The Labour Law of 2013 has introduced provisions to define two different types of employment agreements. Under the law an employment contract can be either for a fixed term or an indefinite period. If a fixed term contract, including any extensions, is longer than three years, the contract will automatically be deemed to be a permanent employment contract (Article 76 of the Labour Law).

The key difference under the Labour Law between fixed term and permanent employment agreements is the notice periods for termination. Either a fixed term or a permanent employment agreement may be terminated at any time by either party by providing minimum prior notice, typically 30 or 45 calendar days. A fixed term contract can expire naturally without any prior notice being required. Some employers in Laos prefer to run one-year fixed term employment agreements to limit their severance payment liability in case of the employee’s termination.

Thus, permanent employment agreements cannot naturally expire and the employer generally needs to pay severance payment to the terminated employee. Further, the employer must present sufficient reasons for termination in order to avoid being accused of “unjustified termination” requiring higher severance payment.

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