Notice and Severance

This page was last updated on: 2021-11-22

Notice Requirement

A fixed term contract terminates at the end of its term or by cancellation by either of the parties. The cancellation by either of the parties is either by agreement or on account of serious misconduct. A fixed term contract can also be cancelled, without agreement of the parties, in the event of force majeure (acts of God). The cancellation of contract by agreement must be in writing and witnessed by a Labour Inspector. Either party may conclude a fixed term contract before its end date if the other party commits an act of serious misconduct. The acts of serious misconduct, on the part of employer include the use of fraudulent measures to entice a worker into signing a contract under conditions to which he would not otherwise have agreed on realization of such conditions; refusal to pay all or part of the wages; repeated late payment of wages; abusive language, threat, violence or assault; failure to provide sufficient work to a piece-worker; failure to implement the health and safety measures in the workplace as required by existing laws. The acts of serious misconduct on the part of worker include stealing, misappropriation, and embezzlement; fraudulent acts committed at the time of signing (misrepresentation of abilities) or during employment (sabotage, refusal to comply with the terms of the employment contract, divulging professional confidentiality); serious infractions of disciplinary, safety, and health regulations; use of threats, abusive language or assault against the employer or other workers; inciting other workers to commit serious offenses; use of political propaganda, activities or demonstrations in the establishment.

If an employer wants a worker to stop working at the end of a fixed term contract, the employer must inform the employee in advance about the expiration or renewal of the contract. If the length of contract is less than or equal to 6 months, no notice is required. If the fixed term contract is concluded for a period longer than 6 months (but less than one year), the required notice period is 10 days. If the term of contract is more than 1 year, employer has to inform the worker of the renewal at least 15 days before the expiry of contract. If no prior notice is provided, the fixed term contract is automatically renewed for the same length of time.

An indefinite term contract may be terminated by either of the parties. An employee may cancel an indefinite term contract for any reason. On the other hand, an employer may cancel an indefinite term contract for a valid reasons related to the worker's aptitude (skill), behaviour, or the requirements of the enterprise (economic reasons).

Either party may terminate the employment contract by serving a written notice or paying in lieu thereof. For terminating an indefinite term contract, the required notice period depends on the worker's length of service as follows: 7 days for less than or equal to six months of service; 15 days for 6 months to 24 months (2 years) of service; 1 month for two to five years of service; 2 months for five to ten years of service; and 3 months for more than 10 years of service.

During notice period, the worker continues working with same terms and condition except that the worker may take up to 2 days of paid leave per week to look for a new job and may stop working early if he/she finds a new job.

If an employer fails to give the termination notice, he/she must provide the wages and benefits that the employee would have earned during the notice period on the basis of average daily earnings over the past 12 months (provision of compensation in lieu of notice).

Notice period is not provided in case of serious misconduct or during probation or for acts of God (force majeure) due to which one of the parties is unable to meet his/her contractual obligations. Employers are, however, required to give prior notice when terminating an indefinite term contract when an employee becomes chronically sick, insane or has a permanent disability.

Sources: §73-86 of the Labour Law, promulgated by Royal Order No. CS/RKM/0397/01 of 13 March 1997 (amended in 2021)

Severance Pay

The Labour Law provides for both severance pay and redundancy pay. Payments at the end of 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 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 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 damages however a court may award reinstatement. Employers are also eligible for such damages if workers terminate employment contract 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 owed 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 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.

Sources: §89-94 of the Labour Law, promulgated by Royal Order No. CS/RKM/0397/01 of 13 March 1997 (amended in 2021)