The information prepared in this presentation was done by HRINC (Cambodia) Thanks to GMAC and CAMFEBA for their inputs and employer interpretations

National Workshop for Trade Unions on Employment Contracts 27 28 March 2013 Imperial Garden Villa & Hotel Phnom Penh Cambodia Employer Perspectives Sandra D Amico Vice President CAMFEBA The information prepared in this presentation was done by HRINC (Cambodia) Thanks to GMAC and CAMFEBA for their inputs and employer interpretations Slide 1

Note to employers on objective of presentation: Context and background Presented at a national union meeting on FDC contracts in Cambodia Unions are putting forward proposals to change FDC contracts restrictive and prescriptive. We are trying to build capacity amongst unions on understanding general environment: investment climate and how employment contract impact workers and employers already in the country Unions are in the majority in the garment sector and we are trying to raise awareness of union proposals on other sectors as well To share experiences in other sectors so that unions can consider carefully the impact of their recommendations regarding FDC contracts on other industries To build employer union dialogue To provide some employer recommendations on how we wish to see FDC contracts work Slide 2

Why do we have employment contracts? To recognize a relationship between an employer and employee it can be verbal or written To have the ability to seek the type of employment (UDF or FDC) we wish to take as a potential employee freedom of choice to work a particular contract or job or choose a particular type of employment if such employment is provided The freedom to accept or not accept an employment offer made. To offer the type of employment that ensures sustainability of an enterprise and to remain competitive within the market or industry. By so doing, maintain a decent level of employment for a core set of employees. Employees are free to agree or accept terms and conditions Employers are free to offer employment according to the law in line with the needs and demands of the company. Employment should be provided within the framework of the law To ensure that for both employer and employee, are clear on the terms and conditions of employment and comply with the law. At law contracts do not have to be in writing. However, a written contract is important so that each party knows clearly what the terms of employment are. This helps prevent disputes. An unwritten contract (Oral contract) is a underdetermined duration contract (UDC) under Cambodian law. Slide 3

Keeping our investment environment attractive is becoming more focused on the soft stuff Infrastructure & Environment Financial & Taxation Incentives Labour, skills, employment Political Stability Tax incentives Sufficient supply Infrastructure Access to finance Quality, skills Embassy & Banks Banking system Productivity Stable environment Etc. Wages Etc. Etc. Contracting, termination procedures Etc. Etc. Cost Etc. An increasing focus on the Human Capital Elements Public holidays, working hours, annual leaves Compliance, worker rights, etc. Slide 4

There are many economic and environment factors that need to be considered when we consider employment contract changes Supply and access to labour Unions and Professional Bodies Entrepreneurs and Innovation Attracting Investor / Employer (FDI) Decent work. Access. Security. Contribution to economy. Growth & Development. Education & Training supply of skills Particular characteristics of industry Productivity of workforce Government Policies & Strategies Wage levels, Overtime, Working time characteristics Slide 5

Employment contracts and their implementation affect employers in a variety of ways and how they are able to grow and provide more employment opportunities Flexibility to service clients Seniority of Workforce Salary Levels & Productivit y Sufficient variety of work Benefits provision Employer Motivation of Workforce Work life balance Access to Social Security Performan ce Managem ent Ability to Train, retain, grow Working Schedules, Time, OT Slide 6

Workers, whether professionals or skilled, also like to consider the type of employment contract they receive based on their personal circumstances: Freedom to choose to accept or reject an employment offer made Career progression, challenges and life choices Job Security and Flexibility Manage work and life balance Training & Development The Employee Feel productive and able to contribute Status and general well being Income for the efforts invested Slide 7

Employment contract types MUST consider the working environment. Lets look at working time for the common employee in Cambodia 365 329 52 292 256 313 26 287 18 0 269 269 Days Per year 219 183 146 365 14% 269 110 73 37 Average per month, 22.42 0 Days per Year Weekend Days Public Holidays Annual Leave & Special Leave Maternity Leave Total per year Days per year Annual Leave Days Total Available Working Days per year Average per month Working time impacts the need for flexible workforce and employment contracting 14% of available working time is leave and holiday paid by the company or paid extra for working Slide 8

Employment contract types MUST consider the working environment. Lets look at public holidays for a female worker who needs to take maternity leave 365 329 52 Working Days for Women in Cambodia who take maternity leave Days Per year 292 256 219 183 146 365 313 26 287 18 269 35.6% 67.25 201.75 110 201.75 73 37 Average per month, 16.81 0 Days per Year Weekend Days Public Holidays Annual Leave and Special Leave Maternity Leave Total per year Days per year Annual Leave Days Total Available Working Days per year Average per month Working time impacts the need for flexible workforce and employment contracting 35.56% of working time is holidays, leave and maternity paid by the company Slide 9

