The applicable law on the contract is one of the most important parts of every contract and its effect is undeniable in all stages of the contract, i.e., from the beginning, the duration of the contract, and its termination.
One of the most crucial components of any contract is the applicable law that will apply to it. Failure to accurately and adequately address this issue might result in problems. So, the easiest way to steer clear of these difficulties is to consult an expert in the field.
In this regard, Karimi & Associates Law Firm, with a team of experienced and expert lawyers in various legal fields, including Contract Law, by providing specialized legal advice and setting the terms of a contract, accompanies and supports your interests in concluding all the necessary contracts.
To begin, we need to point out certain types of legislation and divisions and then focus on specific contracts and applicable laws.
In determining the applicable law for a contract, there are two objective and subjective (personal) criteria. The objective standard means that the law applicable to the contract shall be the laws and regulations of the place the contract is being concluded in, and the subjective standard means that the applicable law can be determined according to the parties’ agreement and will.
Imperative and Supplementary Law:
Imperative and supplementary law is a significant division of the law applicable to the contract that should be taken into consideration. In simple words, an agreement against supplementary laws is possible, but an agreement against the imperative laws is invalid. In general, this division only makes sense in Private Law, and on the other side, Public Law and its regulations (Constitutional Law, Administrative Law, Criminal Law) are generally imperative. Most of the procedural and registration laws are also considered mandatory.
It should be noted that the division of laws into imperative and supplementary is not a legal division; In other words, the legislator, at the same time as establishing a law, does not refer to whether it is mandatory or supplementary, and it is the responsibility of the judges and lawyers to distinguish the description of the law from this point of view.
Nominate and Innominate Contracts:
Another point for better clarification is to divide contracts into nominate and innominate contracts. Nominate contracts are contracts with a specific title which the rules and regulations of them are determined by the law. The majority of these contracts were incorporated into Iranian legal system via Islamic law. What if the contract is innominate and there is no specific title? Article 10 of Iran’s Civil Code is the best tool. The article states that: Private contracts are valid for those who have concluded them if they are not explicitly against the law.
Before establishing this article, contracts only included nominate contracts, and if people intended to have agreements, they had to write their agreement in the framework of one of the types of specific contracts and conclude them in civil laws, such as Solh (a specific Islamic contract) and Rent. But after Article 10 of the Civil Code was approved, a new type of contracts known as innominate contracts were officially recognized in Iran’s legal system.
If you aim to enter Iran as an investor and start a business, you shall conclude a series of nominate and innominate contracts, and a complete understanding of the applicable laws to the contracts would be a necessary requirement.
Some of the most common contracts that investors and employers deal with, are Employment and Partnership Contracts.
Employment Contract and Applicable Law:
The Employment Contract is an agreement between the parties (employer and employee) outlining the manner in which work will be carried out and how salaries and wages will be paid.
It must be acknowledged that the Employment Contract is the most significant document of trust and confidence for the employee and employer. The applicable law on employment contracts is the Labor Act.
Important points of the Employment Contract are outlined in this Act; these points are considered as imperative laws, and any agreement contrary to them is prohibited and invalid.
According to the Labor Act, working hours during the week for a full-time employee is 44 hours, and the minimum wage that employees are paid shall not be less than the amount established at the start of the Iranian year.
The employer cannot increase the working hours or reduce the salary of the employee. It is possible to increase working hours by receiving an additional salary.
If the work is full-time, the worker will be entitled to full legal wages and benefits. Employers are obligated to pay insurance and taxes in Employment Contracts. Even during the trial time, employee insurance is mandatory in Iran, and any agreement that goes against this is illegal.
As an investor or entrepreneur, you might deal with Partnership Contracts. A partnership agreement is an agreement between two or more natural or legal persons to jointly carry out specific tasks in the field of production and trade activities in exchange for an allocation of their capital (material or intellectual) in the form of cash or non-cash shares of the company.
The Partnership Contract is one of the mandate contracts in the Civil Code. The parties in this contract have the right to agree on various issues as they wish, since the relevant laws are not among the mandatory or imperative laws (except for some exceptions). It should be noticed that the agreements reached must not violate the mandatory laws or the public order.
These contracts are those that may be reached in accordance with Article 10 of the Civil Law, and the parties may incorporate any conditions they consider convenient.
We reviewed the classification of laws, types of contracts in civil law, and two important contracts that investors and entrepreneurs may be most concerned with. The next steps shall be drafting a contract and entering into an agreement. How should you know about the applicable laws or the best type of contracts to choose, regarding your business or investment purposes in Iran?
The best solution is receiving legal advice from qualified legal experts. If you are currently planning to set up and conclude a contract in Iran, you can contact Karimi & Associates Law Firm through our contact section and receive specialized legal advice in this field from our team of expert lawyers.