What financial compensation is required under law or custom to terminate the employment relationship? How do employers usually decide how much compensation is to be paid?
Employment & Labour Law (3rd edition)
When an employer terminates an employee without just cause or an employee successfully claims that he or she has been constructively dismissed, the employee is also entitled to statutory severances as follows:
- seniority payment, calculated as one month’s gross salary for each year of service or any fraction thereof in excess of three months,
- payment in lieu prior notice as described on 5. above and,
- balance of the salary from termination day through the end of the month.
On the opposite, when an employee is dismissed for just cause or resigns, the employer is only required to pay the salary accruals to said terminated employee (e.g., the salary owed on account of the days worked in the month of termination; accrued proportional vacations; and accrued 13th month salary). The employer does not have to pay any severance package.
According to LCL, the financial compensation employers shall pay to their employees pursuant to the termination of employment relationships can be categorized as two types: the first is economic compensation paid to employees based upon the different scenarios of termination; the second is other financial compensation paid to special types of employees.
As to the economic compensation, according to the LCL, the economic compensation shall be paid under statutory circumstances, which can generally be divided into five groups.
- When the employer is at fault first (such as failure of paying the labour remunerations in time and in full, etc.,) employees are entitled to terminate the employment relationship unilaterally and claim economic compensation from the employer.
- The employer proposes to terminate the employment contract and with the conditions of the termination being concluded through negotiations between the two parties, following negotiations.
- The employer has the legal basis to unilaterally terminate (see question 1&2) without employees’ fault.
- Unilateral termination enacted by the employer in response to challenges to the integrity of the business such as being declared bankrupt, business license being revoked, closing down, dissolving its business entity, liquidating its business entity, etc.
- The employer terminates a fixed-term employment contract due to the expiration of the contract terms, unless the employee refuses to renew the contract even though the conditions offered by the employer are the same as or better than those stipulated in the current contract.
The calculation of economic compensation is based on the number of years the employee has worked for the employer and at the rate of one month's wage for each full year the employee worked. Any period of not less than six months but less than one year shall be counted as one year. The economic compensation payable to an employee for any period of less than six months shall be one-half of his monthly wages.
Meanwhile, the LCL sets a limitation on compensation for the termination for high-income employees. If the monthly wage of an employee is higher than three times the local average monthly wage of employees (hereafter referred to as ‘capped number’), the rate for the economic compensation to be paid to him shall be the ‘capped number’ and shall be for no more than 12 years of his employment.
The term ‘monthly wage’ refers to the employee's average monthly wage for the 12 months prior to the termination of his employment contract.
For the second type of financial compensation, it is required to be paid to employees in certain limited circumstances, these being: extra medical treatment subsidy related to sickness and lump-sum disability subsidy for re-employment related to industrial injuries, etc.
The financial compensation for employment termination relationship without a cause is determined in the Ecuadorian Labor Code and it is equivalent to a monthly remuneration for each worked year or fraction of worked year. The minimum financial compensation is 3 monthly remunerations and the maximum is 25 monthly remunerations.
There is and additional bonus equivalent to 25% of the last monthly remuneration for each year of work.
This bonus has to be paid in every case of termination of the employment relationship including employee resignation and in case of termination wit a fair cause.
In the event of dismissal, the severance indemnity is defined by the collective bargaining agreement. For all employees having at least eight months of seniority, it amounts to a minimum of 1/4 of a monthly salary per year of service up to 10 years of seniority, and 1/3 of a monthly salary for each year over 10 years.
In the event of a mutually agreed termination, the same indemnity applies and may be topped-up to reach a consensus.
In general, no compensation is to be paid for a valid dismissal. However, if the employment relationship is terminated by a mutual agreement or before court by a settlement agreement severance pay is common practise. A usual formula is: 0.5 * monthly gross salary * seniority years. However, the factor can vary, depending on the area of business, the economic performance of the company, and the prospects of success of the dismissal.
Also, a social plan in case of operational changes regularly contains a formula according to which the compensation for each employee who leaves the company is calculated.
