Terminating an employment contract is not always a simple task. It requires following strict regulations around dismissals and notice periods, and if you fail to adhere to local labor laws on things like severance pay in Cambodia, you could find yourself facing a wrongful dismissal lawsuit and having to pay expensive fees and fines.
In this article, we explain the process of employee termination in Cambodia. We also highlight the difference between severance pay at the end of a fixed-term contract and in the case of employee dismissal. Understanding how to terminate an employee correctly can save you time and money and allow you to operate smoothly in Cambodia.
Employee Termination in Cambodia
To legally dismiss an employee before the natural end date of their contract the situation must fall under one of the following categories:
1. the employer and employee agree mutually to end the relationship
2. employee misconduct
3. economic reasons
Dismissal with Just Cause in Cambodia
This applies to situations where the employee has committed fraud or theft, displayed inappropriate behavior towards other employees, violated health or safety regulations, etc. It cannot be done simply if the employee is a poor performed without multiple warnings and proof that the company has make every effort to meet with the employee and provide further training.
All details of prohibited employee conduct must be clearly stated in the employment agreement in order to be enforced for just case dismissals. In the case of dismissal with just cause, workers are not eligible for severance pay in Cambodia.
Informing Labor Unions About Dismissals
Unlike other countries, Cambodia’s labor and employee unions are not connected industry-wide or nationally, and there may be several unions operating at one time in a single business.
Before conducting mass layoffs, it is essential to inform all relevant labor unions with written notice and receive their counsel on how to go about the layoffs in a way that minimizes the damage to the employees.
Additional Requirements for Dismissing Employees
Firing employees is a serious decision and shouldn’t be taken lightly. Consider the reasons for dismissal first, and be absolutely sure that you can accurately provide notice periods and severance pay in Cambodia to all affected employees.
Once you have decided to terminate an employee’s contract, you must contact the Ministry of Labor and Vocational Training (MLVT) within 15 days of the employee’s departure. This is to log the dismissal in case of dispute. The dismissal must also be recorded in the employee’s work book.
If the employee is a foreign citizen, the MLVT must be notified of the dismissal for the purposes of cancelling or transferring their visa.
Failure to follow these steps will result in fines of up to KHR1.2 million.
Disputes Around Dismissal in Cambodia
The primary point of contact for either employer or employee in the case of a dispute around contract termination in the local Labor Inspectorate. A Labor Inspector can simplify the dispute process before it is taken to court. This may mean negotiating an initial conciliation which would be enforceable by law.
If this doesn’t work, either party has 2 months from the date of termination to file an action either with a court or the Arbitration Council (AC).
Since 2021, the Cambodian AC has had extended legal power to solve both individual and collective labor disputes, including the power to judge in matters of unfair dismissal and award compensation including damages and severance pay in Cambodia.
As these powers are still new, the exact procedures following the settling of a dispute are still under review.
For collective dismissals, the initial actions required remain largely the same. However, there is generally a shorter timeline between filing a dispute and the dispute being heard by the AC. Additionally, trade unions representing the union membership are expected to be present if the dismissal is not covered by a CBA.
Notice Periods in Cambodia
In Cambodia, notice periods are different for fixed-duration contracts (FDC) and unfixed-duration contracts (UDC).
Notice Periods for FDC
Fixed-duration contracts can last for a maximum period of time of 2 years. If the fixed contract is longer than 6 months, the employee must be informed 10 days before dismissal. If the contract is longer than 1 year, the notice period extends to 15 days.
If the employer does not give notice at the natural end of an FDC, the contract will automatically be extended for a period equal to the initial duration or become an unfixed contract.
Notice Periods for UDC
Unfixed duration contract notice periods are as follows:
– 7 days if the employee has worked less than 6 months.
– 15 days if the employee has worked 6 months to 2 years.
– 1 month if the employee has worked 2-5 years.
– 2 months if the employee has worked 5-10 years.
– 3 months if the employee has worked longer than 10 years.
How to Calculate Severance Pay in Cambodia
Severance pay in Cambodia is calculated differently depending on whether the contract is for a fixed or unfixed duration.
Compensation for employees with an FDC is 5% of the total salary the employee received during the contract period.
Compensation for employees with UDCs is 7 days’ wages if the contract lasted between 6 months and one year, and 15 days’ wages for every year of service once the employee has been working for longer than 12 months. This is capped at a maximum of 6 months’ wages.
In both FDC and UDC contracts, the employee is also entitled to receive monetary compensation for their unused vacation days along with severance pay in Cambodia as part of their final salary slip.
Employees who are dismissed due to just cause do not receive severance pay in Cambodia.
Seniority Pay as Part of Severance Pay in Cambodia
Employees are eligible for an amount equivalent to 15 days of wages plus benefits every year that they are employed at a company. This functions in a similar way to a 13th-month bonus in other countries, but is split into 2 payments in June and December.
When an employee is terminated or made redundant, the employer must give them 7 days of wages on top of any other compensation and severance pay in Cambodia if they have not received a seniority payment in the last 1 month.
Stay Compliant in Every Way During Employee Termination Procedures with INS Global
Making mistakes in a new market is not only costly, but it can also be damaging to the reputation of your company. An an employer, you have to be certain of regulations around termination and severance pay in Cambodia and every country that you operate in.
With INS Global you don’t have to spend money and time on lengthy lawsuits or legal errors. Our team of experts is familiar with local labor laws in your target market and can give you solutions for any challenges you might face during global expansion.
Being able to enter new markets quickly, confidently, and smoothly is our goal for you and any company that wants to expand to new horizons. With over 15 years of experience, and with PEO and EOR services available in more than 100 countries worldwide, INS Global can help your global expansion strategy come to fruition.
We can assist you with making local connections and hiring local talent, as well as with onboarding, payroll and tax compliance, HR services, employee termination, and more.
Contact us here today to learn more about dismissal and severance pay in Cambodia and 100+ other countries worldwide with a free consultation.
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