Severance pay is an indemnity given to the worker at the termination of fixed duration contract (FDC). It is generally understood that severance pay is provided to the worker upon the expiry of the fixed duration contract. However, it is debatable whether this severance pay is also given to worker at any other event of the contract termination. This article will discuss the conditions for entitlement to severance pay based on the Labor Law of Cambodia.
Article 73 paragraph 6 of the Labor Law reads:
At the termination of the contract, the employer shall provide the worker with the severance pay proportional to both the wages and the length of the contract. The exact amount of the severance pay is set by a collective agreement. If nothing is set in such agreement, the severance pay is at least equal to five percent of the wages paid during the length of the contract.
Pursuant to Article 73 of the Labor Law of Cambodia, fixed duration contract is terminated at the expiry date. However, it can be terminated before the expiry date if there is:
- a written agreement between the employer and the worker in the presence of the labor inspector, or
- serious misconduct of employer or worker, or
- act of God which causes either or both parties unable to perform their obligations under the contract.
Termination of the fixed duration contract before the expiry date by any party other than reasons (a, b, c) above entitles the other party to get compensation for damage.
Further to the above rules, we are going to discuss and examine the conditions for entitlement to severance pay as follow.
It is generally accepted that employer has the obligation to pay the worker upon expiry of the fixed duration contract. However, if the contract is renewed after the expiry date, it is interpreted that contract is not terminated, but it is renewed for another fixed period. Consequently, the employer can provide worker with severance pay at the end of employment relation. For example, the employment contract was concluded for the initial period of 6 months from 01 January 2020 to 30 June 2020. Thereafter, the parties agreed to extend period of their contract to another period of 6 months starting from 01 July 2020 to 31 December 2020. The employer can pay severance pay to worker upon the expiry date of the renewed contract. The amount of severance pay should be equal to five percent of the wages paid during the length of the total contracts (which should be from starting date of initial employment until the date of termination of renewed contract).
Severance pay should be paid to the worker when the employer and worker mutually agree to terminate the contract before the expiry date. The basis for this interpretation is that the Labor Law allows the employer and worker to terminate the contract before the expiry date as long as they mutually agree before the labor inspector. The amount of severance pay should be equal to five percent of the wages paid during the length of the contract (which should be from starting date of employment until the date of termination of contract).
Severance pay should be paid to worker when the contract is terminated due to act of God. The basis for this interpretation is the same with that of termination of contract due to mutual agreement. The Labor Law permits the termination of fixed duration contract before the expiry date in case of act of God. Furthermore, act of God is an event which is beyond the control or unintentional of the parties. The worker should be entitled to indemnity or severance pay in order to minimize consequence of contract termination. The amount of severance pay should be equal to five percent of the wages paid during the length of the contract (which should be started from commence of employment until the date of termination of contract).
Severance pay should be given to the worker when the contract is terminated due to serious misconduct of the employer. Under the Labor Law of Cambodia, the worker has the right to terminate the contract before the expiry date if the employer has serious misconduct. The examples of serious misconduct of employer are provided in Article 83-A of the Labor Law which include but are not limited to employer’s refusal to pay all or part of the wages, repeated late payment of wages, abusive language, threat, violence or assault or failure to provide sufficient work to a pieced worker. To discourage employer from conducting any of the serious misconducts as mentioned above, it should be interpreted that employer has the obligation to pay severance to the worker in the event that the worker terminates the contract before the expiry date on the ground of serious misconduct of the employer. If we refer to the indemnity under the undetermined duration contract (UDC), we will see similar rule under which the worker is entitled to seniority indemnity in the event that the employer incites or pushes the worker to terminate the contract himself or herself, or in the event that the employer treats the worker unfairly or repeatedly violates the terms of contract . (Article 90-New, Labor Law)
Severance pay should not be given to worker if the contract is terminated due to serious misconduct of the workers. The examples of serious misconduct of the worker are provided in Article 83-B of the Labor Law which include but are not limited to stealing, misappropriation, embezzlement, fraudulent acts committed at the time of signing (presentation of false documents) or during employment ( sabotage, refusal to comply with the terms of employment contract, divulging professional confidentiality), serious infraction of disciplinary, safety and health regulations. It would be unreasonable to obligate the employer to pay severance pay to the worker who commits serious misconduct. To discourage the worker from making serious mistakes, severance pay should not be granted to the worker who is terminated due to the serious misconduct. Furthermore, if we refer to indemnity under the undetermined duration contract (UDC), we can see similar rule under which seniority indemnity is not given to worker who is dismissed due to serious misconduct. (Article 89-New, Labor Law)
Severance pay should be paid to the worker if the employer terminates the contract before the expiry date without mutual agreement, serious misconduct of the worker or act of God. The basis of this interpretation is to discourage employer from violating the employment contract and the Labor Law.
Severance pay should not be provided to the worker who terminates the contract before the expiry date without mutual agreement, serious misconduct of the employer or act of God. The basis of this interpretation is to discourage worker from violating the employment contract and the Labor Law.
In conclusion, severance pay should be provided to the worker on the ground of expiry of contract, mutual agreement, act of God, employer’s serious misconduct, employer’s termination of contract without legally accepted ground. However, severance pay should not be provided to worker if contract is terminated on the ground of worker’s serious misconduct and due to worker’s termination of contract without legally accepted ground.
This article is not legal advice or opinion.