Artificial Intelligence and the Limits of the Employer’s Authority to Modify Jobs and Terminate Employment Contracts

A Study in Light of the Omani Labor Law

Artificial intelligence and modern technologies have become among the most significant developments affecting employment relationships, as their use may result in the reorganization of jobs, changes in the nature of duties, and potentially a reduced need for certain traditional positions. This transformation raises legal questions concerning the limits of the employer’s authority to introduce modern technologies and the consequences that may arise therefrom, including the modification of an employee’s duties, transfer, or termination of employment. In the absence of specific provisions regulating these matters under the Omani Labor Law promulgated by Royal Decree No. (53/2023), the general rules governing employment relationships assume particular importance in determining the lawfulness of such measures and achieving a balance between the employer’s right to develop its establishment and the employee’s right to stability in the employment relationship and protection against substantial amendments to the terms of employment or termination without lawful grounds.

Artificial intelligence has recently been defined under Omani legislation as a field of computer science concerned with the development of systems and technologies capable of analyzing data and learning from it, and simulating certain human cognitive abilities, including understanding language, solving problems, and making decisions.[1] The significance of this definition in the context of employment relationships lies in the fact that the impact of artificial intelligence is not limited to replacing employees with technology, but also extends to developing their duties and reorganizing jobs, and may ultimately lead to a reduced need for certain positions. Accordingly, the legal implications of its use depend on its actual impact on the nature of the work and the rights and obligations arising under the employment contract.

International studies confirm that the impact of artificial intelligence in the labor market goes beyond replacing the human element to reshaping jobs and changing the nature of their tasks, which is what the International Labor Organization and the International Monetary Fund indicated regarding the disparity in its effects between enhancing productivity and reducing the need for some jobs. In the national context, the Sultanate of Oman has adopted an approach aimed at promoting the use of these technologies through the National Program for Artificial Intelligence and Advanced Digital Technologies (2024–2026), reflecting the importance of technological transformation in enhancing efficiency and productivity, while also raising legal questions regarding its impact on the stability of employment relationships.

From a legal perspective, the use of artificial intelligence falls within the employer’s authority to manage its establishment and develop its means of production. However, this authority remains subject to the provisions of the law and the terms of the employment contract. Article (53) of the Omani Labor Law regulates the circumstances in which an employee may be assigned work other than what has been agreed upon and permits the assignment of work that does not substantially differ from the employee’s original work, in accordance with the conditions established by law. Therefore, the mere introduction of artificial intelligence technologies does not, in itself, constitute an amendment to the contractual relationship, unless it results in a substantial change in the nature of the job or affects the employee’s rights.

Where technological transformation results in a reduced need for labor, Article (43)(4) of the Labor Law permits the termination of an employment contract in certain cases, including the “replacing one production system with another that affects the size of the workforce,” subject to compliance with the legal requirements and procedures prescribed in this regard.

In our estimation, the concept of replacing one production system may extend to certain forms of technological transformation involving the adoption of artificial intelligence-based systems, provided that such transformation is genuine and substantial and has directly resulted in an actual reduction in the need for labor, rather than merely constituting a technological upgrade or the introduction of an assistive tool in the performance of work.

The application of this interpretation requires establishing a clear causal link between the technological transformation and the reduction in the size of the workforce, while taking into account the legal safeguards governing the termination of employment contracts, including notifying the Ministry of Labor where the law requires it, and taking into account the protections provided to Omani employees. Accordingly, the transition towards artificial intelligence may not be used as a pretext for terminating an employee’s services in the absence of legally valid grounds and compliance with the conditions prescribed by law.

Nevertheless, the termination of an employment contract should not be the inevitable consequence of technological transformation, as the nature of the work may permit the redistribution of duties, the transfer of the employee, or the employee’s training to enable them to work with modern systems. These alternatives constitute practical solutions for achieving a balance between the interests of the establishment and the stability of the employment relationship, taking into account the provisions of Article (59) of the Labor Law concerning the transfer of employees, without treating training or retraining as a general legal obligation in all cases of technological transformation in the absence of an express legislative basis.

The impact of artificial intelligence is not limited to the reorganization of jobs but also extends to the management of employment relationships through the use of algorithmic systems in recruitment, performance evaluation, and decision-making concerning employees. This raises legal issues relating to transparency, data protection, and liability for automated decisions. Although the Omani Labor Law does not contain a specific provision requiring human review of all such decisions, subjecting significant decisions affecting employees’ rights to human review constitutes an important safeguard for verifying their lawfulness and ensuring that those responsible for such decisions may be held accountable.

Hence, the importance of establishments adopting clear internal policies governing the use of artificial intelligence in human resources management, together with promoting training and retraining to keep pace with technological developments. At the legislative level, although the general rules under the Omani Labor Law provide a basis for addressing certain consequences arising from these developments, the expansion of the use of artificial intelligence may, in the future, require more detailed regulation to ensure transparency and protect employees’ rights, without prejudice to the requirements of technological development.

In conclusion, the use of artificial intelligence in the workplace falls within the employer’s organizational authority, unless it results in a fundamental change in the nature of the work or affects the employee’s rights. In our estimation, the transition to systems based on artificial intelligence may constitute one form of “replacing one production system with another” stipulated in Article (43)(4) of the Omani Labor Law, provided that it is established that the transformation is genuine and substantial and has directly resulted in a reduction in the need for labor, subject to compliance with the applicable legal requirements. Accordingly, the issue does not lie in the use of technology itself, but rather in achieving a balance between the organization’s right to develop and enhance its efficiency, and the employee’s right to stability in the employment relationship and protection against the illicit effects of technological transformation.