Under Iranian labor law, the structure and enforcement of employment contracts are of paramount importance for businesses. Whether you’re hiring local or foreign staff, understanding Employment Contracts in Iran; A Legal Guide for Employers and HR Managers is crucial to ensuring smooth and compliant business operations. The law sets strict guidelines on key aspects such as job definitions, salaries, working hours, termination and much more; these regulations are not only designed to protect employees but also to ensure fairness and clarity in the workplace.
At LibraLaw Legal Office, we are dedicated to helping business owners navigate these complexities. In the following sections, our legal specialists will provide a detailed breakdown of the critical elements of employment contracts, termination procedures, and other key issues under Iranian labor law. If you’re unsure about your responsibilities or need assistance in ensuring full legal compliance, our team is ready to guide you through every step.
Given the intricacies involved, employers must be aware of their obligations and how these legal provisions affect their daily operations. Navigating Iranian labor law can be complex, especially when it comes to drafting contracts that align with the latest legal requirements in international trade; this is where expert legal advice becomes indispensable.
Is Your Business Compliant with Iranian Labor Law? Key Insights for Employers
Iran’s comprehensive Labor Law governs all labor relations, including the hiring of both local and foreign staff. A distinguishing feature of this law is its broad and inclusive definition of “employee” — covering individuals working under written, oral, temporary or indefinite contracts.
Iranian labor law is considered highly employee-friendly, imposing strict limits on termination and making it extremely difficult for employers to lay off staff at will; For instance, the law prohibits the use of successive six-month contracts as a means of avoiding permanent status or benefits for employees. It also restricts dismissals to cases where the employer can prove serious fault or misconduct by the employee. Even then, the employer must follow a formal dispute process and may still encounter resistance.
For a broader overview of these regulations and how they shape labor relations in Iran, see our article «Employment and Labor Law in Iran; Avoid Legal Mistakes Before You Face Them».
Labor disputes are typically resolved by the Labor Dispute Settlement Council, a quasi-judicial body that often rules in favor of employees, particularly when the employer has not fully complied with procedural requirements; This places added pressure on businesses to ensure their employment practices — contracts, documentation and disciplinary processes — are legally sound from the start.
At its core, Iran’s Labor Law sets minimum standards that every employer must adhere to, covering everything from working hours and overtime to paid leave, termination procedures and workplace safety. Failure to comply can lead not only to legal disputes but also to reputational damage and operational disruptions.
Are You Covering All the Essentials in Your Employment Contract? A Guide to Iranian Labor Law
An employment contract under Iranian labor law is not only a legal requirement, but a fundamental document that protects both employers and employees. To ensure the contract is valid and complies with Iranian legal standards, there are several core provisions that must be included; These provisions help clarify the expectations of both parties, reduce potential conflicts and foster a positive and clear working relationship. Below are the essential provisions required in an employment contract, along with explanations for each.
1. Job Title and Description of Duties
A key element of any employment contract is a clear definition of the job title and the specific duties expected of the employee; This provision helps establish the scope of work and ensures both the employer and the employee are on the same page regarding job expectations.
Clearly defining the job title and responsibilities prevents misunderstandings and disputes about job scope; It ensures that employees know exactly what tasks they are responsible for, avoiding situations where they are asked to perform tasks outside of their agreed-upon duties, which could lead to dissatisfaction or legal conflicts. Additionally, defining the job title helps the employer avoid scope creep, which could result in an employee taking on more work than was initially agreed upon without appropriate compensation.
2. Salary and Benefits
The contract must specify the base salary and any additional compensation or benefits provided to the employee, which includes direct compensation such as the base salary, as well as supplementary benefits like housing allowances, transportation allowances, meal benefits and other perks.
Salary is one of the most significant elements of an employment contract. Not only does it ensure that the employee is fairly compensated for their work, but it also helps prevent future disputes over pay. It is essential for the employer to clearly outline any additional benefits, especially non-cash benefits like housing or transport allowances, as these are sometimes overlooked. Failure to document such benefits could lead to misunderstandings, claims for unpaid benefits or legal disputes down the line.
