News Alert: Egypt’s General Assembly exempts hotels and touristic establishments from the mandatory contribution of 1% of net profit to the Vocational Training Fund

On 29 June 2024, the General Assembly for Advisory and Legislation Divisions at the State Council (the “General Assembly”) issued a landmark opinion (the “Opinion”) exempting hotels and touristic establishments from contributing to the Ministry of Manpower Vocational Training Fund(the “Vocational Training Fund”). The recent developments indicate that hotels and touristic establishments shall not be required to pay 1% of their profits to the Vocational Training Fund, despite it being a rooted statutory requirement stemming from the Egyptian Unified Labor Law No. 12 of 2003 (the “Labor Law”).

1. Overview

Under Articles 133 and 134 (the “Articles”) of the Labor Law, employers hiring a minimum of ten (10) employees are required to allocate 1% of their annual net profit to the Vocational Training Fund for the rehabilitation of employees, irrespective of the sector or industry of the employers.

2. Background

The government encountered requests from a considerable range of sectors not to pay the contributions due to the Vocational Training Fund since (i) these sectors directly procure the training and qualification of their employees, or (ii) these sectors are being governed by private legal frameworks that mandate the use of alternative funds or mechanisms for the training and qualifications of their employees.

In parallel, the above-mentioned Articles were subject to several challenges until the Supreme Constitutional Court rendered its judgment in case No. 114/27JY dated 6/11/2021 establishing the constitutionality of the same and the Vocational Training Fund started to claim and collect said amounts.

The Opinion acknowledged the unique nature of the tourism sector and distinguished it from other sectors, and declared that neither the Vocational Training Fund nor the Ministry of Manpower offers any training programs of essence to the employees of this sector when compared to the system implemented by the Ministry of Tourism and Antiquities Support Fund (“Support Fund”) established under the Law No. 19 of 2022, which (i) offers enhanced standards and conditions, (ii) surpasses the capabilities provided for under the Labor Law; and (iii) clear, integrated and more beneficial to these employees particularly.

The Opinion further stressed that Law No. 8 of 2022 issued on hotels and touristic establishments was mainly issued to regulate and govern the tourism sector, making it the law that should be sought when it comes to addressing any matters related thereto and it shall prevail in case of any conflict between any of its provisions and any other law, inter alia, Labor Law, according to the well-established principle entailing that the specific prevails over the general “lex specialis derogat legi generali”.

3. Impact

This landmark Opinion established a general principle entailing that it is acceptable to avoid the application of Labor Law provisions whenever other alternative regulations are more beneficial for the employees of such sector.

This represents a pioneering step in the narrative adopted by the Egyptian judicial system concerning hotels and touristic establishments in terms of recognizing the special characteristics of this niche sector and its distinctive nature.

Another significant impact of the Opinion is that legislators may consider the necessity of continuity of the Vocational Training Fund and how to improve its programs, and to consider introducing clear provisions exempting establishments offering special training programs from contributing to the Vocational Training Fund as well.

4. Enforceability

Despite that opinions issued by the General Assembly are not binding in nature; however, hotels and touristic establishments may use this Opinion as a solid ground and valid argument to establish that they are not obliged to contribute to the Vocational Training Fund, which will likely resonate with courts and leverage their position in case any disputes arise in this context.

What to do?

We hereby urge all our esteemed clients operating in the hospitality sector to hold any contributions to the Vocational Training Fund for this constitutes an unnecessary burden that is likely to be reconsidered by the legislators sooner rather than later. In case of any attempt by governmental officials to make claims regarding the same, please hold any payments and revert to your legal counsel.

For any questions or inquiries, please feel free to contact: