Termination of Employment in Bahrain: Managerial Discretion and Legal Constraint

Bayan Al Matrook (balmatrook@raeesandco.com) – Associate

Termination of employment remains one of the most common sources of labour disputes in Bahrain. While employers retain discretion to manage their workforce, including by addressing poor performance, misconduct, or operational restructuring, that discretion is subject to statutory limits under Bahrain Law No. 36 of 2012 on the Issuance of the Labour Law in the Private Sector (the “Labour Law”), as amended.

In practice, one of the most common misconceptions is that serving notice is sufficient to protect the employer from liability. Notice may bring the employment relationship to an end, but it does not necessarily determine whether the dismissal was lawful. Where the termination is challenged, the employer may still be required to establish that the dismissal was based on a justifiable cause and that the applicable statutory process was followed.

This article considers the distinction between termination by notice and termination for justifiable cause, and highlights the importance of properly classifying the reason for dismissal, complying with any applicable statutory process, and maintaining an evidentiary record capable of supporting the employer’s decision.

THE LEGAL EFFECT OF NOTICE

The notice period is usually the first issue employers consider when ending an employment relationship. This is understandable. Article 99(a) of the Labour Law requires at least thirty (30) days’ notice, unless the employment contract provides for a longer period. Article 100 further requires the notice to be in writing and properly served, so that there is no later dispute as to whether it was received or when the notice period began.

However, notice should not be treated as a complete defence. It deals with how the employment relationship is brought to an end. It does not fully answer why it was brought to an end. Article 99(e) expressly preserves either party’s right to claim compensation where applicable. A termination letter may state that the employee is being terminated “in accordance with the contract” or “in accordance with the Labour Law”. That may be correct as far as notice is concerned, but it does not necessarily explain the reason for dismissal. If the employee later challenges the termination, the employer may need to show that there was a justifiable cause under Article 101.

Timing should also be considered. Article 102 of the Labour Law restricts termination during the employee’s leave and provides that, where notice is served during leave, the notice period begins from the day following the end of that leave.

Accordingly, before notice is served, the employer should already know the legal route being taken. Is this a probationary termination? Poor performance? Misconduct? Redundancy? Retirement? Each route has different requirements and consequences.

CLASSIFICATION OF THE GROUND FOR TERMINATION

Before issuing a termination notice, the employer should be clear on the real reason for the decision. This may sound obvious, but in practice, termination decisions are sometimes described in ways that do not match the underlying facts. For example, a dismissal may be described as redundancy when the real concern is performance. A termination may be framed as a general business decision when the issue is actually misconduct.

Proper classification of the ground for termination is central to the employer’s position. The Labour Law treats different grounds of termination differently. Poor performance or lack of competence is addressed under Article 109, serious misconduct and summary dismissal under Article 107, redundancy and restructuring under Article 110, and retirement under Article 115.

A termination described generally as arising from “business needs”, “loss of confidence” or “unsuitability” may therefore be vulnerable if the underlying facts point to a more specific statutory route. Where the issue is performance, the employer should be able to show compliance with Article 109. Where the issue is misconduct, the employer should identify the relevant Article 107 ground. Where the issue is redundancy, the employer should establish the Article 110 basis and the related procedural requirements.

The classification of the dismissal is therefore not just a drafting point. It is the foundation on which the employer’s legal position will be assessed if the termination is later challenged.

 POOR PERFORMANCE

Poor performance may constitute a legitimate basis for termination, but it is subject to specific statutory requirements. Employers often know when an employee is not meeting expectations, but the legal question is whether that concern was properly communicated and whether the employee was given a genuine chance to improve.

Article 109 of the Labour Law provides that an employer may not terminate an employment contract on the basis of the employee’s limited or lacking competence unless the employee has been notified of the areas of deficiency and given an appropriate period of not less than sixty (60) days to reach the required standard. If the employee does not improve during that period, the employer may terminate by giving notice in accordance with Article 99(a), subject to any longer notice period agreed in the employment contract.

This is particularly important because performance concerns are often fact-sensitive. One manager may view an employee as underperforming, while the employee may say that targets were unclear, training was insufficient, or expectations changed. For that reason, the performance issue should be specific. The employee should understand what is wrong, what standard is expected and what must change within the improvement period.

A performance process that exists only on paper, or sets unrealistic targets, may not protect the employer if the termination is challenged. By the time the employer reaches termination, there should already be a clear record showing the issue, the warning, the improvement period and the employee’s response.