3. Working Hours and Leave Entitlements
The contract should specify the regular working hours, public holidays and the employee’s entitlement to various types of leave, including annual leave, sick leave and maternity or paternity leave.
By detailing working hours and leave entitlements, both parties understand their rights and obligations regarding time off from work; This provision ensures that employees know how much time off they are entitled to and when they can take it. Moreover, it protects the employer from potential abuse of leave entitlements and ensures that employees are not overworked. Maternity and paternity leave, in particular, are protected by Iranian labor law; so specifying these entitlements in the contract ensures legal compliance and prevents disputes about leave rights.
4. Place of Employment
The employment contract must specify the primary location where the employee is expected to perform their duties. This is particularly important in cases where the employee’s role may involve working at multiple locations or remotely.
Clearly stating the place of employment helps to avoid confusion and disputes about the employee’s workplace. In today’s modern work environment, where remote working or assignments at multiple locations are common, it is essential to specify these arrangements in the contract. This protects both parties by making clear where the employee is expected to work and under what conditions.
5. Probationary Period
The contract should outline the probationary period, if applicable, which is the period during which the employer evaluates the employee’s suitability for the role.
The probationary period allows both the employer and employee to assess the employee’s performance without a long-term commitment. During this time, either party can terminate the employment relationship with fewer legal repercussions; This period helps employers decide if the employee is a good fit for the role and it gives employees an opportunity to evaluate the company and the job. However, the terms and duration of the probationary period should be clearly defined to avoid misunderstandings and potential disputes about expectations.
6. Date of Contract Signing
The contract must state the exact date it is signed by both parties; This is the official start date of the legal employment relationship.
The signing date is important because it marks the beginning of the legal relationship between the employer and the employee. It is from this date that the employee’s rights and obligations under the contract will apply. The date of signing also serves as a point of reference for calculating benefits such as leave entitlements, probation periods and contract duration; This aligns with the general principles of contract formation covered in our «Business Contracts in Iran; Strategies to Protect Your Interests» article, where the moment of mutual agreement marks the beginning of enforceable obligations.
7. Duration of Employment
If the contract is for a fixed term, the overall duration of the employment must be clearly stated. For permanent positions, the contract should indicate that the employment is indefinite.
For fixed-term contracts, specifying the duration helps both parties understand the timeline and expectations; This is crucial for both the employer, who needs clarity about staffing and the employee, who needs to know how long their position will last. For indefinite-term contracts, it ensures that both parties are aware that the employment relationship continues indefinitely unless terminated under the conditions specified in the contract.
8. Confidentiality, Non-compete and Other Special Clauses
The contract may include special provisions such as confidentiality clauses, non-compete agreements or requirements for mandatory training or certifications; These clauses are particularly common in roles that involve sensitive company information or where there is a risk of intellectual property theft.
These clauses protect the employer’s business interests and confidential information. A confidentiality clause prevents employees from disclosing sensitive company information after the employment ends, while a non-compete clause can prevent the employee from working for a competitor or starting a similar business in the same industry for a certain period of time. Including such clauses in the contract is crucial for protecting proprietary information and preventing conflicts of interest; but it must be balanced to ensure they are fair and enforceable under Iranian labor law.
In conclusion, a well-drafted employment contract under Iranian labor law is essential for setting clear expectations and minimizing disputes. By addressing these key provisions — job title and duties, salary and benefits, working hours, place of employment, probationary period, date of signing, duration and any special clauses — both employers and employees can have a better understanding of their rights and obligations, ensuring a harmonious and legally compliant working relationship. It is always recommended to seek legal advice to ensure compliance with Iranian labor law and to protect the interests of both parties.
How Does the Probation Period Work in Practice Under Iranian Labor Law?
Iranian labor law permits the use of a probationary period, allowing both parties to terminate the contract without the standard legal obligations. However, this period is strictly regulated: it cannot exceed one month for unskilled workers and three months for skilled or professional workers.
Although either party can terminate the relationship during the probation period without cause or severance, the law provides an important safeguard for employees: if the employer ends the contract during this time, they must still pay the employee for the entire probation period, regardless of how many days were actually worked; This discourages misuse of probationary clauses and encourages employers to make well-considered hiring decisions.
