Ensuring proper implementation of annual profit-sharing payments to workers in Egypt

Egypt’s Law No. 159/1981 (the “Companies Law”) mandates employers share profits with their workers. However, reports indicate that suppliers in Egypt are not properly implementing profit-sharing payments to workers, resulting in negative impacts on worker wages and non-compliance with legal requirements.

Under the Companies Law, all joint stock companies, partnerships limited by shares, and limited liability companies must allocate no less than 10% of their annual net profits to their workers. This allocation is capped at an amount not exceeding the total annual wages paid within the company. For workers in Egypt, this provision represents a significant source of additional income.

Despite this clear mandate, the Fair Labor Association (FLA) has observed challenges with some textile and garment suppliers in Egypt paying this legally required compensation. Several factors contribute to this non-compliance:

• Lack of awareness or knowledge by suppliers, auditors, and workers: Social compliance audits often focus primarily on labor laws and their associated regulations. The legal requirement for profit-sharing with workers in Egypt can be inadvertently overlooked by brands sourcing from the region because the profit-sharing mandate operates under a separate legal framework, distinct from the core labor laws governing wages and benefits.
  • Suppliers: Suppliers may be unaware of the requirement because it is not part of the primary Egyptian Labor Code but rather a separate legislative framework.
  • Auditors: Many auditors are not aware of or checking for this requirement during the regular social compliance audits in Egypt.
  • Workers: Workers may not be aware of the law. In the absence of strong, independent union representation, workers are often uninformed about this legally granted benefit and its applicability conditions by the suppliers.

• Lack of proper implementation and verification: Suppliers are not adequately integrating this legal obligation into their monitoring activities and supplier communications. This can result from:
  • Confidentiality claims: Compliance with this obligation requires auditors to access sensitive financial records, such as year-end financial statements and supplier meeting minutes.
    
    Supplier management may decline to disclose these documents to the auditors due to confidentiality concerns, hindering the verification process.
    
    Supplier management may claim ongoing investments as a reason for withholding payments, without providing auditors access to detailed profit-and-loss statements to verify the actual financial situation or confirm whether profit distributions were made to shareholders.
  • Shareholder-centric profit distribution: Some suppliers fail to address the profit-sharing obligation with workers because they prioritize profit distribution solely among shareholders.
  • Lack of adequate training for workers: The profit-sharing requirement is frequently omitted from existing orientation programs and ongoing trainings regarding supplier wage and benefit structures.

In this issue brief, FLA recommends seven steps companies sourcing from Egypt should take to integrate this legal obligation into their monitoring activities and supplier communications in order to effectively address this issue.