Egypt: Draft Labor Law would establish new severance requirements

Employer Action Code: Monitor

The Senate has approved a draft Labor Law to replace the Labor Law of 2003. According to the government, the Law would harmonize the interests of employers and employees, match the regulatory framework with the demands of contemporary labor markets and align the Law with the international labor agreements to which Egypt is a signatory.

Key details

• Severance of two months’ pay per year of service would be payable for dismissal of permanent employees without just cause.
• Maternity leave would increase from 90 to 120 calendar days at 100% of pay (75% by social security, 25% by the employer) for a maximum of three births (currently limited to two under the 2003 Labor Law) and a new entitlement of one day of employer-paid paternity leave for the birth of a child. In addition, the right of new mothers to take up to two years of unpaid parental leave would be extended to firms with 25 or more workers (currently applicable to firms with 50 or more workers).
• Sick leave, payable by social security, would double in length, from six to 12 months. The benefit payable would also increase to 100% of covered earnings for the first three months, 85% for the following six months, and 75% for the last three months. The current benefit is 75% of covered earnings for the first three months and 85% for the last three months.
• New restrictions on the duration of fixed-term employment would apply such that fixed-term employment exceeding four years under one or more contracts would automatically be converted to indefinite-term employment.
• Employers would be subject to a two-month notice requirement for non-renewal of fixed-term contracts, plus payment of an end-of-service indemnity equal to one month’s pay per year of service. The notice requirement for employees engaged under fixed-term contracts would decrease from three to two months.    
• The notice period would be three months for indefinite-term contracts, with an option to provide pay in lieu of notice. The current standard is three months, reduced to two months for service of less than 10 years and with no explicit provisions for pay in lieu.
• During the first year of employment, workers would be entitled to 15 calendar days of paid annual leave. Leave after one year of service would be unchanged at 21 calendar days. Employees aged 50 or older would be entitled to 45 calendar days. In addition, the casual leave entitlement (after one year of service) would increase from six to seven days.
• Employees would be entitled to guaranteed minimum annual pay increases equal to 3% of the covered pay ceiling for social security contributions, effectively codifying an identical measure (Resolution No. 57) put in place in 2021.
• Employers would contribute 0.25% of payroll to a central training fund. Such a fund was supposed to have been established under the 2003 Law, funded by employer contributions of 1% of net profits, but it was never implemented.

Employer implications

The draft Labor Law has been under development for years. If a final draft is approved by both Houses of Parliament and signed by the president, it will take effect 90 days later. While the draft Law has been presented as a modernization of the Labor Law, it also creates various new entitlements for employees, possibly with substantial cost implications for employers.