Wages During Regional Conflict: Legal Considerations

Habiba Mokhtar (hmokhtar@raeesandco.com) – Associate

The recent escalation in regional tensions involving the United States and Iran, including security incidents affecting parts of the Gulf, has created material uncertainty for global commercial operations. Disruptions to air travel across GCC jurisdictions, together with heightened risks affecting maritime passage through the Strait of Hormuz—one of the world’s most strategically significant trade corridors, particularly for energy exports—have begun to impact the continuity of business activities both within the region and internationally. This disruption has, in turn, raised practical and legal questions in the employment context, with affected businesses facing uncertainty as to their wage obligations, and employees correspondingly unclear as to their rights in light of the prevailing circumstances. This article seeks to assess employers’ obligations towards their employees in such circumstances and the legal implications of non-compliance.

Unilateral Reduction of Wages

As a matter of principle, Decree Law No. 36/2012 Issuing the Labour Law in the Private Sector (the “Labour Law”) requires employers to pay wages in full and on the agreed due dates, treating wages as a fundamental entitlement discharged only by actual payment. Article 40 of the Labour Law also requires wages to be paid on a regular basis, including at least monthly for employees engaged on a monthly salary, and does not permit employers to unilaterally defer or split salary payments without a valid legal basis.

Instances in which an employer may unilaterally reduce wages are limited and addressed under Article 43 of the Labour Law. The provision distinguishes between situations where an employee is prevented from performing their duties for reasons attributable to the employer, in which case full wages remain payable, and those arising from force majeure beyond the employer’s control, where the employee’s entitlement is limited to half wages for the relevant period.

Accordingly, any unilateral reduction in wages must be grounded in circumstances that genuinely qualify as force majeure and directly prevent the employer from fulfilling its wage obligations. This assessment is inherently fact-specific and requires careful consideration of the nature of the disruption and its impact on the employer’s operations, as discussed further below.

Force Majeure

Force majeure refers to an event that is not attributable to the obligor which satisfies the cumulative conditions of unforeseeability and inevitability, resulting in the impossibility of performance. This is to be distinguished from hardship, which arises where performance remains possible but has become significantly more onerous due to events beyond the reasonable contemplation of the parties at the time of contracting. For further insight into the distinction between hardship and force majeure, please refer to our article titled “COVID-19: Force Majeure or Hardship?”.

The determination of whether an event satisfies the threshold of force majeure is inherently fact-specific and lies within the discretion of the court. It does not follow automatically from general declarations or classifications issued by governments or public authorities.

The approach adopted by the Bahraini Court of Cassation during the COVID-19 pandemic provides useful guidance as to how courts are likely to assess similar disputes arising from current regional disruption. The Court has consistently emphasised that the application of Article 43 of the Labour Law turns on whether the employee was in fact prevented from performing their duties, and the underlying cause of that inability.

In circumstances where business operations continued, even if adversely affected, the Court has rejected attempts to justify wage reductions. In Challenge No. 23 J.Y. 2022, the employer sought to rely on financial losses arising from the pandemic to reduce salaries; however, as employees continued to perform their duties, whether from the workplace or remotely, the Court held that full wages remained payable and that any unilateral reduction was unlawful. A similar approach was adopted in Challenge No. 278 J.Y. 2023, where an employee instructed to work remotely during the pandemic was awarded her full outstanding wages, notwithstanding the broader disruption affecting the employer’s operations.

By contrast, where the employee was genuinely unable to perform work due to a complete suspension of operations, the Court has applied Article 43 to limit wage entitlement. In Challenge No. 100 J.Y. 2023, the closure of a restaurant and café during the pandemic was treated as a circumstance preventing the performance of work, entitling the employee to half wages for the relevant period.

Taken together, these decisions demonstrate that the courts draw a clear distinction between financial hardship and actual impossibility of performance. The mere existence of external disruption, including widespread economic impact, does not in itself justify a reduction in wages; rather, the decisive factor remains whether the employee was prevented from working within the meaning of Article 43.

Reduction of Wages by Mutual Agreement

A wage reduction implemented by mutual agreement carries material legal risk under Article 4 of the Labour Law, in particular its second limb, which preserves any more favourable terms agreed in an employment contract and renders any agreement to the contrary void. A reduction below the agreed wage may therefore be construed as an infringement of an acquired right and deemed unenforceable, a position affirmed by the Bahraini Court of Cassation in Challenges Nos. 59 and 39 J.Y. 2007. Accordingly, even where agreed, an employee may subsequently seek recovery of the wage differential, with the risk that the court sets aside the amendment and orders payment of the unpaid balance.

An alternative approach arises under Article 118 of the Labour Law, which provides that a subsequent contract will be treated as a continuation of the previous contract unless there is a break in service of at least thirty days. Where such a gap is observed, a new contract may be treated as an independent arrangement, allowing revised terms, including reduced wages, to take effect without being characterised as an unlawful amendment.

Implications of Non-Compliance

Non-compliance with wage payment obligations may expose employers to both financial and legal consequences. Under Article 40(c), delayed payment of wages triggers statutory compensation at a rate of 6% per annum for delays of up to six months, increasing by 1% for each additional month of delay, subject to a maximum of 12% per annum.

In addition, Article 188 provides for regulatory penalties, whereby an employer in breach of the wage provisions may be subject to a fine ranging between BHD 200 and BHD 500.

Further, where a wage reduction is implemented by agreement without observing the thirty-day gap in service required under Article 118, an employee may subsequently seek recovery of the wage differential. In such cases, there is a risk that the court may set aside the amendment and order payment of the unpaid balance in full.

Concluding Remarks

The Bahraini legal framework adopts a strict approach to wage protection, under which reductions or withholding of wages will only be sustained where supported by a clear legal basis. The key distinction remains whether the employee was genuinely prevented from performing work within the meaning of Article 43. Employers should therefore proceed with caution, ensuring that any adjustment to wages is properly structured and compliant with statutory protections. Absent this, there is a material risk of claims for unpaid wages, together with exposure to statutory compensation and regulatory penalties, ultimately undermining the intended commercial objective.

For more information, please contact us on info@raeesandco.com.

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