Procedures For Terminating the Agreement
There must be proper legal grounds for an employer to terminate a labour contract with an employee, such as performance issues, prolonged illness, a force majeure event or winding up of the company. Employers are required to follow a number of statutory steps such as sending advance written notice regarding the termination of employment to employees within a statutory time limit.
If an employer does not have legal grounds for the termination or fails to follow the proper statutory procedure, a termination may be declared wrongful and, if so, the employer may be required to reinstate the employee, pay their salary for the period that they were not allowed to work, and pay two months or more of the employee’s salary as a penalty for the wrongful termination.
Under Vietnamese labour law, dismissal is the most severe labour disciplinary measure. Employees may be dismissed when they commit an act of gross misconduct such as theft, embezzlement, using drugs at the workplace, gambling, deliberately injuring another person, sexual harassment, disclosure of business or technology secrets, or repeatedly commit acts in violation of the employer’s work rules or policies. A disciplinary hearing meeting must be held and a number of statutory procedures must be followed.
Termination On Notice
An employee may resign from his/her job without a specified reason, subject to an advance notice of at least 45 working days (for an indefinite-term labour contract) or 30 days (for a definite-term contract from 12 months to 36 months) and 3 working days (for a definite-term contract of less than 12 months). For termination without notice, there must be statutorily recognized grounds for his/her resignation, such as the employee not being assigned the correct work or workplace as agreed in the labour contract, or the employee was mistreated, sexually harassed or subject to labour coercion, etc. In this case, no advance notice is required.
An employer may terminate a labour contract only if there are legal grounds as provided for by the law.
Termination By Reason Of The Employee's Age
Unilateral termination by reason of the employee’s age is not a legal ground under Vietnamese labour laws, unless the employee reaches legal retirement age. The legal retirement age under the Labour Code 2019 is 62 for men and 60 for women (though these ages are being gradually phased in). A retired person will receive his/her pension from the social insurance fund. When an employee reaches legal retirement age, the employer is entitled to opt to terminate the labour contract with the employee or to extend the labour contract with such employee. If the labour contract is extended, the senior employee is entitled to reduced working hours in accordance with the provisions of law. Employers may enter into an unlimited number of definite-term contracts with senior employees, whereas in the case of normal employees, employers may only enter into two definite-term contracts.
Unilateral Termination In Cases Of Force Majeure
Where, as a result of a natural disaster, fire, epidemic or for any other cause of force majeure as prescribed by law, an employer, despite having taken all necessary measures to remedy the problem, still needs to downsize its business, the employer is entitled to early termination of labour contracts with employees. However, the employer is still required to send an advance notice to the employees and follow the statutory procedures for termination. If the employees have been employed for at least 12 months, they shall be entitled to a severance allowance which is currently equivalent to half a month’s salary for each year of service during which the parties did not participate in unemployment insurance. Unemployment insurance was introduced in Vietnam in 2009, so for most Vietnamese employees, only working periods prior to 2009 qualify. However, if the employer and employee have suspended their participation in unemployment insurance at any point during the employment relationship (e.g., for the employee’s maternity leave), severance allowance will be due for this period.
There is no collective dismissal in Vietnam. Rather, the Labour Code allows for mass layoffs. Specifically, an employer may make employees redundant due to, inter alia , changes in structure or technology, the merger or consolidation or cessation of operations of one or several departments or units, or difficulties due to economic conditions.
Changes in structure or technology are further interpreted to include the following cases:
- Changes of organizational structure or re-organization of employment/positions;
- Changes to manufacturing or business processes, technology, machinery, or equipment associated with the employer’s manufacturing or business lines; and
- Changes to products or product structures.
Difficulties due to economic reasons are defined as an economic crisis or economic depression or where there has been a change in law or state policy restructuring the economy or implementing an international commitment.
Where the changes in structure or technology or difficulties due to economic reasons lead to the termination of two or more employees , the employer, in conjunction with the employees’ representative organization (if any) is required to formulate and implement a so-called “labour usage plan”. The employer must also provide at least 30 days’ notice of the termination to the People’s Committee of the province and the employees.
Termination By Parties’ Agreement
The parties are entirely free to agree to termination on any grounds they desire. Where both parties agree to terminate employment, they are not required to give advance notice. The parties may also waive any procedures. However, all the related issues such as employment termination, severance payments, personal income tax, social insurance, etc., should be finalized and addressed in a document, which should be signed by both parties.
Directors Or Other Senior Officers
In addition to being subject to labour law, certain high-ranking employees, such as general directors and members of the board, are subject to Vietnam’s Investment Law of 2020 and Enterprise Law of 2020, as well as the company’s charter (i.e., articles of association). The term for the above positions shall not exceed 5 years, but it is renewable.