Where termination is effected following the Article 109 process, the employee would generally remain entitled to notice, accrued wages up to the termination date, payment for any accrued but unused annual leave, and any applicable end-of-service indemnity or gratuity. Compliance with Article 109 is therefore relevant not because it removes the employee’s final entitlements, but because it assists the employer in demonstrating that the dismissal was based on a justifiable cause and should not give rise to compensation for unjustified dismissal under Article 111.

MISCONDUCT

Misconduct differs from poor performance. In serious cases, Article 107 of the Labour Law permits an employer to dismiss an employee without notice or compensation. However, this is an exceptional route and should be approached carefully.

Article 107 identifies specific circumstances in which summary dismissal may be permitted, including:

• false identity or false certificates;
• a fault that results in material financial loss to the employer (subject to timely reporting);
• repeated failure to comply with written safety instructions;
• unjustified absence exceeding statutory thresholds;
• failure to perform the fundamental terms of the employment contract;
• disclosure of confidential information without authorisation;
• criminal convictions involving dishonour or public morals, or committing an immoral act;
• being under the influence of alcohol or drugs at work;
• seriously assaulting workers or clients; and
• loss of permits or qualifications rendering the employee unfit for work.

The point is that misconduct should not be used as a general label for any behaviour the employer dislikes. Not every mistake, disagreement or poor judgement will justify immediate dismissal. The employer should identify the specific conduct, connect it to one of the Article 107 grounds, and ensure there is evidence to support the decision.

This was considered by the Bahraini Court of Cassation under Challenge No. 291 J.Y 2014 in relation to Article 107(4), which permits termination without notice or compensation where the employee is absent without a legitimate reason for more than twenty (20) intermittent days or ten (10) consecutive days in one year, provided the required written warning is first issued. The Court held that failure to follow disciplinary procedures does not, by itself, prevent the employer from terminating without notice or compensation where a valid statutory ground for termination exists. The case was remitted because the lower court failed to examine the employer’s defence that the employee had been absent and had been warned in writing.

For employers, the judgment is useful for two reasons. First, it confirms that Article 107 can provide a valid basis for summary dismissal where its requirements are met. Second, it reinforces the importance of evidence. Where an employer relies on absence, misconduct or another Article 107 ground, the employer should be able to produce the relevant warnings, attendance records, investigation documents or other evidence supporting the decision.

REDUNDANCY AND RESTRUCTURING

Redundancy is often viewed as a commercial matter, and in many respects it is. Businesses may need to reduce costs, close part of their operations, reorganise departments or introduce systems that require fewer employees. Bahraini law recognises that employers must have room to make such decisions. However, redundancy is not merely a label that can be applied to any termination driven by business pressure.

Article 110 of the Labour Law permits termination where there is total or partial closure of the establishment, a reduction in the size of the employer’s activities, or replacement of a production system in a way that affects the size of the workforce. The employer must notify the Ministry of Labour of the reason for termination at least thirty (30) days before notifying the affected employee. Employees terminated under Article 110 are entitled to compensation equivalent to half of the compensation specified under Article 111, in addition to their statutory entitlements.

Bahrainisation considerations may also arise. Where redundancy affects a role held by both a Bahraini and a non-Bahraini employee with comparable competence and experience, Article 110 requires the employer to prioritise the position of the Bahraini employee before proceeding with termination. The Ministry may reject the redundancy notification if it is not satisfied that this requirement has been met, and may ask the employer to consider alternatives such as reassignment, before approving the redundancy.

The Bahraini Court of Cassation considered Article 110 in Challenge No. 234 J.Y 2014, holding that closure, partial closure or restructuring may constitute a legitimate reason for termination, but that the employer’s right is subject to three requirements: notifying the Ministry of Labour, notifying the employee after the required period, and paying compensation equal to half of the compensation prescribed under Article 111. The Court also confirmed that this payment is not replaced by end of service indemnity.

The Court adopted a similar approach in Challenge No. 182 J.Y 2015, where it accepted that withdrawal of the employer’s licence and the resulting closure constituted a legitimate reason for termination under Article 110. However, the Court also confirmed that proper notice remained necessary under Articles 99 and 100, and that calling the employee by phone to collect her dues did not amount to written notice.

These decisions demonstrate that the courts recognise an employer’s commercial discretion, but will still examine whether the redundancy was genuine and whether the statutory requirements were satisfied. Employers should therefore be able to evidence the business rationale, the roles affected, the selection criteria, any Bahrainisation considerations, the Ministry notification and the compensation calculation.