The parties could agree on the compensation amount as long as it is above the statutory ones. Compensation agreements are usually applicable for key employees by uncapped payments or are agreed in collective agreements (usually limited to a number of employees). If no agreement exists regarding compensation, the following rules are applicable:
- Compensation in lieu of prior notice: Applicable when the employment relationship is terminated as per answer number 1, section 1.2. above. The employer shall give at least 30 days advance notice to the employee with copy thereof to the Labour Inspection. This advance notice may be waived if the employer pays to the employee a severance payment equivalent to one monthly remuneration capped at €3,274.97/USD3,731 approx.
- Severance payment: Applicable when the employment relationship is terminated as per answer number 1, section 1.2. above. If the employment relationship has been in force for more than one year, the employer shall pay the severance agreed by the parties, or the statutory severance if no agreement exists. The latter is equivalent to 30 days of remuneration for each year of service and fraction thereof greater than 6 months.
There are two caps for this severance:
(a) time of service may not exceed 11 years; and,
(b) the monthly remuneration capped at €3,274.97/USD3,731 approx.
- Pending and/or proportional vacation days: Laid-off employees are entitled to the payment of their pending and/or proportional days of vacations regardless of the employment termination ground. This payment is calculated over the full employee’s remuneration.
Under the Labour Law – a termination package consists of severance payment, long service payment and compensation of rights payment.
We set out below further detail on calculation of termination payment in Indonesia.
Calculation of Termination Payment
Termination payment made to terminated indefinite period employees consists of 3 elements: severance pay, long service pay and compensation of rights, which is calculated using the employee’s respective years of service.
A. Severance Pay (Article 156(2) of the Labour Law)
- 1 month’s salary for a service period of less than 1 year;
- 2 months’ salary for a service period of one year but less than 2 years;
- 3 months’ salary for a service period of two years but less than 3 years;
- 4 months’ salary for a service period of three years but less than 4 years;
- 5 months’ salary for a service period of four years but less than 5 years;
- 6 months’ salary for a service period of five years but less than 6 years;
- 7 months’ salary for a service period of six years but less than 7 years;
- 8 months’ salary for a service period of seven years but less than 8 years;
- 9 months’ salary for a service period of 8 years or more.
B. Long Service Pay (Article 156(3) of Labor Law)
- 2 months’ salary for a service period of 3 years or more but less than 6 years;
- 3 months’ salary for a service period of 6 years but less than 9 years;
- 4 months’ salary for a service period of 9 years but less than 12 years;
- 5 months’ salary for a service period of 12 years but less than 15 years;
- 6 months’ salary for a service period of 15 years but less than 18 years;
- 7 months’ salary for a service period of 18 years but less than 21 years;
- 8 months’ salary for a service period of 21 years but less than 24 years;
- 10 months’ salary for a service period of 24 years or more.
C. Compensation of Rights (Article 156(4) of the Labor Law)
- Compensation for annual leave not taken by the employee who is already entitled to take the annual leave;
- compensation for travel expenses or costs for the employee and his family to return to the original location or hire;
- compensation for housing and medical, amounting to 15% of the total amount of severance pay and long service pay; and
- other compensation as stipulated under the employment agreement, company regulation or collective labour agreement.
Upon termination of the employment relationship, regardless reasons grounding such termination, employees are entitled to the following mandatory severance payments:
- the end-of-service allowance ("trattamento di fine rapporto"), which represents a deferred form of remuneration equal to the sum resulting from adding up - for each year of service - the all-inclusive annual remuneration paid to the employee divided by 13.5 (therefore, this amounts to 7.41% sums paid to the relevant employee). The end-of-service allowance shall be, at the relevant employee’s choice, (i) paid to a specific fund managed by the Italian Social Security Authority (whenever the employer is staffed with 50 or less employees, the end-of-service allowance has to be set aside in its financial statement and yearly revaluated); or, alternatively, (ii) transferred into an additional pension fund, which may be the one chosen by the employee or, in the absence of any choice, the one established by the applicable national collective bargaining agreement;
- the indemnity in lieu of accrued and unused holidays and leaves, whose duration is set forth by the applicable national collective bargaining agreement;
- pro rata additional monthly salary/salaries set forth by the applicable national collective bargaining agreement.
Moreover, in case of dismissal not for cause, employees who are exempted from working over the notice period are to be granted with the relevant indemnity-in-lieu. This has to be calculated taking into account - in addition to the base annual gross salary paid to the relevant employee - also the additional monthly salary/salaries provided for by the applicable national collective bargaining agreement, the variable compensations paid over the last 3 years as well as the value of those fringe benefits granted to the employee.
The issue of payment of financial compensation arises only in cases of retrenchment, sale of business (where no offer of employment is made by the acquirer) or where closure of business is involved.
Only employees who are within the ambit of the Employment Act 1955 (“EA”) are statutorily entitled to this payment based on the formula prescribed in the Employment (Termination and Lay-Off Benefits) Regulations 1980 set out below :
There is no entitlement for non-EA employees, unless stated otherwise in their employment contracts or company’s handbook and policies. In line with the approach of the Industrial Court which has recognised the need to provide some compensation to these employees who have lost their livelihood by no fault of their own, most employers do exercise their discretion to make payment (usually at the rate of 1 month’s wages for each completed year of service) to them.
There are no statutory provisions regarding severance pay. In larger redundancy processes, many employers offer severance packages. The value of such packages is normally calculated based on the employee's monthly salary. The number of months paid for is normally based on length of service (for instance one month’s severance pay for each year of service) and/or type of job.
If an employee disputes a dismissal the level of severance pay is in many cases decided by the employer based on the strength of the case. The employee may also claim a statutory right to remain in employment (in his/her post) until the question of the validity of the termination has been decided by a final court judgment. This tends to increase the level of severance paid to an employee.
For terminations based on just causes, the employee is not entitled to separation pay unless so provided in company policy or under CBA. Under Philippine jurisprudence, however, there have been exceptional cases where, as an act of social justice, a legally dismissed employee was awarded separation pay (equivalent to 1/2 month’s pay for every year of service) upon a finding that the dismissal was not for serious misconduct, and does not reflect on the moral character of the employee or involve acts of moral turpitude.
For terminations based on authorized causes, the amount of separation pay is as follows:
- If based on installation of labor-saving devices or redundancy, at least one month of pay or one month per year of service, whichever is higher;
- If based on disease, retrenchment, or closing of operations not due to serious business losses or financial reverses, at least one month pay or at least ½ month pay for every year of service, whichever is higher.
A fraction of at least six months is considered as one whole year.
Except as otherwise provided in an employment contract or collective bargaining agreement, employers need not make severance payments to terminated employees. However, employers often offer severance payments as consideration for an agreement made between the employer and employee at the time of termination to waive any potential claims arising out of the employment relationship. Although there is no “customary” amount of payment, severance payment is typically premised on the length of the employment relationship – for example, two weeks’ salary for each year worked. Larger employers commonly establish severance plans to facilitate consistent treatment of exiting employees.
Mattos: If the employer terminates the employee with cause, the law entitles the employee with the following severances:
A. Accrued monthly salary (owed until the day of termination)
B. Accrued vacation (one month per year) and vacation bonus (1/3 of the monthly salary), if applicable
C. Prorated Christmas bonus (1/12 of the employee's monthly salary per month)
D. Severance fund (Fundo de Garantia por Tempo de Serviço – “FGTS”, 8% over the severance due)
E. Other payments may be required depending on the employment contract, collective bargaining agreement, or internal policy (e.g., profit and sharing results, discretionary bonus, contractual bonus, stock options, etc.)
