Saturday 22 / November / 2025
The Oman’s Labour Law establishes the “economic cause” not as a simple excuse for downsizing of the workers, but as a precisely calibrated legal instrument for corporate survival. The provision is reserved for genuine financial crises, turning it from a matter of managerial choice into a closely monitored process that balances a company’s need to overcome serious financial difficulties with strong protections for its employees.
Speaking exclusively to the Times of Oman, Dr. Mohammed Ibrahim Al Zadjali, Founding Partner of Mohammed Ibrahim Law Firm, said that “an economic cause is fundamentally defined as a financial loss sustained by the employer for a minimum of two consecutive years.
Critically, the law distinguishes this from a mere lack of profitability, explicitly stating that the failure to make profits or the closure of a branch for feasibility reasons alone does not qualify as a valid financial loss. It ensures the provision is reserved for situations of sustained financial distress, not temporary or strategic downturns.”
He further stated that “the application of this provision is not a unilateral decision by the employer. While it is recognised as legitimate grounds for contract termination, however, workforce reduction crucially requires prior approval from a special, committee.”
“This committee is established by the Minister of Labour and is composed of a representative from the Ministry of Labour who chairs it, and members from the Ministry of Commerce, Industry, and Investment Promotion, the Oman Chamber of Commerce and Industry and the General Federation for Workers of the Sultanate of Oman. The employer bears the responsibility of applying to this body and must present comprehensive evidence of both the economic cause and the rationale behind the proposed staff reductions,” he said.
He clarified that “upon confirming an economic cause exists, the committee’s primary mandate is to seek a mutual agreement between the employer and the workers on alternatives to termination. These alternatives can include a temporary reduction of working hours and wages, designated periods of unpaid leave distributed equally among the workforce, or a temporary reduction of wages by a specific percentage for all workers. The employer may only proceed with staff reductions if the committee finds these alternatives unfeasible and formally approves the application.”
He concluded by stating that “the economic cause provision ultimately serves as a procedural gateway, ensuring workforce reduction is a validated last resort rather than a discretionary management decision.”
* (Mohammed Ibrahim Law Firm ([email protected]), (+968 244 87 600) was established 18 years ago and is serving clients through its offices in Muscat and Sohar, as well as operating on a request basis in other areas. It offers legal representation across a wide range of practice areas that include Labour Law, Corporate, Commercial, Contracts, Banking and Finance, International Trade, Foreign Investment, Insurance, Maritime Law, Construction and Engineering Contracts, International Arbitration, Intellectual Property and more).