Where termination is effected under Article 110, the employee would generally remain entitled to notice, accrued wages, payment for accrued but unused annual leave, any applicable end-of-service indemnity or gratuity, and the compensation prescribed under Article 110. Redundancy therefore does not remove the employee’s final entitlements, but creates a specific statutory route for termination subject to procedural and compensation requirements.

RETIREMENT (REACHING THE AGE OF 60)

Retirement should be distinguished from other forms of termination. Under Article 115 of the Labour Law, an employer may terminate the employment contract when the employee reaches the age of sixty, unless the parties have agreed otherwise. Where Article 115 is properly relied upon, the employee would not generally be entitled to compensation for unjustified dismissal under Article 111. However, retirement should not be treated as informal or automatic. The termination should still be documented, and the employee would generally remain entitled to accrued wages, payment for accrued but unused annual leave, notice or payment in lieu of notice where applicable, and any applicable end-of-service indemnity or gratuity.

In Challenge Nos. 242 and 235 J.Y 2014, the Bahraini Court of Cassation held that where an employer had extended the employee’s employment after he reached the age of sixty (60) for an indefinite period, the employer could not later rely on age alone to terminate the contract without compensation. The continuation of employment was treated as a more favourable benefit under Article 4 of the Labour Law, and the subsequent termination was considered to be without legitimate cause.

The judgment illustrates the practical point that, if an employer intends to rely on retirement age as a basis for termination, it should do so clearly and at the relevant time. Where the employment continues after the employee reaches retirement age, the employer should document the basis on which the relationship is being extended or continued.

ARBITRARY DISMISSAL: WHEN THE CIRCUMSTANCES CREATE RISK

Even where notice is given and a reason is identified, a termination may still be challenged if it is without legitimate cause or if it falls within the more specific category of arbitrary dismissal. The distinction is important. A dismissal without legitimate cause may give rise to compensation under Article 111, whereas arbitrary dismissal carries an additional consequence where the dismissal falls within Articles 104 or 105.

Article 104 of the Labour Law identifies circumstances in which termination by the employer may be regarded as arbitrary.  These include where termination is connected to the employee’s gender, colour, religion, creed, marital status, family obligations, pregnancy or maternity-related matters, trade union membership or lawful union activity, filing a complaint or legal action against the employer, exercising statutory leave rights, or the detention of the employee’s entitlements with the employer.

Article 105 should also be considered. It provides that where the employee terminates the contract without notice because the employer, or a person acting on its behalf, has assaulted the employee, or where the employer or its representative has committed an immoral act towards the employee or a member of the employee’s family, such termination is deemed an arbitrary dismissal by the employer.

This distinction was reflected in the Bahraini Court of Cessation’s reasoning in Challenge No. 445 J.Y 2015. The Court confirmed that where an employer terminates an indefinite-term employment contract without legitimate reason, the employee may be entitled to compensation under Articles 101 and 111. However, where termination occurs during the first three months of employment, compensation will not arise unless the termination amounts to arbitrary dismissal under Articles 104 and 105. The judgment is useful because it distinguishes between termination without a legitimate cause and the more specific concept of arbitrary dismissal under the Labour Law.

The financial consequence is addressed under Article 111(e). Where termination is arbitrary in accordance with Articles 104 or 105, the employee may be entitled to additional compensation equivalent to half of the compensation due under Article 111, unless the contract provides for higher compensation.

For employers, the issue is not limited to what is stated in the termination letter. The surrounding circumstances also matter. If an employee is dismissed shortly after submitting a complaint, taking protected leave, announcing a pregnancy or raising concerns about unpaid entitlements, the timing may invite closer scrutiny. The employer may then need to show that the termination was genuinely based on a separate and legitimate reason.

Where dismissal is found to be arbitrary, the employee would generally remain entitled to the ordinary final entitlements arising on termination, including accrued wages, payment for accrued but unused annual leave, and any applicable end-of-service indemnity or gratuity, in addition to any compensation awarded under Article 111.

This does not mean that termination is impossible whenever sensitive circumstances exist. It means that the employer’s evidence becomes more important. The employer should be able to show that the decision was based on a legitimate reason unrelated to the protected circumstance, and that the same decision would have been taken regardless.

COMPENSATION AND FINAL ENTITLEMENTS

The legal basis for termination also affects the financial consequences. If the termination is found to be without legitimate cause, Article 111 of the Labour Law sets out the compensation payable.

