The Labor Law provides for both severance pay and redundancy pay. Payments at the end of the contract include payment of last month’s wage, payment for unused leave and severance pay as applicable.

On the expiry or termination of a fixed-term contract, the employee has the right to receive severance pay. Severance pay must be at least 5% of the total wages paid to the worker during the length of a fixed-term contract.

On termination of the employment, severance pay is payable to retrenched workers (terminated for economic reasons and other reasons except for serious misconduct), depending upon the length of service, at the following rates:

  • 7 days wages for employment from 06 months to 12 months; and
  • 15 days wages for every year of employment (up to a maximum of 6 months wages)

Workers are also entitled to severance pay on contract termination due to health reasons. No severance payment is granted if a worker’s employment contract is terminated due to serious misconduct. The limit on severance pay to the maximum of 6 months’ wages has been removed in the 2018 amendment. If a worker cancels the fixed-term contract without any legal reason, he/she must pay the employer for any damages suffered by him/her as a result. On the other hand, if an employer cancels a fixed-term contract without any legal reason, he must pay the worker the full amount (of wages) that the worker would have received if he/she had been allowed to work until the end of the contract.

The calculation of severance/redundancy payment is based on average earnings over the past 12 months. The Arbitration Council has however found that the overtime and bonuses received by the worker in the 12 months prior to dismissal should also be included in the calculation. The severance pay is not payable in the case of serious misconduct on the part of the worker or resignation by the employee. However, severance pay is payable if the employer pushed the worker to resign through serious misconduct (on the part of the employer).

An employer is required to pay damages (in addition to severance/redundancy pay) if they terminate an indefinite term contract without a valid reason. Workers, unfairly dismissed, are entitled to the damages of at least the same amount which they received as severance compensation on contract termination.

The normal remedy for unfair dismissal is damaged however a court may award reinstatement. Employers are also eligible for such damages if workers terminate the employment contracts without valid reasons. These damages are not the same as compensation in lieu of notice. The worker, however, can request to be given a lump sum equal to the dismissal indemnity. In this case, he is relieved of the obligation to provide proof of damage incurred.

The damages for breach of the labour contract without valid reasons, as well as those owned by the employer as per provision of Article 90, are determined by the competent court and based on local custom, the type and importance of the service rendered, the worker’s seniority and age, the pay deductions or payments for pension, and other circumstances that justify the existence and extent of the damage.

If a worker unfairly terminates an employment contract and takes a new job, the new employer is jointly liable for damages caused to the former employer if it is proven that he encouraged the worker to leave the earlier job.