Comments on working time: ONE ASPECT that impacts employment contract types and the need for flexible workforce arrangements In garment sector we need to have flexible workforce for peak and lull periods Buyers place orders on a seasonal basis Factories do not have any security in this regards thus lacking in the ability to provide similar security to workers. Workforce is dominated by women workers Strikes have taken up a significant amount of working time and horrible losses for the industry and profile of Cambodia manufacturing sector. From a management perspective we face the following challenges in manufacturing: Difficult workforce planning and management with the available time Increasing costs with overtime and public holidays work to make up for all the holidays and leave allowances High turnover of workforce A need to have flexible workforce contingent to manage the shortfall of working time and peak production periods A need to provide women (in particular professionals) with flexible working times and hours to manage family and work life How to invest in skills development and training when the available working time is so low and workforces are already working long hours? Slide 10

Critical question to ask? How to invest in skills development and training when the available working time is so low and workforces are already working long hours? Why has training and skills development, a cornerstone to employment success not ever reached a priority on the worker and union agenda? Slide 11

Types of Employment: FULL TIME Full Time Employment Unfixed duration Contract You are employed according to the full time working hours of the company Your contract has a start date You are entitled to company benefits and allowances as stimulated in contracts and policies Upon termination you are provided severance compensation based on length of service Fixed duration contract You are employed for a certain period of time working the full time hours of the company due to the need for additional human resource capacity Your contract has a start and end date You get 5% payout You are entitled to the benefits and allowances as stipulated in the contract or provision of a particular project. Typically a short term employment will have a higher salary for professional positions given the absence of benefits provision such as medical or other OR the same salary and benefits. Slide 12

Types of Employment: PART TIME Part Time Employment Unfixed duration Contract You work a particular set of hours e.g. morning or afternoon only OR 2 or 3 days per week due to the personal circumstances or needs to the company and the company can provide such employment. Your salary and benefits are prorated according to the part time schedule you are provided with NB: the labor law does not adequately cater for this situation e.g regarding holiday rights etc. As such contracts must be carefully drafted to prevent disputes over rights and obligations of the parties Fixed duration contract You work a particular set of hours for a particular period of time. Slide 13

Types of Employment: Skills Development / Market Access Apprenticeship / Internship: Skills Development Employment Unfixed duration Contract Not commonly used Fixed duration contract Used and provides a mentor to build the capacity of the mentor Slide 14

Some emerging trends: Mining sector Investor wants to comply with the law and need the following work schedule 2 weeks work, 12 hours per day 1 week holiday Require a 1 year contract Government approvals and discussions Against the law as maximum working time is 10 per day and this will be a regular schedule even if it is for a particular period of time Workers view Great working schedule and benefits Want to sign the contract Opportunity to work in emerging industry and pioneer new skills and learn new things Final outcome: Investor wants assurance of legal compliance Hire more workers, less working hours, less benefits Workers not happy Slide 15

Some emerging trends: Services Sector and call centre Investor wants to comply with the law and need the following work schedule 4 6 hours working schedules 24 hours per day Provide 6 month contracts then annual FDC contracts Great opportunities for young graduates to get experience and study at the same time Fantastic training opportunities for young graduates and youth Workers view Great opportunities to learn and gain experience Want to have FDC as long as their studies are in place as this is an opportunity to earn and learn Challenges Risk of challenges related to FDC interpretation. Some staff have been working more than two years (although part time work) At the moment, workers agree but ACF rulings vs. legal advice is conflicting Slide 16

Advantages of FDC contracts Workers get payout and payout considers the short term nature of work Employers can budget accordingly with certainty Can plan workforce accordingly with certainty Allows flexibility for growing the workforce in times of need Can plan clearly Can recruit and advertise for opportunities clearly Entrepreneurs can innovate and industry and innovate its diversification Provides time (not sufficient at moment) for innovation Penalties for both employer and employee if contract terms not fulfilled Contract is in writing Clear as to roles and responsibilities Underemployment is a big challenge in Cambodia how do we get the underemployed to be fully employed and successful! FDCs are advantageous for the mass population and workforce. Allows to take on additional orders and opportunities for work and to innovate around diversification and business development If innovation is successful, can grow the business and employment opportunities If innovation is not successful, both parties have obligations and clear terms of contract Slide 17

Challenges for FDC are related to interpretation and therefore implementation Renewals in the garment sector How do they work and having a consistent understanding of terms and conditions related to renewals Compensation in the garment sector Compensation inclusion and inclusion in total benefits policy including social security access Compensation on termination by either party in the event of unsatisfactory performance on the part of the worker or simply desire to resign on the part of the worker Seniority in the garment sector Seniority calculations and respect towards seniority and contribution towards the company Unions want more security for the workers in terms of employment not only the job security, but also seniority recognition and wages related to fixed duration contracts Slide 18

