Introduction

In business, efficiency in managing employees is very important. At the same time, companies must avoid legal liabilities. A company may succeed in attracting the best people, but if it ignores the law when hiring, it can face disputes and serious costs. One of the most important provisions in Cambodia on this subject is Article 92 of the Labor Law.

Article 92 says: “When an employee is hired by a new employer after the termination of his contract in violation of the law, the new employer is jointly responsible for any damages caused to the former employer if it is established that the new employer intervened in the termination.”

This means that when an employee leaves the old employment unlawfully, and the new employer has a role in that departure, then the new employer may be held responsible. Recruitment is therefore not only about finding skills, but also about managing risks and respecting the law.

1.      Consequences of Breaching Article 92

The Cambodian Labor Law does not define precisely the extent of liability of the new employer. But it is understood that this liability is joint with the employee who left the old employment unlawfully. This means that both the employee and the new employer can be pursued together for the same liability, and the non-terminating party may claim against either or both until full recovery is made. In any case, the new employer cannot be held responsible for more than the employee himself.

When an employee terminates a contract unlawfully, the non-terminating party may claim remedies. These depend on whether the contract is a Fixed Duration Contract (FDC) or an Undetermined Duration Contract (UDC).

a.      Fixed Duration Contract (FDC)

Under Article 73, if an FDC is ended early by the employee (except for serious misconduct or Force Majeure), the non-terminating party has the right to indemnity. The article says that the employee must cover the damage that he or she has caused equal to the benefits already given to the employee. The language is very general and not clear. It is not sure if the indemnity only covers the real loss of the non-terminating party, or if it also cannot be more than the benefits already given to the employee. This lack of clarity creates confusion for the new employer.

b.     Undetermined Duration Contract (UDC)

For UDCs, the law provides for indemnity relating to the notice period. Under Articles 74 and 75, which apply equally to both employer and employee, a notice period that varies depending on seniority must be respected by any party wishing to end the employment contract. If the employee fails to serve this notice, the non-terminating employer is entitled in principle to claim an indemnity. However, while the law sets out the amount payable by an employer who terminates without observing notice requirements, it does not clearly provide for cases where an employee ends a UDC without respecting the same requirements. This gap makes things unclear for both the non-terminating party and the new employer.

c.      General Compensation (FDC and UDC)

Article 91 applies to both FDC and UDC. It says that when an employment contract is ended without a valid reason, the non-terminating party can ask for compensation. In practice, the non-terminating party will first make a claim. But Article 94 says clearly that the court will decide the final amount. The court can look at local custom, the type and importance of the work, the employee’s seniority and age, pension rights, and other facts. This means that even if the non-terminating party gives a number, the court has the last word.

In both FDC and UDC cases, the law does not explain well how to calculate indemnity or compensation. For FDCs, the scope of indemnity is unclear. For UDCs, the court has wide choice in how to decide compensation.

2.      Legal Conditions

For Article 92 to apply, three things must be shown: the employee left the old job in an unlawful way, the new employer took part in that leaving, and there is a link between the two.

First Condition: The Employee Left Unlawfully

The first step is to see if the employee left against the law. The study of this matter before recruiting an employee who left his/her employer would be difficult for the new employer. Whether the employee leaving employment is legal or not depends on the type of contract. Aside from that, overall, Article 92 does not offer any guidance as to what makes an employment contract termination by an employee illegal.

a.      UDC

Under Article 74, a UDC can be ended at will by either side. But this right is not without limit. Under Article 75, which is applicable to both employer and employee, the UDC termination must respect a notice period, which changes with seniority. Article 91 says that if the contract is ended without a valid reason, by either side, the other side can ask for compensation. This rule also applies to the employee, meaning the employee must also give a valid reason to resign.

So, the UDC termination is unlawful if the notice period under Article 75 is not respected and if no valid reason under Article 91 is given.

Notice Period (Article 75)

Article 75: the notice period depends on seniority:

• Seven days if service is less than six months
• Fifteen days if service is from six months to two years
• One month if service is more than two years up to five years
• Two months if service is more than five years up to ten years
• Three months if service is longer than ten years

At the same time, with flexibility, Article 82 of the Cambodian Labor law also provides the following circumstances under which a termination notice under the UDC is not required.

