Terminating an Employee in ASEAN
By: Dezan Shira & Associates
Editor: Felicia Romain
Though ASEAN presents investors with an important growth market, navigating the regulatory hurdles to firing employees can present a significant challenge. Therefore consulting with a professional services firm prior to entering into a new market in ASEAN is imperative. This will serve as the best way to address these issues, and anticipate common regulatory trends in specific countries. It will also help companies avoid making mistakes that may put their businesses in jeopardy. With a close look at four different major ASEAN economies, companies will get a better understanding of how to go about legally terminating employees in various business sectors.
The termination process in the Philippines is viewed as a very serious and complicated process. In order for employers to terminate the services of an employee, they must follow a specific procedure laid down by the law. The burden of proof falls squarely on the employer regarding to the question of lawful dismissal.
Under Article 282 of Labor Code, once employer has decided to dismiss employee based on just cause, the employer must give employee two written notices and a hearing. The notice should specify the grounds for which the dismissal is being sought and the hearing is giving the employee the opportunity to be heard before terminating their employment. After the hearing, a second notice of the decision to dismiss must be sent to the employee. Under Articles 283 and 284 of Labor Code, the employer must also give both the employee and the Department of Labor and Employment written notices 30 days prior to the effectivity of separation. Employers are required to pay separation pay to employees upon dismissal.
Failure to dismiss employees without just or authorized cause may result in reinstatement without the loss of seniority rights, full back wages and other privileges as stated under Article 279 of Labor Code.
Once employers follow both procedures, dismissal is valid and employers will save themselves from any liability except separation of pay, which is unavoidable. However, the Secretary of Labor of the Philippines may temporarily order employee reinstatement in the event of finding out that the dismissal of employee may cause serious labor disputes or is in implementation of mass layoffs.
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Two major things that employers should beware of in Thailand are employee committees and the Labor Protection Act. However, it is not as difficult to terminate employees as one might think. The Labor Protection Act authorizes minimum working standards for the purpose of protecting employees from exploitation by employers.
Under Thai Law, employers have no legal restrictions on its ability to dismiss an employee unless the employee is a member of an employee committee. Employee committees are designed to protect employees in the same sense that labor unions are designed to protect employees in the United States. In order to terminate an employee that is a member of an employee committee, the employer must first receive prior permission from a Thai court.
It is fairly easy to terminate employees that are not members of any employee committees in Thailand without just cause as long as employer pays full compensation to employee as provided by Thai law. Furthermore the Thai labor force is largely non-unionized, which gives employers more of an advantage when terminating employees.
Employees that have been employed for an indefinite period of time should receive an advanced written notice of termination of at least a normal wages period, on or before payday from employer. Employer may also choose to terminate employee by written notice with immediate effect by making an immediate payment in lieu of the notice period.
Under the Labor Relations Law, it imposes criminal liabilities on employers who terminate employees for the following reasons: exercising their rights, membership of labor unions, and/or employees involved in labor demand while a collective bargaining agreement remains in force.
In order for employers to avoid exposure to claim of damages for unfair termination by employee, it is not uncommon for an employer to offer employee a lump-sum pay. The lump-sum pay may represent the severance pay, payment in lieu of notice of termination and payment in lieu of unused annual vacation. If employer chooses to go this route, employee is required to sign a letter of resignation and a release which allows the employee to waive his/her rights to claim any further damages as a result for resignation. This serves as a protective method for employers to protect themselves from any possible liabilities.
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In Singapore, the key statutes that are related to the termination of employment include the Employment Act and the Retirement Act. English common law principles are applied in Singapore. The Employment Act applies to persons who have entered into or work under contract. It does not apply to those employed in managerial, executive or confidential positions.
For non-managerial employers; in the absence of provision in a contract of employment for an indefinite term dealing with notice for termination, the employer must give notice in accordance with section 10 (3) of the Employment Act. In this section it requires certain minimum notice periods, ranging from one day to one month, all depending on the length of employment.
There are no current laws that exists mandating employers to provide redundancy payments in Singapore. However, in section 45 of the Employment Act, it explicitly states that employees with less than three years of continuous service are not entitled to any retrenchment benefit, if retrenchment has arisen on grounds of redundancy or reorganization of the employer’s profession, business, trade or work.
In the absence of contractual commitments, the precise amount of retrenchment benefits remains entirely a matter of negotiation. But, the common practice in Singapore is to pay retrenchment benefits of about one month for each year of service. It is not illegal for employers to seek a release of liability from workers at the time of their dismissal in return for receiving something of value from the employer that the latter has no legal obligation to give to the employee. This is strictly based on verbal negotiation between employer and employee.
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Indonesia’s termination of employment is regulated under Indonesia’s Labor Law. Specifically, termination of employment is governed by Law No.2 of 2,004 regarding Industrial Relations dispute settlement.
In Indonesia, employers are required to use all efforts to prevent the termination of an employment relationship. Under the Indonesian Labor Laws, the general rule is that employers must obtain favorable decision on the termination of employment from the industrial relations dispute settlement agency (i.e., Industrial Relations Court). The only exception to this approval requirement is if termination of employment occurs during the probation period of the worker.
The termination process in Indonesia can be both a long and tedious one. Law No. 2 / 2004 it states that all industrial relation disputes, which include disputes over termination of employment, should first be resolved through bipartite negotiations in a consultative manner in order to reach a consensus. If an agreement is not reached, the second step would be to seek mediation/conciliation from an official of the Local Manpower Office. In this case, the mediator/conciliator will attempt to persuade both parties to settle the dispute. But, if the dispute is still not resolved through this method, the mediator/conciliator will issue a letter of recommendation. Parties that do not agree with the recommendation may then bring the case to the Industrial Relations Court. If the Industrial Relations Court are unable to resolve dispute, the last step would be to take it to the Supreme Court.
Termination payment is different for indefinite period employees and definite period employees. For indefinite period employees, termination payment includes: severance pay, long service pay and compensation of rights. In order for an employee to be entitled to severance pay, long service pay, compensation of rights and separation payment depends on the reason for termination.
An employee that is employed under a definite period employment agreement who is terminated before their contract period is not entitled to termination payment that consists of severance pay, long service pay and compensation of rights. However, any party that terminates a definite period employment agreement before its expiration date is obligated to pay to the other party compensation in the amount equivalent to the definite period employee’s salary up until the definite period employment agreement should have expired.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email firstname.lastname@example.org or visit www.dezshira.com.
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