If the employer terminates the employee without cause, the law entitles the employee with the following severances:
A. Accrued salary
B. Accrued and prorated vacations, if applicable
C. Vacation bonus, if applicable
D. Accrued and prorated Christmas bonus
E. FGTS payment (8% over the severances due)
F. FGTS fine (50% over the balance of the FGTS fund, of which 40% belong to the employee, and 10% serve as tax)
G. Other payments may be required depending on the employment contract, collective bargaining agreement, or internal policy (e.g., profit and sharing results, discretionary bonus, contractual bonus, stock options, etc.)
These severances also applies to the employee that claims constructive dismissal.
If the employee resigns, the law provides the employee with the following severances:
A. Accrued salary
B. Accrued and prorated vacations, if applicable
C. Vacation bonus, if applicable
D. Accrued and prorated Christmas bonus
E. FGTS payment (8% over the severances due)
F. Other payments may be required depending on the employment contract, collective bargaining agreement, or internal policy (e.g., profit and sharing results, discretionary bonus, contractual bonus, stock options, etc.)
The Labor Reform introduced a new form of employment termination—the employer and employee may terminate the relationship by agreement. In such cases, the severances verified in the termination without cause also apply for this scenario, but the notice and the FGTS fine are reduced by half. To the extent this is a recent provision of the law, this possibility should be analyzed on a case-by-case basis.
Under Thai laws, the following financial compensations are required to be paid in order to terminate the employment contract.
1) Notice (Please also see our comment in Q4-5)
Under the LPA, unless a longer notice period is provided for in an employment agreement, an employee is generally entitled to receive one full pay period’s advance notice of termination. In Thailand this is usually a one month period.
The employer may pay wages for the notice period in lieu of having the employee serve out the notice period, but wages paid in lieu of service are in addition to the required severance pay.
Advance notice is not required where there has been serious wrongdoing by the employee.
2) Accrued Wages and Benefits
The LPA requires that wages, overtime pay, holiday pay, holiday overtime pay and a payment in lieu of unused annual holiday be paid to an employee within three days from the date of termination of employment.
3) Severance pay
Except in cases of serious wrongdoing, any employee that is terminated in Thailand is entitled under the Act to receive severance pay.
The amount required to be paid is based on the duration of employment, as follows:
Length of Service
Severance Pay Entitlement
120 days or more but less than one year
1 year or more but less than 3 years
3 years or more but less than 6 years
6 years or more but less than 10 years
10 years upwards
An employer has an obligation, under the LPA, to pay special severance pay to an employee if the termination of employment is made because of (i) relocation of the employer’s establishment in accordance with Section 120 of the LPA; or (ii) replacement of machinery or technology advancement in accordance with Section 121 of the LPA.
Employees are not entitled to any financial compensation (such as a severance payment) upon termination of their employment agreement.
Nevertheless, the Swiss Code of Obligations provides a compulsory rule on mandatory compensation for employees who are over 50 years of age and have worked for more than 20 years for the same employer. In practice, however, this rule is of very little significance insofar as payments made by the employer to the employee's pension fund can be deducted from the compensation due by the employer (Article 339d CO).
There are no statutory provisions regarding severance pay. However, an employee may be entitled to severance pay in accordance with an employment agreement, a collective agreement or a compromise agreement. If an employment is terminated through a compromise agreement, the employee normally agrees to end his employment against some extra compensation in addition to the notice period. The extra compensation is normally paid due to the fact that the employer lacks an objective ground to terminate the employment. Decisive factors for the compensation are normally the length of the employment and the possibilities for the employee to find a new job. However, please note that this is decided through negotiations between the employer, the employee and potentially the employee’s union.
There is no statutory requirement for an employer to pay redundancy or any other ‘severance’ pay on termination.
Redundancy compensation or severance pay may be provided for in an individual or collective employment agreement.
Rarely, an employer may have a custom or practice of making such payments, or may choose to make an ex gratia payment.
Compensation may be awarded by the Authority or Employment Court if it finds that the termination of an employment relationship was unjustified.
Employers must pay a (legal or contractual) notice period and severance pay. The size of the extra-legal compensation, if any, depends on various factors, such as the length of the notice period granted, whether or not garden leave was granted, the age and position of the employee, the buoyancy of the market, etc.
