Notification on the Benefits Received after Termination of An Employment Contract

On 21st March 2024, the Ministry of Labour and Vocational Training (“MLVT”) issued a Notification on the benefit received after the termination of employment contract (“Notification”). The Notification aims to avoid misinterpretation of the contents of labour law and regulations related to the payment of severance pay.

Employment contracts are governed by both the labour law and the general rules of contract law. People are free to enter into a contract as per contract law (Article 3 of Civil Code 2007), although some exceptions may apply with respect to the constitution and public order, however the labour law sets limitations on this freedom. For example, where the Labour Law sets the floor of benefits for employees the parties cannot lower that floor by mutual agreement. The floor of benefits provides the least favourable benefits or working conditions accorded by law to the employees.

The Labour Law also provides self-help remedies that allow the parties to exit from the contractual relationship. For example, a party can terminate another party without resorting to the court when the contract is breached by serious misconduct.

II. Type of Employment Contracts

A. Fixed Duration Contract (“FDC”)

An FDC is an employment contract which is made for a specific duration. This contract shall be made in writing with a clear start and end date. An FDC may be made with unspecified ending if that contract is made for: (i) replacing a worker who is temporarily absent, (ii) for personal work, and (iii) occasional period of extra work or the non-customary activity to the enterprise.

An FDC without a specific end date may therefore be ended by any of the following: (i) the returning to work of the worker who was temporarily absent or the termination of labour contract of those employees, (ii) at the end of season, and (iii) at the end of the occasional period of extra work or the non-customary activity to the enterprise.

Based on Article 67 point 2 of the Labour Law, an employment contract signed for a specific duration cannot be longer than two years. It can be renewed, as long as the renewal does not surpass the maximum duration of two years. In the event of a renewal exceeding the maximum of four years (two 2-year periods); the FDC shall become undetermined duration contract.

B. Undetermined Duration Contract (“UDC”)

A UDC is an employment contract where the end date is not specified. It may arise by operation of law when an employment contract is concluded verbally, or when a contract is signed for a fixed duration but is renewed one or more times and the total duration of the contract exceeds four years. Since the law does not require that a UDC employee works works full time, a UDC may also be used for part-time work.

The UDC is often used for a permanent employee when the nature of the work means that it does not have a specified end date. An employer who needs employees for a permanent, lasting activity of the business may hire permanent employees under a UDC.

III. Termination of Employees

On 21st March 2024, the Ministry of Labour and Vocational Training (“MLVT”) issued a Notification on the benefits received after the termination of an employment contract (“Notification”). The notification highlights the benefits received after the termination of an employment contract in two situations; either by an employer or through the bankruptcy of an employer.

A. Termination by the Employer

The termination of an employment contract by the will of an employer without a valid reason, where the worker did not commit any serious misconduct as stated in either Article 83 of the Labour Law or as stipulated in the internal rules of the enterprise.

For a Fixed Duration Contract (FDC), the employee shall receive:

– Unpaid wages (Article 116 of Labour Law);

– Remuneration for the remaining annual leave (Article 166 and Article 167 of Labour Law);

– Severance Pay of at least 5% (five percent) of wages paid to the worker during the term of the employment contract (Article 73 of Labour Law); and

– Damages in an amount at least equal to the remuneration that employee would have received until the end of the contract. (Article 73 of Labour Law).

For an Undetermined Duration Contract (UDC), the employee shall receive:

– Unpaid wages (Article 116 of Labour Law);

– Remuneration for the remaining annual leave (Article 166 and Article 167 of Labour Law);

– Compensation as a replacement of prior notice in case the employer did not give prior notice in accordance with the Labour Law (Articles 75 and 77 of Labour Law);

– Seniority indemnity in any semester in which the employee is terminated and the total back pay of seniority indemnity that the employer has not yet paid (Article 89 new of Labour Law); and

– For damages, the worker may claim an indemnity payment equal to the seniority indemnity received during the term of the employment contract (Article 91 (new) of Labour Law).

B. Termination by the Employer when the Employee has Committed Serious Misconduct

The termination of an employment contract by the will of employer when the employee has committed serious misconduct, either as stated in Article 83 of the Labour Law or as stipulated in the internal regulations of the enterprise.

For a Fixed Duration Contract (FDC), the employee shall receive:

– Unpaid wages (Article 116 of Labour Law)

– Payment in lieu of the remaining annual leave​​ (Article 166 and Article 167 of Labour Law).

For an Undetermined Duration Contract (UDC), the employee shall receive:

– Unpaid wages (Article 116 of Labour Law)

– Payment in lieu of the remaining annual leave​​ (Article 166 and Article 167 of Labour Law).

C. Termination of an Employment Contract in the Case of Bankrupt​y of the Employer

For a Fixed Duration Contract (FDC), the employee shall receive:

– Unpaid wages (Article 116 of Labour Law);

– Remuneration for the remaining annual leave (Article 166 and Article 167 of Labour Law); and

– Severance pay at least 5% of wages paid to the worker during the term of the employment contract (Article 73 of Labour Law).

For an Undetermined Duration Contract (UDC), the employee shall receive:

– Unpaid wages (Article 116 of Labour Law);

– Remuneration for the remaining annual leave (Article 166 and Article 167 of Labour Law);

– Compensation as a replacement of prior notice in case the employer did not give prior notice in accordance with the Labour Law (Articles 75 and 77 of Labour Law); and

– Seniority indemnity in any semester in which the employee is terminated and the total back pay of seniority indemnity that the employer has not yet paid (Article 89 new of Labour Law).

The Notification states that bankruptcy does not lead to the entitlement to damages as it does not affect the honour or dignity of the employee, and nor does it create a misconception of the employee the public that they are incompetent​​ or lack productivity.

IV. Conclusion

The notification on the benefits received after the termination of an employment contract provides clear understanding on the wage payments and compensation which are the entitlement of employees and obligation of the employer. The notification protects the interests of the employees while providing the employers with clarity as to their labour compliance responsibilities relating to the payment of wages and payment for damages.