These contract essentials not only fulfill legal requirements, but also help foster a transparent and fair working relationship. At Libralaw, we regularly assist both local and international companies in drafting compliant, customized employment contracts that are tailored to their specific business needs.
What Are the Key Scenarios for the Suspension of an Employment Contract Under Iranian Labor Law?
In this section, we will discuss the concept of suspension of an employment contract under Iranian labor law. Suspension does not equate to termination; rather, it puts the contract on hold while preserving the employee’s rights and legal status; This topic presents challenges for employers, particularly in terms of managing workflow continuity and workforce planning.
The following are the key scenarios in which an employment contract may be suspended:
1. Military Service
One of the most common reasons for the suspension of an employment contract in Iran is military service; This includes active duty, contingency call-ups or voluntary enlistment during armed conflicts. Under Iranian law, employees who are called for military service are not terminated; but rather have their contracts suspended. Importantly, the time spent in military service will still count toward the employee’s total years of service at the workplace; This is crucial because it affects various benefit calculations, including retirement, severance pay and other employment-related benefits.
- Employer Obligation: Employers must ensure they allow for suspension without affecting the employee’s rights, including ensuring that the employee retains their position once military service ends.
- Employee Rights: Employees have the right to return to their previous position once their military service is completed.
2. Closure of the Workplace
A suspension of employment may also arise when the employer is forced to temporarily close the workplace; This closure could be due to external legal orders, such as health authority intervention (e.g., during a pandemic) or due to economic factors like bankruptcy or force majeure (unforeseen circumstances). In these cases, the employment contract is suspended rather than terminated and the employee is entitled to resume their role once the workplace reopens.
- Employer Obligation: Employers must reinstate the employee to their original role when the closure is lifted.
- Employee Rights: Employees retain the right to resume their employment without losing any seniority or other rights associated with their role.
3. Educational Leave
Another condition that may lead to the suspension of an employment contract is educational leave. Employees pursuing further academic advancement or professional development may request a leave of absence for educational purposes, which can last up to four years. During this time, the employment contract is suspended.
- Employer Obligation: Employers are required to request official documentation and timelines from the employee ahead of the leave; They must ensure that the employee is reinstated to their role once the educational leave ends.
- Employee Rights: Employees on educational leave are entitled to return to their previous position once they complete their studies, ensuring that they are not penalized for taking time off to improve their qualifications.
4. Detention Without Conviction
Another reason for the suspension of an employment contract is when an employee is detained without being convicted. In such cases, the employee may be arrested or detained for an investigation but is later cleared of all charges. Under Iranian labor law, the employer cannot terminate the employment contract during this period of detention.
- Employer Obligation: Employers cannot dismiss the employee during their detention. If the employee is acquitted or released without conviction, they must be reinstated to their original role.
- Employee Rights: Employees who are detained but later acquitted have the right to return to their job without any loss of benefits or seniority.
5. Reinstatement After Suspension
Once the underlying condition that caused the suspension of the employment contract ceases to exist, the employer must reinstate the employee to their original role. If the position no longer exists — either due to restructuring or replacement — the employer must offer a similar position with comparable pay and conditions.
- Employer Obligation: Failure to reinstate the employee or offer a similar position could result in the employer being liable for wrongful dismissal; This can lead to legal consequences, including penalties and intervention by labor courts.
- Employee Rights: Employees have the right to be reinstated in their original role or a similar position. If the employer does not comply with this obligation, the employee is entitled to seek legal recourse.
Suspension of an employment contract in Iran is a legal provision that protects employees in certain circumstances while allowing employers to manage situations where work may be temporarily interrupted. However, the law places clear obligations on employers to ensure that employees are not unfairly dismissed and that their rights are maintained throughout the suspension period. Failure to adhere to these obligations can result in legal consequences for the employer, including claims for wrongful dismissal; Therefore, both employers and employees must understand the circumstances under which suspension can occur and the rights and responsibilities that come with it.
What Are the Legal Grounds for Terminating an Employment Contract Under Iranian Labor Law?
