Ministry Guidance on Retirement Practices

While Lao law does not set forth a mandatory retirement age, the authorities will likely uphold a contractually agreed upon minimum mandatory retirement age of 60, provided the employee receives a retirement benefit as prescribed by law upon retirement. Although an employee could also try to claim an entitlement to severance pay, the authorities would seemingly uphold an employer’s prerogative to retire the employee with a retirement benefit only, especially if this is expressly provided and approved in the employer’s internal regulations.

Article 72 of the Law on Labor (No. 06/NA, 27 December 2006) sets the standard age of retirement at 60 years for male workers and 55 for female workers, subject to conditions and exceptions. Upon retirement, a former employee is entitled to a lump sum payment (retirement benefit) or pension under the National Social Security Fund (NSSF). An employee needs to stop working—either voluntarily or through forcible retirement imposed by the employer—to obtain these benefits.

The Ministry of Labor and Social Welfare (MLSW) has recently confirmed that an employer can effect a mandatory retirement, provided that the conditions of the retirement otherwise comply with the Article 72 and social security law (No. 34/NA, 26 July 2013). The employer would then pay out the retirement benefit to which the employee is entitled under Article 74 and would not be liable to make an additional severance payment.

However, mandatory retirement can only be imposed on employees who are at least 60 years of age—regardless of whether the employee is female or male. Female employees may choose to retire at 55 but the employer cannot force a female worker to retire until she is 60 years of age.

An employee who continues to work past retirement age will be entitled to the retirement benefit upon actual retirement.

The retirement benefit, also known as a “lump sum allowance” is based on the employee’s average income multiplied by the total years the employee worked. It is payable by either the employer or the NSSF depending on the employee’s social security status.

Comment

Termination of employment due to retirement is often left out of employment contracts and internal regulations. Given the lack of framework on retirement in the law, however, employers may want to include a clear retirement policy within their internal regulations. This should assist employers that want to be able to forcibly retire employees at or after age 60.

Written by Danyel Thomson and Bounyasith Daopasith of DFDL and Roger James of Ogletree Deakins