An employment contract shall fulfil equality, meaning that it shall protect both the employee and the employer.

One of the major issues in this regard are cases where an employee is not fit in his/her position, resulting in a non-efficient work environment for the employer. In such a case, justice deems that an employer shall have the right to terminate the employment contract simply by stating the reason(s)for such an issue according to the entity’s internal regulations in order to protect his/her entity’s on-going productivity and efficiency.

One might say that article (69) of the Labour Law already protects employers in this regard by stating several scenarios where employers could dismiss their employees if they committed a fundamental breach. However, by looking deep into this article, one would find it constraining the employer, as it only grants employers the right to dismiss their employees in cases where they commit a fundamental breach, which requires a very high level of default according to the general rules of law. This article did not mention cases where other scenarios of default, that might not be considered fundamental, but would affect the employer’s working environment in a way that would necessarily require the dismissal of the defaulting employee. This includes the obligation of being efficient, as an inefficient employee would convert any working environment into a toxic and an unconformable one.

In this article, we will discuss how the three (3) types of employment contracts could be terminated by employers under the Egyptian Labour Law, moving forward to the Egyptian Court of Cassation’s recent trend towards toning down the valid reasons for termination on employers, and finally how this would impact companies and employment contracts drafting in general.

1. Termination of Employment Contracts Under the Labour Law

Termination of employment contracts under the Labour Law largely depends on the type of contract the employee has:

Fixed term contracts

In fixed term contracts, an employer cannot terminate the employee’s contracts prior to the lapse of its period unless a valid reason is provided i.e., gross negligence or a fundamental breach. As for what constitutes a fundamental breach, article (69) of the Labour Law stipulated several examples of what is considered a fundamental breach by an employee:

1. If the employee committed a mistake that caused egregious damage to their employer (given that the employer reports the said incident to the competent authorities within 24 hours of their knowledge of the incident);
2. If it is proven that the employee assumed a false identity or submitted counterfeit or forged documents;
3. If the employee assaults their employer or their manager; or grossly assaults any of their managers during working hours or due to work related reasons. (The law does not define “attack” but Egyptian jurisprudence agrees that both physical and verbal attacks are grounds for dismissal);
4. If the employee was found inebriated, intoxicated or under the influence of narcotics during working hours;
5. If it is proven that the employee had disclosed the company secrets or confidential information and such disclosure brought about gross or serious damages to the company;
6. If the employee was found to have competed with their employer in the same industry during their tenure as an employee;
7. If the employee was found to have had accumulated a total of 20 non-consecutive days of unexcused absences in one year (any rolling 12 months) or 10 consecutive days, provided he was notified in writing with acknowledgment of receipt within 10 days in the case of non-consecutive absences and 5 days in the case of consecutive absences;
8. If the employee had repeatedly failed to observe and abide by the safety regulations put in place for the safety of employees and the workplace, the said regulations are clearly stated and publicized in an apparent place and the employee was notified and warned in writing to observe and abide by the safety regulations; and
9. If the employee violates or breaches the provisions pertaining to strikes stipulated in articles 192, 193 and 194 of the Labour Law.

Other than the aforementioned article, Labour Law also stipulates other instances whereby an employee’s employment may be terminated such as:

1. In the event that an employee suffers from a permanent and full disability that renders them unable to perform their job. In the event of partial disability, the employer is within their rights to transfer the employee to another position that is better suited to the employee’s abilities given only if the said position is available within the company. If such position is not available, then the employer has the right to dismiss the employee;
2. In the event that a sick employee has exhausted all of their sick leave and their annual leave and has not returned to work (the aforementioned only applies if the employer issued written notice 15 days prior to the expiry of the employee’s leave); and
3. The felony conviction of the employee or imprisonment for crimes related to honour, integrity or public morality/decency.

On the other hand, if the employer terminates a fixed term contract before the lapse of its term without a rightful justification, compensation could amount to the gross salary for the remaining period of the contract as well as any unused vacation days in the employee’s balance.

Unlimited term contracts

As per article (110) of the Labour Law, an employer cannot terminate an employee’s contract unless a valid reason is provided and it is proven that the said employee is either:

1. unfit for the job as per the approved internal regulations of the employer, or;
2. has committed a “fundamental breach” (one of the cases of article (69) mentioned above).

