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The Phnom Penh Post has been diligently reporting on the dispute taking place between garment workers and factories.  A central issue of the dispute is the use of Fixed Duration Contracts (FDCs) versus Unspecified Duration Contracts (UDCs).  The garment industry is hugely important for Cambodia: it represents about 15% of GDP and comprises the vast majority of exports.  The workers are almost all women (estimates are about 90%), of which a healthy portion come from rural areas seeking a better life around Phnom Penh.   Many of the workers complain that short-term FDCs leave them in a precarious situation, without the long-term security afforded by UDCs.

FDCs and UDCs mainly differ in their requirements and consequences of termination.  If an employer wants to get rid of an FDC employee, he can simply decide not to renew her contract, which can last from only a few months to a maximum of two years.  While under a UDC, the employer needs a valid reason.  FDCs, generally, require the employer to give less notice in the event of actual termination if they decide not to use the non-renewal tactic. The following charts, from our Guide to the Cambodian Labor Law, summarize the relevant legal requirements:

Discrimination is something we all do all the time.  We use mental shortcuts of our past experiences to make decisions easier.  However, some discrimination is wrong and can be bad for society.  When people of a certain race or gender are excluded from jobs solely on the basis of their skin or gender then useful, productive workers for that job are forced to do something else that they might not be as good at.  A recent article in the Phnom Penh Post details Cambodian women’s difficulty in being treated equally in the workplace.   (story here).

Section 2, Article 12 of The Labor Law of 1997 does provide women and many other groups with protections against discrimination, it reads:

Except for the provisions fully expressing under this law, or in any other legislative text or regulation protecting women and children, as well as provisions      relating to the entry and stay of foreigners, no employers shall consider on account of:

  • race,
  • color,
  • sex,
  • creed,
  • religion,
  • political opinion,
  • birth,
  • social origin,
  • membership of worker’s union or the exercise of union activities;

to be invoked in order to make a decision on:

  • hiring,
  • defining and assigning of work,
  • vocational training,
  • advancement,
  • promotion,
  • remuneration,
  • granting of social benefits,
  • discipline or termination of employment contract.

Distinctions, rejections, or acceptances based on qualifications required for a specific job shall not be considered as discrimination.

This language seems to extend beyond the hiring process and to wage inequality as well.

More generally, the Cambodian Constitution itself says “every Khmer citizen shall be equal before the law . . . regardless of race, color, sex, language, religious belief, political tendency, birth origin, social status, wealth or other status” (article 31).  That covers an awful lot of people, but are LGBT groups left out?  What about the disabled?  At the risk of being too bold, I wonder whether the clause would be stronger if it simply said “every Khmer citizen shall be equal before the law” full stop?

In 2009, a law was passed that had the purpose to “prevent, reduce and eliminate discrimination against persons with disabilities” (article 2 – Law on the Protection and the Promotion of the Rights of Persons with Disabilities).  The law requires all public facilities to provide access for all disabled people (nothing terribly surprising there).  However, provisions requiring “ministries and state institutions that recruit civil servants to be employed, shall employ persons with disabilities as states in article 33 of this law, in accordance with the appropriate set quota.  The set quota and recruitment process shall be determined by Sub-decree.”

Officials from The Cambodian Disabled People’s Organization have been quoted as being happy with the laws on the books, but unhappy with the resources devoted to implementation (source:  here).  I suspect women and other groups would have similar things to say.

In the first of our series on the new Civil Code, we take a look at two types of contracts – a “contract for work” and a “contract for employment”.

If this post’s title is confusing, you’re not alone. While in everyday usage, “work” and “employment” are generally synonymous, they’re very different when it comes to the law. The Civil Code defines them as follows:

652. (Definition of contract for work)
A contract for work is a contract whereby one party (the “contractor”)  assumes the obligation to complete agreed work and the other party (the “principal”) assumes the obligation to pay remuneration for the results of such work.

664. (Contract of employment)
(1) A contract of employment is formed by the promises of one party to perform services under employment, and another party to pay wages for it.

(2) The party who promises to perform services under employment is referred to as the “employee” and the other party as the “employer”.

Put another way, the first type creates an independent contractor, and the second an employment relationship. For instance, if you hire someone to renovate your kitchen or build you a website, you probably intend them to be an independent contractor (under a “contract for work”) rather than your employee. This is a crucial distinction, as employees are granted a number of protections and entitlements in the Labor Law, while contractors have far less protection.