No statutory minimum level of severance payment applies in case of employment termination. By law, the employer is only bound to grant the notice period (typically amounting to 1 month's salary), but as actual salary payment, not payment in lieu. However, in practice, employers may decide to offer severance payments (in restructurings).
Also, there is no generally applicable benchmark, nor any widely spread custom when employers decide about financial compensations, as they very much depend on the sector in which the employer operates, the scale of the redundancy process, the company's history / practice with compensations, the internal policies or other documents that may apply (even group-level), etc.
As previously mentioned, in order to terminate the employment relationship with a worker without a justified cause, the only alternative available for the employer would be to enter with the worker into a mutual termination agreement. In this case, the employment relationship is validly terminated without the risk of a later worker’s reinstatement or payment of indemnifications.
However, this usually implies granting of certain economic incentives (for example health insurance, an amount for the worker’s pension fund or outplacement facilities), under which the employer can negotiate directly with the worker the structure and amount of compensations, which should be at least equivalent to the indemnification for unfair dismissal.
In case there is not an agreement for a mutual termination, the worker could claim through a judicial process any of the following requirements:
- An indemnification for unfair dismissal, as detailed in Question N° 8.
- An indemnification for loss of profit, which would be calculated taking in consideration the worker’s last salary and the amount would be equal to the total of all salaries and economic benefits unpaid during the dismissal period accrued. This would apply in the cases in which the worker has claimed his or her reinstatement in the workplace.
- An indemnification for the moral damage caused by an unfair dismissal, which amount would be discretionally determined by a judge within a labour process. Certainly, this concept is already considered as an associated cost to unfair dismissals.
As previously indicated, workers with a trust and/or management position since the beginning of their services, would not be entitled to the payment of an indemnification for unfair dismissal in the cases of termination of employment for withdrawal of trust. However, as this is based on a criteria applied by the Supreme Court that could vary in time, we always recommend paying such worker the equivalent to the indemnification for unfair dismissal.
If an employer has reasonable grounds to dismiss an employee as required under the Labour Contract Act, the employer does not have any legal obligation to compensate the employee for the termination. However, as it is very difficult to meet the legal requirements for dismissal, employers typically solicit the voluntary resignation of employees by offering financial compensation.
There is no statutory requirement or guideline regarding the financial compensation to be offered in such a situation. The amount offered is usually determined based on such factors as the reason for the termination, the employer's size and financial conditions, the employee’s performance level, length of service years, age and salary. Severance pay within the range of three to 18 months of the employee's monthly base salary would be considered standard practice in Japan.
If Dutch law is applicable to the employment contract the employer must pay the employee a statutory transition payment on non-renewal of a fixed-term contract of two years or more or a dismissal after two year’s employment, unless the dismissal is the result of seriously culpable conduct.
Transition payments are linked to length of service and age:
- For the first 10 years of employment: the payment is one-sixth of the monthly wages for each completed six months of service;
- For the following 10 years of employment: the payment is one-quarter of the monthly wages for each completed six months of service;
- In the case of an employee aged over 50 and employed for more than 10 years: the payment is one-half of monthly wages for each completed six months of service. However, this is a transitional arrangement lasting until 2020 and does not apply to small employers with fewer than 25 employees.
For calculating the transition payment the monthly wages include holiday pay, overtime, shift allowances and bonus payments. The transition payment is capped at € 81.000 or at one year’s salary, whichever is greater.
Parties are free to agree on a higher amount than stemming from the abovementioned calculation.
Under the new Act Balanced Labour Market employees are entitled to the transition payment directly at the start of the employment contract. The requirement, that employees have to be employed for two years or longer, is, from that moment on, no longer in force. Under the aforementioned act, the payment is one-third of the monthly wages for every year of employment. The extra ‘build-up’ after 10 years of service will no longer apply.
