You are using an outdated browser and your browsing experience will not be optimal. Please update to the latest version of Microsoft Edge, Google Chrome or Mozilla Firefox. Install Microsoft Edge

August 6, 2018

Cambodia Labor Law Amendment Mandates Seniority Payment and Clarifies Damages for Early Termination

Subscribe to Updates

On July 11, 2018, Cambodia passed an amendment to the Labor Law that eliminates “indemnity for dismissal”—a local legal concept equivalent to a severance payment—for undetermined duration contracts (i.e., employment contracts without a fixed expiration date), and replaces it with an ongoing requirement for employers to pay employees a new “seniority payment.” These amendments affect undetermined duration contracts, and may also affect fixed-term contracts (i.e., employment contracts with a fixed expiration date).

Prior to the amendment, an employer was only required to pay indemnity for dismissal to an employee with an undetermined duration contract when the employer unilaterally terminated that employee for any reason other than that employee’s serious misconduct. Similar to the severance provisions of most other jurisdictions, this indemnity for dismissal was only paid at the end of the employment relationship and was based on length of employment.

After the amendment, an employer is no longer required to pay an indemnity for dismissal. However, an employer must instead pay employees a seniority payment every six months. On an annual basis, the total amount of the seniority payment is equal to 15 days of an employee’s wages and other fringe benefits, such as commissions and gratuities. As this seniority payment must be paid every six months, each installment of the seniority payment is half of the above amount.

If an employee with an undetermined duration contract is terminated for any reason other than the their own serious misconduct, and at least one month has passed since the last seniority payment without the subsequent seniority payment being paid, then the employee is entitled to a seniority payment equal to seven days of wages and fringe benefits. The amendment is silent as to whether an employee hired under a fixed term contract would be entitled to this seniority payment.

The amendment follows the existing formula under the Labor Law for calculating the daily wage of an employee for indemnity payments. The daily wage is calculated based on all wages and fringe benefits, including commissions and bonuses, that an employee received within the past 12 months of service. That said, ambiguities remain as to the exact formula for determining the daily wage as no formula is provided.

In addition to matters related to the seniority payment, the amendment also addresses damages for early termination of an employment contract. First, the amendment addresses an earlier ambiguity in the Labor Law by clarifying that if a company closes down and terminates its employees it will not be required to pay its employees any damages or compensation in lieu of prior notice under the Labor Law. Second, the amendment states that if an employee is entitled to damages, the employee can request a lump sum payment that is equal to all previous seniority payments received, plus any future seniority payments to be received under the employee’s contract, in lieu of proving the actual amount of damages. This revision is significantly pro-employee, as the Labor Law previously capped damages at six months of wages and fringe benefits.

The amendment states that the Ministry of Labor and Vocational Training will issue further additional regulations to address ambiguities in the applicable law and to more specifically clarify the implementation of the seniority payment.

Ambiguities under the new amendment that are yet to be resolved include: 

  1. whether an employee under a fixed-term contract is entitled to receive a seniority payment;
  2. whether an employee hired before this amendment is entitled to a seniority bonus for time employed before the enactment of this amendment;
  3. whether an employer can pay all employees a seniority payment at the same time or whether the employer must time the seniority payment to each employee’s specific start date; and
  4. the specific conditions under which an employer may terminate employees when closing down an enterprise without having to pay damages and compensation in lieu of prior notice. 

Regardless of any future clarification, it is clear that employers will be obliged to make the mandated seniority payments for any employees hired after the implementation of this amendment, and all companies with employees in Cambodia would be prudent to take note of this significant change in future staffing decisions.

Tilleke & Gibbins will be monitoring the developments of these new obligations. If you have any questions or require assistance assessing your labor obligations, please contact us at mailto:[email protected] or +855 23 964 210.  