Companies sometimes will try to hire individuals as independent contractors, rather than as employees. Even though the contract might claim it is a “contract for work” and that the person is an “independent contractor”, courts can look to other factors in deciding whether it is indeed so – including how the person is paid, who controls and directs the work, and whether any tools or work space is provided. Taking a close look at these factors, and deciding which type of contract to use, can save you from unpleasant surprises down the line.

How are employers supposed to treat unused annual leave in Cambodia?

Say an employee works for ten years, never taking a day off, and claims they’re now entitled to months and months of paid leave? Possible? No.

It comes down to Article 167 of the Labor Law:

Deferment of this leave cannot exceed three consecutive years and can only apply to leave exceeding twelve working days per year.”

This rule sounds simple, but calculating how much leave is owed is actually a bit tricky. To recall, employees get 18 days of leave per year, plus an extra day for each three years of employment.

Let’s say you have a workalohic who never takes a day off. The first year they get 18 days off, 6 (= 18 – 12) are rolled over to the second year. So at the end of year two, they’ll have 18 + 6 = 24. In year three, they have the 18 new days from that year, plus 6 from year 1 and 6 from year 2, giving 30 at the end of year 3. With me? Because now we add a twist.

In their fourth year, they now get 19 days off (one extra for the three years of seniority). At the end of the fourth year, they’ll have 19 + 6 from year 1 + 6 from year 2 + 6 from year 3 = 37. Now that they have 19 days off, there are 7 that roll over instead of 6 (19 – 12 = 7). At the end of the fifth year, 19 + 6 from year 2 + 6 from year 3 + 7 from year 4 = 37.

Enough with the math already, here’s the short version:

Years of seniority

New leave

Days rolled-over

Maximum allowable leave

0

18

6

18

1

18

6

24

2

18

6

30

3

19

7

37

4

19

7

38

5

19

7

39

6

20

8

41

7

20

8

42

8

20

8

43

9

21

9

45

10

21

9

46

11

21

9

47

12

22

10

49

13

22

10

50

14

22

10

51

15

23

11

53

16

23

11

54

17

23

11

55

18

24

12

57

19

24

12

58

20

24

12

59

 

For more on annual leave and other labor rules, please refer to our full report.

One of the most misunderstood fallacies amongst ex-pats living in Cambodia is the assumption that all Non-Government Organisation (NGO) employees are automatically granted a tax reprieve. Although there are some situations where NGO employees are exempt from Tax on Salary, this requires certain criteria to be met and an application to be processed and approved before NGO employees cease being liable for the tax.

Income Tax

One source of the misunderstanding stems from the fact that NGOs are usually exempt from income tax under Article 9 of the Law on Taxation, which deems organizations “organized and operated exclusively for religious, charitable, scientific, literary or educational purposes” exempt from income tax, provided that no part of the income is used for private benefits. If an NGO is granted income tax exemption under this heading, this exemption does not automatically flow on to employees. This was specifically confirmed in 1997 by Notice No 2672.

Diplomatic and Foreign Government Employees

Another basis for confusion arises from Article 43 of the Law on Taxation, which provides that “diplomatic and foreign officials” are exempt from paying tax on salary. The law goes on to detail that this is limited to those here representing their governments in official capacities or employees in Cambodia on behalf of official international organizations recognized under the Vienna Convention, such as the United Nations or the Red Cross.

The exemption

In 2001, the government considered the case for a salary exemption for NGO workers and issued Notice No 64 on Tax on Salary of NGO employees. The notice clarified the existing law and said that a salary tax exemption would be considered in relation to the following NGOs:

–          Those who implement projects on behalf of a foreign government (subject to agreement between both governments);

–          NGOs recognized by the United Nations;

–          NGOs that are self-sufficient, comply with Cambodian law and implement development and humanitarian projects in Cambodia;

–          NGOs that were granted a tax exemption in 1979;

–          NGOs with a small scope/budget of less than USD$50,000 a year; and

–          Employees who already pay salary tax in their own country.

Once these criteria are met, then the NGO in question must conclude a Memorandum of Understanding with the pertinent Ministry.

Such employees will not automatically receive an exemption, but must apply to the Ministry of Foreign Affairs and International Cooperation (MFAIC) or the Ministry of Economics and Finance (MEF), who will decide whether or not to grant the exemption.

Getting an exemption can be a complex and drawn out procedure. It is wise to assume nothing until the final stage, when a decision has been made by the MEF.

For more information, refer to our publication Labor Law Guide for NGOs

Compliance with the Labor Law is not on many organizations’ radar screens, until something goes wrong. A worker is fired, a disgruntled employee sues, or a government labor inspector arrives to check your paperwork, and all of a sudden the Labor Law matters, A LOT.

