The changes reflect efforts to streamline public sector employment to improve efficiency. The case has wide-reaching implications for the implementation of the kingdom’s labour laws and for the campaign to increase foreign investment in the country.

Nearly 680 Saudi employees from the company’s Tabuk and Dammam bases have filed a suit against BAE, alleging that the company has forced them to sign new contracts in violation of articles in the labour law. The deadline for employees to sign the new contracts fell in June, but they were first introduced last September. Several cases have already reached the courts and sources in Riyadh say they are likely to be settled within four months.

The employees argue that the new specified-term contracts, which are for only one year, contravene articles that prevent employers from unilaterally changing an employee’s contract, intended to guarantee equality between Saudi and non-Saudi workers. They say the company has threatened them with termination if they refuse to sign the changed contracts, which have only been introduced for Saudi employees.

BAE, which is the main defence contractor on the Al-Yamama deal, with 2,580 Saudi and 2,790 expatriate employees in the kingdom, denies the charges. It says that it had been requested to change the terms of the Saudi contracts by its customer, the RSAF, where all the concerned staff are seconded. The RSAF’s request to switch contracts has been ascribed to pressures on the defence budget. ‘We drew up the new contracts under the instruction of the RSAF,’ said a company spokesman in Riyadh on 16 July. ‘About 70 per cent of our Saudi employees accepted the new agreements.’

Where terminations have occurred, BAE says they have been on the instruction of the RSAF. The company also says it has sought extensive legal advice, which says the change of contract complies with both the spirit and letter of the labour law. However, lawyers not connected to the case say that it is questionable whether an employer is entitled to make unilateral changes to employees’ contracts.

Most lawyers in the kingdom advise companies to employ Saudis on specified-term contracts to reduce their liability to paying large indemnities. ‘There have been a number of cases where Saudi employees won very large pay-outs after their contracts were terminated for good reasons,’ says a Riyadh lawyer who often works on labour disputes. ‘Under a fixed-term contract, the indemnity level is far lower.’ Western businessmen often cite the strict rules governing the employment of Saudis as a strong disincentive from setting up offices in the kingdom or hiring Saudi staff.

BAE has hitherto enjoyed an exemplary record in the kingdom, with a strong Saudisation programme and a training scheme to groom Saudis for jobs now held by expatriates. However, lawyers say that many companies with good Saudisation programmes are losing out in government contracts because the higher cost of employing nationals drives up their expenses and consequently the price of their bids.