For indefinite-term contracts, compensation is calculated at two days’ wages for each month of service, subject to a minimum of one month’s wage and a maximum of twelve months’ wages. For definite-term contracts, compensation is generally equivalent to the wages for the remaining period of the contract, unless the parties have agreed to a lesser amount. In that case, the agreed compensation must not be less than three months’ wages or the wages for the remaining period of the contract, whichever is lesser. Partial months are treated as full months for this calculation.

Final entitlements should be considered separately from compensation. These may include accrued wages up to the termination date, payment for accrued but unused leave under Article 59(c), a certificate of service under Article 13, and any additional contractual entitlements due under the employment contract, such as allowances, bonuses, commissions, repatriation tickets for expatriates or other agreed benefits.

Article 40 of the Labour Law should also be considered in relation to the timing of payment. Upon termination of employment, the employer must immediately pay the employee’s wages and all amounts due, unless the employee terminates the employment of their own accord, in which case the employer must pay the worker’s wage an-employee’s wages within a period not exceeding seven (7) days from the date on which the employee left work. Delay in payment may give rise to statutory compensation.

For expatriate employees, Article 116 provides for end-of-service indemnity where the employee is not covered by the Social Insurance Law. The entitlement is generally calculated at half a month’s wage for each of the first three years of service, and one month’s wage for each subsequent year, pro-rated for partial years. The position should also be read together with Decision No. 109 of 2023 Regarding End-of-service Gratuity For Non-Bahrainis Working In The Private Sector. From 1 March 2024, employers are required to contribute to end-of-service gratuity for non-GCC expatriates through the Social Insurance Organisation (SIO), with gratuity accrued from that date onwards recovered by the employee through SIO directly. In addition, Bahraini employees with a salary exceeding BHD 4,000 will be entitled to receive end of service gratuity for the portion of their salary which exceeds BHD 4,000.

The practical point is that final dues and final settlements should not be treated as a formality. The employer should be able to evidence not only the calculation of the employee’s entitlements, but also their actual payment. In Challenge Nos. 164 and 167 J.Y 2013, the Bahraini Court of Cassation confirmed that the employer bears the burden of proving payment of the employee’s entitlements arising from the employment contract, and refused to rely on a photocopy of an acknowledgment of annual leave pay where the employee denied it and the signed original was not produced. Employers should therefore retain original signed settlement documents, clear payment records and supporting calculations.

THE EVIDENTIARY RECORD

The common thread through termination disputes is evidence. Article 101 of the Labour Law places the burden on the employer to prove that termination was fair and based on justifiable cause. That means the employer’s file is often as important as the termination letter itself.

This is also consistent with the employer’s record-keeping obligations under Article 68 of the Labour Law, which requires the employer to maintain a file for each employee containing, among other elements, the employee’s employment details, wages and amendments, leaves taken, penalties imposed, the date and reasons for termination, investigation minutes, performance reports and other documents relating to the employee’s service.

In a poor performance case, the record should show the Article 109 notice, the areas of deficiency, the improvement period, the targets set and the employee’s response. In a misconduct case, it should show the Article 107 ground relied upon, the investigation conducted and the evidence supporting dismissal. In a redundancy case, it should show the Article 110 basis, the Ministry notification, the restructuring rationale, the selection criteria and the compensation calculation.

The record does not need to be unnecessarily complicated. It should allow a person outside the business to understand what happened, when it happened, what legal basis was relied upon, and why termination was ultimately considered necessary.

Where an employer relies on the employee’s conduct, performance, or the operational needs of the business, the supporting documents should be capable of showing how the facts relied upon correspond with the relevant provisions of the Labour Law and the legal basis selected for termination.

CONCLUDING REMARKS

The legal risk in termination often arises before the termination letter is issued. It lies in how the decision was reached, how the reason was classified, and whether the employer can later show that the process was properly handled.

For employers, the practical lesson is to slow down before acting. A short legal review at the decision-making stage can help identify whether the proposed termination is properly grounded, whether any statutory steps are required, and whether the supporting documents are sufficient. This is often simpler, and less costly, than trying to defend an unclear termination after the dispute has arisen.

Termination decisions are therefore best approached as a matter of risk management, not only employment administration. Where the legal basis, process and record are aligned, employers are better placed to bring the relationship to an end with confidence and reduce the scope for avoidable disputes.

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