Related Professionals

Practices

Employment

Location

RELATED INSIGHTS​ 

April 3, 2023
Most employers know that terminating employees for poor job performance is not easy. But it is actually legally possible—if employers have the right approach and take specific precautionary measures. However, failing to take these precautions can mean that an employer is either stuck with an incompetent employee or on the losing end of a lawsuit for unfair termination. This article will lay out some essential considerations for employers in Thailand regarding termination of employment for poor performance. First, understand that “poor work performance” is a lack of performance or ability, or an inability to work with other employees. It does not constitute a violation of work rules or regulations. In some cases, however, an employee’s failure to act in accordance with lawful instructions or commands of the employer, resulting in poor work performance, could also be considered a violation of work rules or regulations. This may be the case if the work rules or regulations clearly state that an employee must strictly comply with the employer’s instructions or commands. Second, an employer can, in fact, terminate an employee due to poor work performance. For example, this may be possible in the following scenarios: Records show that an employee’s work performance has fallen below the employer’s required standards, and the employee has not tried to improve his or her work performance for three consecutive years. In addition, it does not appear that the employer was biased when giving ratings or scores for the employee’s work performance. The job description of the employee includes coordination with employees in other departments, but the employee has not been able to do so. Therefore, the employee was reassigned to a new job function, but the employee still did not improve. This suggests that the employee has a lack of interpersonal skills and is not
Read More
March 23, 2023
On March 19, 2023, Thailand’s new work-from-home (WFH) legislation amending the Labour Protection Act (No. 8) B.E. 2566 (2023) was published in the Government Gazette. It will come into effect on April 18, 2023. The amendment aims to enhance employee protections to accord with current global standards, provide alternative working arrangements for employers and employees, increase workforce efficiency, and strengthen employees’ job security and a better quality of life. As we detailed previously, the new WFH legislation allows employers and employees to reach agreements that permit employees to work remotely. Since there are no accompanying criminal punishments relating to this new provision, and the legislation incorporates the term “may agree,” it appears that this WFH provision is not mandatory but is primarily intended to facilitate and encourage remote working agreements between employers and employees. For more details on the WFH legislation, or on any aspect of employment law in Thailand, please contact Tilleke & Gibbins at [email protected].
Read More
February 24, 2023
Many companies have moved to Southeast Asia to benefit from the advantages of this vibrant and diverse market. The region is already a manufacturing hub for a multitude of industries—computer and automotive products in Thailand, textiles in Cambodia, and footwear and electrical goods in Vietnam, to name a few—and an increasing number of companies worldwide are reconfiguring their supply chains to include regional suppliers. A key challenge is keeping up to date with employment law trends in these jurisdictions to ensure compliance with local regulations—and avoid costly, time-consuming business interruption. Here we outline trends and recent regulatory developments in Cambodia, Thailand, and Vietnam, and consider what they mean for employers. Cambodia The Ministry of Labour and Vocational Training (MLVT) is likely to pursue a more proactive enforcement strategy in 2023. Last May, the MLVT announced companies would be required to submit a twice yearly self-declaration on labour compliance through a new online system. The self-declaration form requires companies to confirm and upload evidence of compliance, and the MLVT online system—through which the ministry can easily determine if a company is compliant –generates a report that lists all fines. Companies should comply with the self-declaration requirement and carefully review the form to understand what fines will apply for non-compliance. On 1 October 2022, regulations relating to the National Social Security Fund (NSSF) pension system came into effect, and employers and employees began making NSSF pension contributions. Over the next five years, total compulsory pension contributions will amount to 4% of an employee’s wage, half of which is paid by the employer and half deducted from the employee’s salary. The contribution wage is capped at KHR 1.2m (USD 300). Employers are currently required to pay a relatively small amount (KHR 24,000, or around USD 6). This will increase to 10.75% over
Read More
January 19, 2023
The Thai parliament has passed the so-called Work from Home Bill—formally known as Labour Protection Act (No. 8) B.E. 2566 (2023)—which amends the country’s Labour Protection Act (LPA) to reflect current circumstances. The accompanying legislative remark states that the proposed amendments to the LPA will provide additional options for work arrangements between employers and employees, upgrade the level of labor protection, increase work stability, and improve quality of life for employees in Thailand. The legislation adds a single section to the LPA providing that an employer and an employee “may agree in the employment contract” that the employee is allowed “to bring work . . . to perform at home or at the residence of the employee or anywhere that the employee can work remotely through information technology, if the nature of the work permits.” The provision further provides that employers are responsible for ensuring that remote work agreements are in writing, either physically or electronically, and may include the following details: Period of the agreement; Normal working hours, rest periods, and overtime work; Criteria for overtime work, holiday work, and various types of leave; Scope of work and control or supervision by the employer; and Responsibility for arranging supplies and equipment, including necessary costs relating to the work. The amended LPA gives employees who work from home the right to refuse contact from the employer or the supervisor beyond working hours. In addition, employers must treat remote employees equally to on-premise employees. The most notable question surrounding this legislation is whether employers must allow employees to work remotely. The phrase “may agree” suggests that employers do not have to agree to allow an employee to work remotely. Another important aspect of the amendment is that there is no criminal punishment attached to it, which suggests that the legislation
Read More