• Probation or internship
• Serious misconduct by one side. The law provides different acts such as fraudulent inducement for the employee to enter into the contract, freezing in part or in full the salary, tardy salary release, insult, threat, violence, insufficient workload, non-compliance with the work-related hygiene and safety that may be considered as the employer’s serious misconduct allowing the employee to terminate the employment contract without notice.
• Force Majeure disallowing the parties to permanently execute the contract

 

Valid Reason

By contrast to the common understanding that under the UDC, only the employer wishing to terminate its employee is obliged to provide valid reasons, Article 91 of the Labor Law seems to apply to both employer and employee, requiring any party wishing to terminate a UDC to provide a valid reason. The law does not give a full list of what is a valid reason. But the idea is that an employee cannot resign without justification.

For the new employer, this is a problem because it is not possible to check if the waiver of notice or the valid reason was really respected.

Best practice for new employers when hiring from a UDC

As seen above, leaving employment without notice or without a valid reason constitutes an illegal termination of a UDC. Verifying if the conditions of prior notice and valid reason would be a huge burden for the employer, although a necessary due diligence exercise should be made when carrying out the recruitment process. With such difficulties, the employer may consider some practices below in order to minimize potential liabilities:

• Do not rely only on the employee’s word. The new employer cannot be sure if the waiver of notice or the valid reason under the law for leaving the old job has been respected. It is safer to wait until the Article 75 notice period is finished before the employee starts work.
• Get the employee to confirm in the acceptance of the letter of offer or employment contract that they ended their old job in a lawful way.
• The new employer should also ask for proof of the old employer’s consent to the resignation, either clearly (a letter of acceptance) or tacitly (an employment certificate). This shows that the termination was accepted and lowers the risk of later dispute.

b.     FDC

An FDC usually continues until its end date. But Article 73 provides that there are three cases where an FDC can end early: if both sides agree in writing before a Labor Inspector, if there is serious misconduct, or if there is Force Majeure. Any other early end is unlawful. If an FDC is ended early, it is difficult for the new employer to check if any circumstance allowing for early termination by the employee has been fulfilled, especially if the FDC was ended on the basis of serious misconduct or an event of Force Majeure.

If the employee claims that his or her FDC has been terminated with the agreement of the former employer, it is still difficult to verify if the requirement under Article 73 — that the termination of an FDC must be made before the Labor Inspector — has been respected. In practice, this requirement of having the Labor Inspector witness the termination agreement has sometimes been overlooked as the parties generally believe that their mutual consent on the termination is sufficient. In this case, the new employer may consider asking for evidence of mutual consent between the employee and the former employer to terminate the FDC at least, and in the best case, evidence of the termination being witnessed by the Labor Inspector.

Second Condition: Intervention by the New Employer

As for the second condition, the Labor Law requires an “intervention” from the new employer in order for it to be responsible for the unlawful termination of the employee that it is hiring. The term “intervention” is very broad, requiring the new employer to pay careful attention when hiring an employee from another company.

Ideally, the concept of Article 92 is not to prevent employers from conducting recruitment in the normal course of business and in good faith. Instead, it is meant to target cases where the new employer improperly influences an employee to breach obligations.

In practice, intervention may include actions such as asking the employee to start immediately, offering benefits for early resignation, or covering penalties owed to the non-terminating party.

Third Condition: Causal Link

The causal link between the employee’s departure from his or her employment and the intervention of the new employer is a condition to impose the responsibility of the new employer. In other words, because of the new employer’s intervention, the employee has left his or her employment, whether it is an FDC or UDC, in violation of the law. The employee must act independently when leaving his or her employment with the former employer.

3.      Conclusion

Article 92 aims to ensure that recruitment is done in a way that is not harmful to the former employer. The new employer must be careful when hiring, especially if the employee comes from a competitor. Due diligence is needed to avoid liability. The labor law is silent on the amount of damages the former employer may claim. The circumstances under which the employee may legally leave are also not easy for the new employer to verify.