The Author：Dr. Ali Hatami
The Translator：Nengna Li
Foreword
As a strategic hub in China's Belt and Road Initiative, Iran connects Eurasia with its vast energy resources, critical location linking the Persian Gulf and Central Asia, and growing industrial potential. These advantages make it a key destination for Chinese companies expanding into energy, infrastructure, and manufacturing sectors. Yet enforcing Iran’s labor laws poses unique challenges. Rooted in Islamic Sharia principles but blended with modern labor protections, the system enforces distinct rules on employment contracts, foreign worker quotas, termination procedures, and anti-discrimination practices. For businesses, understanding these regulations is essential to operate smoothly and comply with local requirements.
In Iran Labor Law Overview,Ali Hatami—a lawyer with 18 years of practical experience—grounded in Iran’s judicial practices, systematically outlines the core framework and enforcement details of the labor laws. By focusing on the legislative logic behind the laws and key priorities in workforce management, he breaks down rigid legal constraints and hidden risks across all dimensions of employment practices. This approach helps Chinese investors bridge cultural and regulatory divides, enabling them to establish stable and sustainable labor management systems in the Iranian market.
(The following content (Part B) is excerpted from Iran Labor Law Overview - Part A. For the full version, please refer to the Iran Chapter in Invitation to Contribute to The Labor Law Environment Report of the " Belt and Road" Countries.)
Contractual Restrictions and Post-Employment Obligations
In Iranian labour law, unlike some other legal systems, non-competition clauses are not explicitly addressed in the Labour Law. However, based on the principle of freedom of contract (Article 10 of the Civil Code), parties may agree to such clauses, provided they do not violate public order or morality.
In Iranian judicial practice, for a non-competition clause to be valid, the following criteria must be met：reasonable duration and geographic scope, reasonable scope of work and protection of legitimate employer interests.
Unlike non-competition clauses, confidentiality obligations typically do not have a specific time limit, and workers are required to maintain confidentiality even after leaving their jobs.
If a worker breaches a non-poaching clause, the employer may seek damages through legal channels, provided that the contract specifies penalties for such breaches.
In Iran, there is no comprehensive law specifically addressing the protection of employees’ personal data. However, some general legal principles in the Constitution of the Islamic Republic of Iran, Law on Respect for Legitimate Freedoms and Protection of Citizens' Rights, Electronic Commerce Law and Cybercrime Law can be invoked to protect employee privacy.
Employment in Foreign and Multinational Companies
All foreign companies operating in Iran, even if they employ only one Iranian worker, are subject to Iranian labour law and cannot follow the labour laws of their home country. Unlike some countries where companies have more freedom to terminate contracts, foreign companies in Iran are required to comply with the strict regulations of Iranian labour law regarding employee dismissal. Foreign companies must pay the minimum wage set by the Supreme Labour Council of Iran.
Foreign companies intending to operate in Iran typically choose one of the following two methods: registering a branch in Iran or registering an independent company in Iran. According to the Labour Law, employers are required to insure their workers under the Social Security Law.
In the event of disputes between employees and foreign companies, legal claims are typically referred to one of the following authorities: Labour Dispute Resolution Boards of the Ministry of Labour, Iranian Courts or Administrative Justice Court.
Foreign Workers
According to the Articles 120 to 129 of the Labour Law, foreign nationals can only work in Iran if they have a valid work visa and a work permit. Work permits issued to foreign nationals are valid for a specific period, typically one year. If the employer wishes to extend the employment relationship with the foreign worker, it must apply for a renewal by submitting documents proving the continued necessity of hiring the worker.
The employment of foreign nationals must be based on genuine labour market needs. In other words, employers must demonstrate that no Iranian workers with similar skills are available.
Collective Labour Relations
Islamic Labour Councils are recognized as one of the key institutions in collective labour relations in Iran. The purpose of establishing Islamic Labour Councils is to collaborate in preparing programs and creating coordination for the progress of affairs through a council composed of worker representatives and management representatives. The formation of these councils is mandatory in workplaces with more than 35 workers.