Therefore, an employer cannot terminate an unlimited term contract except for the specific reasons of termination stated in the law or because the employee is “inefficient”.  These grounds in practice may be difficult for the employer to establish except in the most clear-cut cases. In this regard, article (122) of the Labour Law states that if termination of an unlimited term contract was from the employer’s side and without justification, the employee may resort to the labour court to request compensation: (i) not less than two months’ gross salary for each year of service for the same employer; (ii) payment in lieu of notice, (two months’ gross salary in return for the statutory notice period if the employment period is ten years or less, three months’ gross salary if the employment period is more than ten years); and (iii) any unused vacation days in the employee’s balance.

Specific purpose contracts

A specific purpose contract, under article (107) of the Labour Law, gets terminated by the conclusion of the purpose of the contract. An employer cannot dismiss a specific purpose contract before the conclusion of its purpose unless the employee has committed a “fundamental breach” (mentioned above), as per article (69) of the Labour Law.

If, however, the employer terminates a specific purpose contract before the conclusion of its purpose without a rightful justification, the general principles of the Civil Code stipulates that the employee could be entitled to compensation equal to (a) the damages incurred by the employee and (b) the lost profit.

In this case, the damages and loss of profit incurred by the employee could approximately be the employee’s salary for the remaining period in which the work would have been completed.

2. Egyptian Court of Cassation’s Recent Trend Towards Fulfilling Equality

The Egyptian Court of Cassation has cut great miles in 2017, and again in 2021, by construing paragraph (2) of article (69) of the Labour Law in a favorable fashion for employers.[1] In this regard, the Court of Cassation in its decision No. 12653 for 89 JY, dated 21 Feb. 2021, stated that:

“… since article (69) para. (2) of the Labour Law stipulates that if the employee is found to have committed an error resulting in serious damages to the employer, the latter shall have the right to dismiss the employee if he/she has committed a fundamental breach resulting in serious damages to the employer, provided that the employer informs the competent authorities within 24 hours from the time of his/her knowledge of that occurrence…”.

The Court continued: “… meaning that the employment contract entails mutual obligations on both parties, (emphasis added) if the employee breaches one of his/her obligations arising from the contract of employment, including the obligation to be transparent and not to deviate from the requirements of the job, the employer shall have the right to terminate the employment contract.”

In light of the above, the Court of Cassation has reduced the magnitude of article (69) by considering the obligation to be transparent and not to deviate from the job requirements as valid reasons for dismissing employees. As per the previous course of the Egyptian courts and jurisprudence, being transparent and not deviating from the job requirements were not considered as fundamental defaults that would allow for employers to dismiss or terminate their employment contracts. Hence, the Court of Cassation by its rightful decision opened another door for employers that would ease the termination of their employment contracts that are draining their businesses, without the burden of proving their situation.

It is worth mentioning that the Court of Cassation recent trend is supporting today’s world-wide proposed reforms to labour laws, which suggest prescribing a more concrete and definite criteria under the labour law for what considers a “fit” and “unfit” employee. For instance, an employer could have certain Key Performance Indicators (KPIs) included in the entity’s internal regulations (approved by the Labour Office), as a detailed reference for evaluating their own employees.

3. The Court of Cassation’s Recent Trend and its Impact on Companies & on Employment Contracts

As a result of the foregoing, companies and employers could confidently terminate employment contracts that would negatively affect their business. In this regard, companies will not only have the chance to terminate employment contracts as per articles (69) and (110) of the Labour Law, but also could confidently consider non-transparency and deviating from the company’s job requirements as valid reasons for terminating and dismissing employees, thanks to the Court of Cassation’s recent decisions! The application of which would foster trust between the employers and their employees and enhance their relationships. Thus, employers would be able to only hire top talents that would generate productivity in the whole entity.

In addition, from a legal perspective, the recent path of the Court of Cassation shall be put into consideration while drafting employment contracts. That is, non-transparency and deviating from the job requirements shall be included in termination clause as valid reasons for the employer to dismiss and terminate the employment contract. Further, it shall be advised for companies to include in their internal regulations the same matter, in order for employees to be readily aware of the consequences of their actions.

In conclusion, the Court of Cassation’s recent movement truly benefited employers in the Egyptian market, while simultaneously maintaining equal rights for both the employee and the employer. We are looking forward for the Court of Cassation’s upcoming decisions that will be beneficial for the workforce as a whole.

[1] Decision No. 8032, for JY 82, dated 14/12/2017; and Decision No. 12653, for JY 89, dated 21/02/2021.