The Labour Law of 2013 introduces provisions that define two types of employment agreements: fixed-term and indefinite (permanent) contracts. According to Article 76 of the Labour Law, if a fixed-term contract, including any extensions, exceeds three years, it is automatically considered a permanent employment contract.

The primary distinction between fixed-term and permanent contracts under the law lies in the termination notice periods. Both types of contracts may be terminated by either party at any time, provided that the required notice period is observed — typically 30 or 45 calendar days. However, a fixed-term contract may naturally expire without the need for prior notice.

In practice, some employers in Laos prefer to use one-year fixed-term contracts to minimise severance liabilities in case of termination.

In contrast, permanent contracts do not naturally expire. Employers must usually pay severance to a terminated employee and must also provide justifiable grounds for termination. Failure to do so may result in the termination being deemed “unjustified,” potentially leading to higher severance obligations.