Islamic associations often play a key role in labour gatherings or trade unions and have significant importance in the interactions between workers and government organizations. Trade unions are groups of workers formed to defend the rights and interests of workers in a specific industry or occupation. These independent organizations help workers collectively and organized to defend their rights.
Collective Bargaining and Workplace Agreements
Collective bargaining and workplace agreements are among the most important mechanisms for regulating relations between workers and employers in Iran’s legal system. These agreements serve as tools for determining working conditions, wages, and benefits for workers, as well as creating a balance between the interests of workers and employers. They play a significant role in establishing stability and justice in the workplace.
Ending of Employment
Reasons for ending contract: an employment contract may be ended in the following ways: expiration of the contract, fulfilment of a ending clause, mutual agreement, death of the worker, retirement of the worker, total disability due to illness or an accident of the worker.
Justified dismissal: refers to cases where the employer dismisses a worker for lawful and valid reasons. According to Article 27 of the Labour Law, valid reasons for dismissal include: reduction in production or workplace shutdown, worker misconduct and worker inability.
Unjustified dismissal: refers to cases where the employer dismisses a worker without lawful or valid reasons. In such cases, the worker may file a complaint with labour dispute resolution boards and, if the dismissal is proven unjustified, the worker shall be vested with the right to receive his of her legal entitlements.
Worker resignation：a worker may terminate their employment contract by submitting a written resignation to the employer. According to Article 22 of the Labour Law, the worker must submit the resignation at least one month before the intended departure date. If this notice period is not observed, the worker is obligated to compensate the employer for damages.
Group layoffs：If production is reduced or the workplace is shut down for economic or technical reasons, the employer may conduct group layoffs. According to Article 27 of the Labour Law, the employer must notify the workers and the Ministry of Labour at least one month in advance. Additionally, the employer must pay the workers’ legal entitlements, including severance pay and end-of-service benefits.
Labour Disputes and Dispute Resolution Methods
In resolving labour disputes, Iranian law adopts a two-stage process: the first stage involves direct reconciliation between the employer and the worker (or the worker’s representative in the Islamic Labour Council or trade union), and the second stage involves referring the dispute to resolution authorities.
Legal Documents Prohibiting Discrimination and Inequality
Discrimination and inequality in the workplace manifest in various forms. Some common examples include discrimination in hiring, promotion, training, wages, working conditions, contract ending, age, marital status and so on. By being aware of their rights and using legal channels, workers can prevent discrimination and inequality in the workplace and enforce their rights.
Social Security Insurance and Benefits
Social security in Iran, as one of the main pillars of the social welfare system, plays a significant role in protecting workers' rights, which including retirement insurance, health insurance, unemployment insurance, work injury insurance, and maternity insurance .
About the Authors
Dr. Ali Hatami
Ali Hatami is the founder and Managing Partner of Hatami & Associates International Law Firm. Hatami’s professional interests predominantly lie in Oil & Gas, Renewable Energy, Mining, and Construction,where he has effectively navigated the intricacies of labor regulations, employment contracts, and workplace disputes.
Additionally, Dr. Hatami serves as an Assistant Professor at Shahed University, where he lectures on Commercial Law, International Arbitration, Energy Law, and Foreign Investment Law, further contributing to the advancement of knowledge in labor law and its practical applications.
Nengna Li
Ms. Nengna Li specializes in labor dispute resolution, diversified employment compliance, human resources management compliance etc.
Ms. Li graduated from CUPL with a Bachelor of Laws (LL.B.) and subsequently obtained a Master of Laws from Tsinghua University. Her practice focuses on labor law, corporate compliance, mergers and acquisitions, bond issuance, and other comprehensive commercial matters. She has provided specialized legal advisory and consultancy services to multiple large-scale central state-owned enterprises and listed companies.
