Cambodia: Labor Law Amendment Mandates Seniority Payment

Cambodia has passed an amendment to its Labor Law that eliminates "indemnity for dismissal"—a local legal concept equivalent to a severance payment—for employment contracts without a fixed expiration date, and replaces it with an ongoing requirement for employers to pay employees a new "seniority payment." This July 11, 2018, change applies to undetermined duration contracts and may also affect 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 Cambodia Labor Law by clarifying that if a company closes 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.

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