Recently the Cambodian Ministry of Labour and Vocational Training has drafted a Prakas (regulation) regarding the term and determination of fixed term contracts (“FTC”).
By Chris Robinson and Samnangvathana Sor, DFDL
This draft Prakas aims to amend certain key provisions related to duration of FTCs under the Labour Law. The draft Prakas provides that the initial duration of an FTC must not be less than six months’ duration and can last for a maximum of two years. An FTC can be renewed one or more times on the condition that the additional term is less than two years and the total period of fixed term employment does not exceed four years. The duration of an FTC may only be for than a term of six months or less if the employment contract relates to replacement of an employee who is temporarily absent, seasonal work or occasional periods of increased or non-customary activity. In such cases, the employer will need to obtain prior written approval from the labour inspector.
Based on the current Labour Law, there is no need to obtain prior approval from the labour inspector to enter into an FTC for a term of less than six months. Also, at present, the total period of fixed term employment cannot exceed two years or the FTC will automatically be deemed to have converted to an unspecific duration contract (“UDC”), regardless of the original intent of the contracting parties.
Whilst the current Labour Law is silent regarding the period between FDCs, the draft Prakas provides that, after the four-year limit, there must be a gap of four months between the expiration of the last FDC and a new FDC if an employer wishes to enter into an FDC with the employee for the same or similar work. In addition, under the draft Prakas, contracting parties may switch from a UDC to an FDC on the condition that it is initiated by the employee, agreed by the employer and approved by the labour inspector.
The draft Prakas also clarifies when severance must be paid. Article 73 of the Labour Law does not clearly stipulate when severance should be paid (which is normally 5% of the total contract value) to an FTC employee, whether at the end of each FTC or upon expiry of the final permitted extension. Under the draft Prakas, however, an employer is required to pay severance at the end of each FTC, even if the FTC is renewed.
If this draft Prakas is enacted, it will constrain the ability of employers to enter into FTCs for periods of less than six months (other than for one of the specified reasons above, if approved in advance by a labour inspector). Further, the obligation to pay severance upon expiry or termination of each FTC is likely to increase financial obligations with respect to severance. Therefore, it is important for companies to keep themselves informed with the status of this draft Prakas.