An employee is entitled to additional compensation if the employer’s conduct has been seriously culpable. Collective bargaining agreements may deviate the calculation of the payment as long as the employees receive equivalent compensation. After entry into force of the Act Balanced Labour Market, the collective bargaining agreements can contain a compensation that is less favourable for employees, on the conditions that the compensation is reasonable and business economic reasons for the termination exist.
With respect to financial compensation, Austrian law provides for two different systems depending on the date of the conclusion of the employment contract. The former severance pay system regulated by law only applies to employment contracts which were concluded before 1 January 2003, where the legal obligation to make severance payments in case of termination of employment is prescribed on the part of the employer. The new system regulating severance pay applies to all employees who have concluded a new contract of employment as of 1 January 2003, under which system employers must pay contributions to a staff provision fund for all employees subject to the new system, at a rate of 1.53 per cent of their gross monthly salary. The advantage of the new system is that the employee is fully entitled to severance pay even if he himself terminated the employment relationship. On termination, the employee has two options: either have this amount paid out in cash (after 3 years) or the acquired severance pay is carried over for future reimbursement. Severance payments depend on the length of continuous service, between two monthly salaries (for three years of service) and 12 monthly salaries (for 25 years of service).
Besides, a (voluntary) financial compensation may be mutually agreed upon to waive a right to contest the termination of the employment. The amount of such compensation typically varies between 1-9 months, and in certain cases may also exceed such. The amount of compensation strongly depends on the status of the granted protection and/or contestability.
Statutory severance in the FLL for wrongful termination or unjustified dismissal is a fixed formula comprising the following elements:
a. 3 months of consolidated salary (base salary plus benefits in kind and in cash);
b. 20 days of consolidated salary per year of services rendered;
c. 12 days of salary per year of services, capped to two times the minimum wage (currently 88.36 Mexican pesos); and
d. Pro-rata part of employment benefits up to the effective date of termination.
If an employee voluntarily resigns from his/her job, he/she will only be entitled to the pro-rata part of employment benefits, up to the last day of employment. If the employer terminates the employee with cause, the latter will be entitled to the following:
a. 12 days of salary per year of services, capped to two times the minimum wage (currently 88.36 Mexican pesos); and
b. Pro-rata part of employment benefits up to the effective date of termination.
Finally, if an employee dies, following the procedure established in the FLL to designate his/her economic dependants, the employer is obligated to pay to the latter the following:
a. 12 days of salary per year of services, capped at two times the minimum wage (currently 88.36 Mexican pesos); and
b. Pro-rata employment benefits up to the effective date of termination.
Employers are legally obliged to give workers the minimum notice required under their contract of employment, or the minimum statutory notice, if this is greater. If the worker’s engagement continues during the notice period, they will be paid as normal. If it is intended that the worker’s contract will terminate immediately, the worker may be entitled to receive a lump sum payment equivalent to the sums specified in the contract as pay in lieu of notice. In such circumstances, the contract may specify that the worker is under an obligation to mitigate his losses and that such sums will be paid subject to him making reasonable efforts to do so.
If no right to pay in lieu of notice is included in the contract and it is terminated by the employer without giving the required notice, the worker will be entitled to compensation for breach of the contract, subject to the employee’s obligation to mitigate his losses by looking for alternative employment.
Where the reason for dismissal is redundancy, an employee who has two or more years of service will be entitled to a statutory redundancy payment. The employee’s age and length of service are used to calculate the relevant multiplier for a week’s pay, subject to a maximum cap. Many employers offer enhanced payments, either on a case by case basis or as a contractual entitlement, if the termination of employment is by reason of redundancy.
Employers must pay employees for any outstanding holiday entitlement on the termination of employment.
Unless the employer has a contractual obligation to make any other payment to a worker on the termination of employment, it will not be obliged to do so. However, where a dispute exists between the employer and the employee it is common for some compensation to be paid relative to the sums the worker claims he would be entitled to in the Employment Tribunal or Court.