If you think this law doesn’t apply to you – you’re probably wrong. It governs all employer-employee relations resulting from contracts to be performed in Cambodia, regardless of where they were signed, or the nationality or residence of the parties. That’s really broad – though there are a few narrow exceptions (household servants, civil servants…) which don’t apply to most organizations.

In no particular order, here’s my best guess at the eight most frequently violated rules:

  1. Do you give your departing employees severance pay? According to Article 73, when a fixed duration contract ends, the employee gets an additional 5% of the TOTAL salary over the length of the ENTIRE contract, unless contracted otherwise.
  2. Are you reporting every hiring and dismissal to the Labor Inspector? You need to, within fifteen days of the event, according to Article 21.
  3. Have your human resource regulations been approved by the Labor Inspector? If you have more than seven workers, you need to have a comprehensive policy, approved by the Inspector (Article 24)
  4. Do you give equal pay for equal work? Regardless of nationality, sex, or age? For work of equal conditions, professional skill and output, you must pay all workers the same, see Article 105.
  5. Do you pay overtime for any work over eight hours a day? Overtime must be paid at 150% of normal wages, or 200% if done at night or during the weekend, according to Articles 137 and 139.
  6. Do more senior employees get more annual leave? According to article 166, annual leave is increased one day per month for each three years of service. For a 10-year veteran, that works out to a four-day workweek.
  7. Do you pay salary for paid-leave BEFORE the employee goes on vacation? That’s what Article 168 requires.
  8. Are you reporting all vacancies and job postings to the Placement Office of the Ministry of Labor? You’re required to do so, according to article 258.

If you answered ‘no’ to any of those questions, you’re risking problems should trouble come to your door. A review of your employment contracts and HR policies is a pro-active way to get in front of the issue. You might not be able to avoid all problems, but at least you can control the damage.

The Cambodian labor law sets out two types of contracts: fixed duration and unspecified duration. The difference is relatively simple, but matters greatly on a number of issues – particularly the way in which the contract may be terminated (more on that in a future post, and in our recent guide).

A fixed duration contract requires three things:

–          A written contract

–          Precise commencement and termination dates

–          A duration, including any renewals, of less than two years

If any of these three points is missing, it’s automatically an unspecified duration contract. The real catch here is the two-year limit. Many employers mistakenly keep having their employees sign one-year renewals, believing they’re still on a fixed duration.

Well, after the employee hits the two-year mark, the law automatically considers it of unspecified duration. The contract might specify certain things about notice and termination, but if it ever came to a dispute over these provisions, a court would likely throw them out and replace them with the labor law rules.

Employers just need to be aware of when employees hit the two-year mark, and have them sign a contract of unspecified duration.

Compared to many countries, Cambodia’s immigration and work rules are very welcoming to foreigners coming  to work. Although the Labor Law states that Cambodians are to have preference in hiring, in practice there are no quotas or other limits (except in a select few industries). In order to legally stay and work in the kingdom, foreigners must have the following three sets of documents:

  • A work permit issued by the Ministry of Labor, valid for one calendar year, renewable indefinitely. This is comprised of a Work Book and a Work Card.
  • A valid passport, visa and residence permit (issued by the employee’s local Sangkat office).
  • A health certificate issued by the Ministry of Labor, Health Department, verifying that the person does not have any contagious diseases and is physically fit for the particular job.

As with all employees, the company should report the hiring of any foreigner to the inspector from the Ministry of Labor.

Non-Governmental Organizations are major employers in Cambodia, particularly of foreign staff. This guide aims to help NGOs and their employees better understand and comply with the employment laws of Cambodia.

It integrates the major sources of law – laws, executive regulations, and Arbitration Council decisions – into a single easy-to-use booklet.

Our aim has been to compile and translate the often technical and difficult to understand rules into plain English. Where appropriate, we also go beyond the text of the law to offer practical advice on issues commonly faced by NGOs.

Over the next few weeks, we’ll be serializing the most important portions of this report. While the publication is aimed at NGOs, many of the rules are the same for private sector employers.

In response to a series of reported abuses involving labor recruitment agencies, the Ministry of Labor recently finalized a sub-decree tightening the way they’re regulated. Though the text of the sub-decree has not been widely circulated, the Post reports that agencies will be required to put up a US$100,000 deposit, which would be used to assist laborers abroad should problems arise. A government official expects the rules to be approved by the government by early next year, according to the article.

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The work of a handful of attorneys at BNG Legal, this blog's mission is to keep the world up-to-date on legal issues in the Kingdom of Cambodia.

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