Framework for addressing challenges: Renewals Consider industry specific peculiarities Today Max of 2 years in term Renew as many times as possible Any aggregate of renewals that exceeds 2 years automatically converts the contract to a UDC according to the LAC Conflict in interpretation and understanding so implementation is causing friction Recommendations for discussion Should ideally not have a limit as restricts freedom of choice If a limit, 4 6 years to be competitive with region Must consider other sectors Multiple renewals essential based on mutual agreement or tailored by Prakas to industry peculiarities as they emerge Exploration, innovation Social security should enable individual contributions especially for FDC holders <6months Additional benefits coverage according to company policy and prorated based on working time if more than 1 year continuous work Slide 19

Framework for addressing challenges: Compensation Consider industry specific peculiarities Today 5% payout at end of contract Seniority recognition in garment sector is a challenge for employers and unions General legal interpretation, if you pay out a contract, it is considered to be closed or ended and a new contract starts anew! Compensation levels unclear Recommendations for discussion Maintain payout termination Possibility to recognize seniority if more than 2 years continuous work Payout of contract, assumes end of contract and starting a new seniority base this should be the case if UDC is enforced in terms of UDC payout If change to UDC, because FDC contract payout already made, the following should be implemented Termination calculations of UDC should start at beginning of UDC contract Seniority pay could be considered since the start of FDC contract Maternity coverage could be considered if FDC employment is more than 2 years continuous work Slide 20

Framework for addressing challenges: Seniority Consider industry specific peculiarities Today Recognition of seniority related bonuses unclear Recommendations for discussion Consider provision of relevant seniority related bonuses by sector if more than 2 year of continuous employment Very Important Note: In some sector FDC contracts are paid higher because of the short term nature, making blanket changes and not considering the impact on other sectors and professions could have very negative consequences for other types of workers and sectors. Slide 21

Key Principles for Employment Contracts It is important to raise the rights of employers to offer different types of contract based on requirements. Similarly rights of workers whether to accept contract being offered or negotiate better terms. No recourse AFTER signing of contracts. The two types of contract for the time being in the Cambodia context must be maintained to provide business with enough flexibility to innovate, diversify, and manage sector specific needs. Buyers place seasonal orders, therefore factories need flexibility to provide employment opportunities as well as secure the core of employment opportunities. Forcing a contract to become UDC violates the individual right and freedom to choose a form of contract or employment. Any employee should have the right to choose which contract suits their situation better Emerging growing middle class and new working mothers in particular related to services and other industries Employers should ensure equity in compensation provision base Job security should not be at the expense of unsecured business and be a constrain to investment attraction. Labour law need to consider our diversifying industry and the need to start innovating. Innovation programs can take anywhere from 3 years to 8 years of investment. Moving forward is a question of how to address the issue of employment related benefits with respect to FDC making sure it is fair for both parties. Slide 22

Recommendation Framework to consider BY SECTOR and must consider salary level provided Continuous Employment FDC <6 months continuous FDC 6 months <12 months FDC >12 months to <24 months FDC >24 Months Salary Considers short term nature Considers short term nature Considers short term nature Industry standards Leave Allowances No Yes but prorated based on type of work/industry need Yes but prorated based on type of work/industry need Public Holiday Yes Yes Yes Yes NSSF Contributions Individual Individual or company Individual or company Company Seniority pay No No No Yes Attendance bonus Travel transportation Allowances Based on mutual agreement or company offering Based on mutual agreement or company offering Based on mutual agreement or company offering Based on mutual agreement or company offering Based on mutual agreement or company offering Based on mutual agreement or company offering Yes but prorated based on type of work/industry need Yes for certain sector or job class Payout 5% as per law 5% as per law 5% as per law 5% as per law Yes Health Allowance No, salary should cover No, salary should cover No, salary should cover Yes Other Based on mutual agreement (CBA) or company offering Based on mutual agreement (CBA) or company offering Based on mutual agreement (CBA) or company offering Based on mutual agreement (CBA) or company offering Slide 23

Making sure our definitions are clear Continuous employment Means a person has been employed continuously for a certain period of time and the contract has not been terminated or stopped for a period of more than a month Valid reason for termination The termination of a labor contract without valid reasons, by either party to the contract, entitles the other party to damages. Often this is the basis of a claim for damages by terminated workers Labour law based on 6 day work week Does not accommodate a 5 day work week. As such holiday provisions result in the law result in those on 5 day work weeks getting longer holidays than those on 6 day work weeks. With industry diversification we need to work on different types of working schedules and weeks and corresponding benefits, termination and holidays. Slide 24

Thank you Sandra D Amico Vice President Cambodian Federation of Employers and Business Associations vicepresident@camfeba.com camfeba@camfeba.com (m) 012 766748 It is lonely to dance alone. We must dance together. Slide 25