.
On this basis, arbitration in labor disputes is legally accepted and respected judicially,
with no explicit prohibition; the absence of a prohibition implies permissibility, subject to public order safeguards and protection of established rights.
It is noteworthy that the Arbitration Law requires arbitration agreements to be in writing, otherwise they are void.
Additionally, the parties must be legally competent to dispose of their rights, and government entities may not enter into arbitration agreements except with the approval of the Prime Minister.
Types of Labor Disputes and Arbitration
- Traditionally, labor disputes fall into two main categories:
- Individual disputes: between a specific employee and employer.
- Collective disputes: related to collective agreements or labor organizations.
The Saudi Labor Law did not distinguish between these categories regarding legal settlement mechanisms in its previous stages.
- Practically, individual disputes are resolved through the labor court or by arbitration upon agreement, provided the public order requirements concerning fundamental worker rights (such as wages and end-of-service benefits) are respected.
Collective disputes—such as those related to unions or strikes—often fall under special regulations or administrative settlements,
And fundamental worker rights in these cases are considered non-negotiable according to Sharia and legal standards.
Therefore, arbitration’s role in collective disputes is limited, and it is preferable to resort to official alternative mechanisms unless otherwise stipulated in the law.
Legal Conditions for Accepting Arbitration in Labor Disputes
Acceptance of arbitration in a labor dispute requires the fulfillment of the general conditions and elements of any arbitration agreement. Key conditions include:
- Existence of a written and explicit arbitration agreement:
The employment contract must include a clear arbitration clause, or the parties may subsequently execute a written arbitration memorandum regarding the dispute.
- Legal capacity and authority to dispose of rights:
Parties must be legally competent to manage their rights, and government entities require Prime Ministerial approval to enter into arbitration agreements.
- Compliance with public order and Sharia:
Arbitration agreements must not contravene Islamic law or public order in the Kingdom.
- Adherence to Article 38 of the Arbitration Law:
The arbitration panel must decide according to the agreed-upon rules without violating public order. Any clause that waives fundamental statutory worker rights is void.
- Compliance with Article 7 of the Arbitration Law:
Parties must promptly raise objections in arbitration if aware of violations of the law or agreement terms; otherwise,
they are deemed to have waived their right to object.
- Adherence to procedural regulations:
Arbitration procedures must comply with the Arbitration Law and its executive regulations, including specified deadlines and arbitration process rules.
These conditions ensure that arbitration in labor disputes is a substantive, genuine option,
protecting the rights of both parties and preventing exploitation of the weaker legal position of the worker.
Limitations and Exceptions to Arbitration
The Saudi system protects workers’ rights from arbitrary settlements.
Arbitration may not be used to undermine minimum statutory worker entitlements;
if an arbitration clause explicitly or implicitly waives any right prescribed by the Labor Law (such as wages or end-of-service compensation), it is considered contrary to public order.
Similarly, certain matters are deemed non-arbitrable under the Arbitration Law,
Such as rights established by Sharia or law that cannot be waived, rendering the arbitration panel’s authority void in these cases.
Generally, Saudi laws surround arbitration with public order safeguards to protect the worker as the weaker party,
Particularly in matters affecting wages, social security, and compensation for injuries.
These limits ensure arbitration remains a fair mechanism, not a tool to evade statutory obligations.
Judicial and Institutional Arbitration
Institutional arbitration involves resorting to specialized centers that provide procedural rules, arbitrators, and administrative services to organize the arbitration proceedings.
Parties may select accredited centers operating according to international standards, providing a structured framework and expediting dispute resolution.
Judicial (ad hoc) arbitration, in contrast, depends on the parties’ agreement without an institutional framework, where parties or court-appointed arbitrators manage the proceedings independently.
Courts may appoint arbitrators if parties fail to agree.
The difference lies in available resources and oversight: institutional arbitration ensures scheduled hearings, a timeline, and fixed fees, while ad hoc arbitration allows greater procedural flexibility but requires more negotiation effort from the parties.
In all cases, regulatory frameworks govern both types, and parties may agree to either type provided legal conditions are satisfied.
Arbitration Procedures and Phases
Arbitration typically begins with one party submitting a request for arbitration to the selected entity or competent court (for ad hoc arbitration).
In institutional arbitration, the administrative center registers the request, notifies the other party, and collects fees.
The arbitration panel is then formed by agreement (e.g., one or three arbitrators as agreed),
Or the court appoints arbitrators if agreement fails.
- The arbitration panel conducts hearings, reviews submissions and documents, and considers the parties’ defenses.
- The panel issues a final arbitration award within the agreed period or within 12 months if no date is specified, with possible extensions under the regulations.
- The award must be reasoned and signed by the arbitrators.
- Copies of the award are delivered to each party within 15 days, and an original (or certified copy) is filed with the competent court within 15 days.
- Enforcement requires submission to the court along with the arbitration agreement and a certified Arabic translation if in a foreign language.
- The court examines the award for compliance with Sharia and public order before issuing an enforcement order or rejecting it.
Advantages of Arbitration in Labor Disputes
Arbitration offers several practical advantages over traditional litigation:
- Speed and flexibility:
Dispute resolution is usually faster than in courts, and parties can design flexible procedures, such as the number of arbitrators or hearing formats.
- Confidentiality:
Arbitration is confidential, ensuring sensitive company information is not publicly disclosed.
- Expert arbitrators:
Parties may select arbitrators specialized in labor law or relevant industry sectors, facilitating better understanding and faster resolution.
- Cost reduction (relative):
Arbitration fees are generally lower than prolonged court proceedings, especially in complex cases.
- International enforcement:
International agreements, such as the 1958 New York Convention, regulate enforcement of foreign arbitration awards, protecting foreign investments.
These advantages make arbitration a strategic choice for companies seeking faster, private, and efficient resolution of labor disputes.
Conclusion
Arbitration represents a strategic option for parties in labor disputes in Saudi Arabia,
Providing flexible dispute resolution aligned with Vision 2030’s goals for an attractive and effective business environment.
With the necessary legal safeguards—respecting Sharia, public order, and worker rights.
Saudi and foreign institutions can confidently pursue arbitration as a trusted solution for labor disputes.
Arbitration is thus a complementary legal tool with high investment value,
Reducing traditional judicial costs while offering a more private and expedited dispute resolution environment,
Supporting the Kingdom’s legal and economic objectives.
Al-Mashoura Law Firm offers specialized legal expertise in representing clients before various arbitration bodies, drafting arbitration clauses, managing dispute resolution procedures.
And providing operational legal consultation to ensure efficient and professional management of labor disputes in full compliance
with the latest Saudi regulations.