Iranian labor law only allows the termination of an employment contract under specific circumstances. Employers must follow legal grounds or they risk facing legal consequences. The main reasons for termination include:
1. Death of the Employee
As we mentioned in the article «Your Rights in Employment Contracts; What Should Be Included in Your Job Agreement?», a well-drafted employment contract should clearly outline the consequences of various scenarios, including death or disability. If you’re interested in understanding more about what should be included in a comprehensive job agreement, feel free to read the full article.
When an employee passes away, the contract is automatically dissolved. However, the employer must settle all outstanding benefits with the employee’s legal heirs, such as wages, bonuses and unused leave.
2. Retirement
An employee’s contract ends when they reach the legal retirement age or if both parties agree to retirement earlier. Employers must calculate retirement benefits based on the full length of the employee’s service.
3. Total Disability
If an employee is permanently unable to work due to a certified disability, the employer can terminate the contract. The employer must provide compensation as required by the labor code and social security laws.
4. Expiration of the Contract
fixed-term contracts, when the contract reaches its end date, the employment terminates. If neither party objects and the work relationship continues, the contract may be considered renewed.
5. Completion of the Task
In contracts based on completing a specific task or project, the employment ends when the task is finished. The task must be clearly defined in the contract to avoid ambiguity.
6. Resignation
Employees can resign by submitting a written notice. The resignation is valid after a 30-day notice period unless the employer waives the notice requirement.
In all of the above cases, the employer must pay the employee’s terminal benefits, including severance pay, unused leave and any other compensation related to the employee’s length of service, even if the termination is due to death or disability.
At Libralaw, we help businesses and employees navigate these termination scenarios and ensure compliance with Iranian labor law. If you need assistance with contract termination or severance packages, feel free to contact us.
What Is the Legal Process for Dismissing an Employee Under Iranian Labor Law?
Under Iranian labor law, dismissal is not a simple or unilateral right of the employer. Instead, it follows a structured and regulated process, which ensures that employees are not dismissed arbitrarily; This legal framework is designed to protect employees from unfair termination by requiring employers to provide sufficient justification and obtain approval from the relevant legal bodies before proceeding with dismissal.
There are several key conditions and processes involved in the dismissal of an employee under Iranian labor law:
1. Grounds for Dismissal
An employer can initiate dismissal only if certain conditions are met. The employer must provide valid reasons for the dismissal, which are generally tied to the employee’s conduct or performance.
If an employee repeatedly neglects their responsibilities, despite receiving prior warnings, this can justify dismissal. However, before taking this step, the employer must ensure that the employee has been formally warned about their behavior; These warnings must be documented and must demonstrate that the employee was aware of their shortcomings and given a chance to correct them.
Employees must adhere to internal company policies and regulations. If an employee violates these regulations (e.g., repeated tardiness, misconduct or breach of safety protocols), the employer can initiate a dismissal process. However, the employer must first ensure that these rules and policies were clearly communicated to the employee at the time of hiring or through official channels (like an employee handbook or signed contract). Without this communication, the dismissal may not be legally justified.
2. Issuing Written Warnings
Before proceeding with dismissal, the employer is required by law to issue formal, written warnings to the employee; This is a critical step in the process because:
- Documentation: These written warnings serve as official records that can be presented to the Islamic Labor Council or the Labor Discretionary Board if the dismissal is challenged.
- Due Process: The warnings ensure that the employee has had a fair chance to correct their behavior before termination is considered.
These warnings should clearly state the nature of the violation, the expected corrective actions and the consequences if improvement is not made.
3. Approval from the Islamic Labor Council or Labor Discretionary Board
Once the employer has valid grounds for dismissal and has issued written warnings, the employer must seek approval from the Islamic Labor Council (if applicable) or the Labor Discretionary Board (if the council does not exist); This ensures that the dismissal is legally justified.
- Protection for Employees: The involvement of these boards is a mechanism to protect employees from unjust or arbitrary dismissals.
- Decision Making: The board reviews the case to determine if the reasons for dismissal are fair and if the employer followed the proper procedures, such as issuing warnings.