If a dismissal is found to be unfair by an Employment Tribunal, it can award compensation. This is calculated in accordance with the losses suffered by the worker, arising from the dismissal, including projected future losses, up to a maximum of one year’s pay or the statutory cap (£83,682 from April 2018), whichever is the lower.
Where the employee is a company director, shareholder approval for the payment of compensation, may be required.
There is not required any compensation under law for termination of employment contract. But by custom parties can agree about compensation for terminating the employment relationship and its size is about from one to six months average salary of an employee.
Under the LSA, an employer must provide at least thirty (30) days’ written notice of termination to the employee. Alternatively, an employer may provide thirty (30) days’ compensation instead of the advance notice. Please refer to Question 4 for more details.
In the case of an early retirement package or mutual separation offers, there are no statutory formulas. Instead, the amounts offered are matters of contract; provided that, if an employer policy or regulation (including any collective agreements) stipulate a formula, the employer must follow its policy, regulation, or collective agreement.
When an employer wishes to terminate the employment relationship, the employer will be obliged to pay the employee's notice whether or not they are required to work their notice. Notice entitlements are summarised in response to questions 4 and 5 above.
In redundancy situations, employers are required to make statutory redundancy payments, which are calculated on the basis set out in response to question 2 above. Although there is no statutory requirement to make additional severance payments, it is common for employers to have established customs and practices in relation to enhanced redundancy payments, which generally are paid in consideration of employees entering into compromise agreements. There may also be sectoral employment orders, which imply certain obligations in particular industries, and/or collective agreements, which create contractual obligations to make certain payments on termination. Where an ex gratia payment is made on termination, it may be made in a tax efficient manner in certain circumstances.
Severance pay depends on the duration of the employment relationship. Workers have the right to severance pay except when the contract is terminated due to the worker's breach of contractual obligation. The law prescribes the minimum amount of severance pay which may not be lower than one-third of the average monthly salary earned by the worker in the three-month period preceding the termination of the employment contract.
The aggregate amount of severance pay may not exceed six average monthly salaries earned by the worker in the three-month period preceding the termination of the employment contract. The law, collective agreement, working regulations or employment contract may provide for higher amounts of severance pay.
The labour regulations establishes the type of benefits that a worker must have who has concluded a work relationship with the employer. In order for these social benefits to be activated it is necessary that the worker had more than three (3) months old, in the case of a worker being employed and one (1) month, in case of being a worker. These benefits vary according to the time worked and if the worker has voluntarily resigned or if he has been dismissed. Let's see:
In case of resignation, it would correspond:
- Compensation (one salary per year)
- Aguinaldo (one salary per year)
- Vacation (in case of having more than 1 year old)
- Prima (in case the company has obtained profits at the end of the accounting management)
In case of dismissal, it would correspond:
- Eviction (equivalent to three salaries)
- Compensation (one salary per year)
- Aguinaldo (one salary per year)
- Vacation (in case of having more than 1 year old)
- Premium (in case the company has obtained profits at the end of the accounting management)
- In the event of a dismissal without stating grounds the employee is entitled to a severance pay equal to the daily wage per month of seniority.
- In case of dismissal with valid reason, expect for gross misconduct, the employee is entitled to the French severance pay that is ¼ of monthly wage per year of seniority for 10 first years and 1/3 from de 11th year.
The parties can always agree on a contractual indemnity higher than the above allowances.
Save for salary in lieu of notice which is discussed above and any amounts that have vested in the employee prior to the termination of the employment relationship, there is no specific financial compensation required under law to terminate the employment relationship. The financial compensation payable would depend on the terms of the employment agreement and prevailing norms.
Where an employee’s service is terminated due to redundancy or reorganisation, the Tripartite Retrenchment Advisory states that:
“The prevailing norm is to pay a retrenchment benefit varying between 2 weeks to 1 month salary per year of service, depending on the financial position of the company and taking into consideration the industry norm. However, in unionised companies where the quantum of retrenchment benefit is stipulated in the collective agreement, the norm is one month’s salary for each year of service.”