If the board does not find sufficient grounds for the dismissal, they will not approve it. In this case, the employer will be legally required to reinstate the employee. Furthermore, the employer may be required to pay back wages and damages if the dismissal is deemed wrongful.
4. Reinstatement and Compensation
If the dismissal is not approved, the employer must reinstate the employee to their previous position. Additionally, the employer will need to compensate the employee for any back wages (salaries that the employee would have earned had they not been wrongfully dismissed) and any damages resulting from the wrongful dismissal.
- Financial Compensation: The employer will have to compensate the employee not just for the wages, but possibly also for any emotional distress or reputation damage caused by the unjust termination.
5. Severance Package upon Approved Dismissal
Once dismissal is officially approved by the relevant board, the employer is legally required to provide the employee with a statutory severance package; This severance is calculated based on several factors, including:
- Length of Service: The severance pay is usually higher the longer the employee has worked at the company. The calculation typically includes a fixed amount per year of service.
- Reason for Termination: The nature of the dismissal can also affect the severance; For example, if the dismissal is due to the employee’s misconduct, the severance might be reduced or waived, depending on the circumstances.
It is important for employers to understand that severance is a mandatory payment and should be included in the dismissal procedure, even when the dismissal is related to the employee’s own actions.
The dismissal of an employee under Iranian labor law is a complex and regulated process that aims to ensure fairness and protect the rights of employees. Employers must follow a clear procedure that includes issuing warnings, obtaining board approval and paying the appropriate severance. Failure to follow these procedures can lead to the reinstatement of the employee and significant financial liabilities for the employer.
For businesses, it is crucial to understand and comply with these regulations to avoid legal complications. Consulting with legal experts or labor law specialists can help ensure that dismissals are handled in accordance with the law.
What Compensation is Due Under Iranian Labor Law? Understanding Severance & Termination Benefits
Under Iranian labor law, employees are entitled to significant protection when it comes to termination, disability or wrongful suspension. Employers are required to adhere to strict regulations when ending an employment relationship, ensuring that employees are financially protected during such transitions. Below are the key provisions regarding compensation due in these situations.
1. Wrongful Suspension
If an employee is suspended without valid cause, Iranian labor law mandates that the employer reinstate the employee and compensate for any damages suffered; This includes paying the employee all back wages for the suspension period, along with any additional compensation for harm or distress caused by the wrongful suspension. This ensures that employers are held accountable for unjust actions and that employees are fairly compensated for any disruption to their livelihoods.
2. Termination of Employment
In the event of termination — whether due to redundancy, retirement, or other valid reasons — employers are required to provide severance pay. The law specifies that employees must receive at least 30 days of their final salary per year of service as severance; This is mandatory regardless of the reason for termination, as long as it falls within the scope of acceptable legal grounds. This provision helps provide financial security for employees during the transition period following termination.
3. Disability Compensation
If an employee becomes permanently disabled and is unable to work, they are entitled to compensation. For non-work-related disabilities, the employer must pay 30 days of wages per year of service. However, if the disability is work-related, the compensation increases to 60 days of wages per year of service; This enhanced compensation reflects the employer’s greater responsibility in cases of work-related injuries or illnesses, ensuring that employees are adequately supported in such challenging circumstances.
These compensation provisions are essential for safeguarding employees’ financial stability in the event of termination, wrongful suspension or disability. At LibraLaw, we help both employers and employees navigate these complex legal requirements, ensuring compliance with Iranian labor law and protecting the rights of all parties involved. If you’re facing any issues related to employment termination, wrongful suspension or disability, contact us today for tailored legal advice and assistance.
When dealing with the intricacies of employment contracts, including the probationary period, salary and benefits, termination clauses and other legal considerations under Iranian labor law, consulting with specialized lawyers in this field is crucial; These contracts must be carefully drafted to ensure clarity and avoid future disputes.
If you need assistance or legal advice on employment contracts, the legal experts at Libralaw, with their expertise and experience in this area, are ready to assist you. We can help you navigate these complexities and ensure your contracts are legally sound and protect your interests.Feel free to contact us for professional guidance and support.