A director or senior officer may have his/her job description set out in the labour contract. However, the functions, duties, obligations, rights, and authority of such employees may also be provided by the relevant law and the company’s charter and/or decisions assigned by general shareholders’ meetings, members’ council, boards, etc.
Special Rules For Categories Of Employee
The Vietnamese labour laws provide special rules for certain categories of employees, including underage, female, disabled and senior employees. For example, for underage employees (i.e., employees under the age of 18), employers are prohibited from using them in extremely heavy, toxic or dangerous work or in jobs which adversely affect the personality and health of underage employees, such as in the production and trading of alcohol, tobacco or other addictive substances; or in casinos, bars, dance halls, etc.
Senior employees include people who continue to work after having reached the retirement age. These employees are entitled to reduce the number of working hours in a day or work on a part-time regime. Employers are prohibited from assigning senior employees to heavy, toxic or dangerous work which might have adverse effects on their health. Employers may enter into an unlimited number of definite-term contracts with senor employees, whereas normally, they may only enter into two definite-term contracts.
Employers are required to ensure suitable working conditions, tools and equipment appropriate for disabled employees and must take regular care of their health. It is also prohibited to allow a disabled person whose ability to work has been reduced by 51% or more to work overtime or at night. Employers are prohibited from assigning disabled workers to heavy, toxic or dangerous work.
Female employees are entitled to the most protective rules. Among other rules, employers are required to ensure the implementation of gender equality during the employment relationship with female employees and ensure that female employees have adequate changing rooms, shower facilities and toilets in the workplace. An employer is not permitted to assign a pregnant female employee to do night work, overtime work or to go on a business trip to remote areas from the employee’s 7th month of pregnancy or if the employee is nursing a child under one year old. During the pregnancy, nursing period or maternity leave, the female employee is not subject to labour discipline. After the maternity leave, the female employee is guaranteed her old job upon returning to work. The employer is also prohibited from assigning a female employee to work which has an adverse effect on her ability to bear and raise a child, work involving regular underwater immersion, or regular underground work (mining).
Specific Rules For Companies in Financial Difficulties
There are special rules which apply if a company is in financial difficulty. If a company goes into liquidation, an employer has legal grounds to unilaterally terminate all employees’ labour contracts. However, the employers are required to send an advance notice and pay severance allowance to employees, etc.
If the employer is in bankruptcy, the employees shall become unsecured creditors. However, the employees’ interests (salary, allowance, insurance, and other contractual benefits) will be given priority over other unsecured creditors.
Restricting Future Activities
Vietnamese labour laws set forth a basic principle under which employees have the right to work and to freely choose their type of work, and only competent courts have the right to prohibit employees from doing certain jobs. Therefore, while there is no direct legal prohibition, clauses that attempt to restrict the future activities of an employee are likely unenforceable in Vietnam.
In practice, employers often include “unfair competition” or “non-compete” clauses in labour contracts to prevent their former employees from working for their competitors or directly competing with them for a certain period of time after termination. In reality, the enforceability of such agreements will most likely depend on the voluntary compliance of employees.
There are no law provisions on whistleblowers. If an employer wants to provide regulations on whistleblowers, it would need to do so in its internal labour rules. It will be at the sole discretion of the labour authority to accept such a provision in the internal labour rules.
Special Rules For Garden Leave
Garden leave is not provided for by the laws of Vietnam. The employer may request the employees to take garden leave, provided that the employer pays the employee the salary as agreed in the labour contract.
Vietnamese labour laws require employers to pay severance to employees for working periods which are not subject to unemployment insurance who have been continually working for the employer for 12 months or more. Unemployment insurance was introduced in 2009, so working periods prior to 2009 are subject to severance allowance. If there are gaps in the parties’ participation in unemployment insurance due to, for example, the employee’s maternity leave, this period will also be subject to severance allowance. For working periods subject to unemployment insurance, the employee will be entitled to payments from the unemployment insurance fund instead of the employer. There are certain cases in which employees are not entitled to severance allowance, such as in the case of dismissal or if the employee illegally resigns. Severance allowance is equal to half a month’s salary per year of service.
Special Tax Provisions And Severance Payments
In Vietnam, any income earned by an employee under the form of salary, wage, allowance, and bonus shall be subject to personal income tax (“PIT”). Employers, as income-paying organizations, are required to withhold and pay PIT to taxation authorities.
Generally speaking, statutorily allowed severance payment is not subject to PIT. However, any extra payments beyond that shall be subject to PIT.
Allowances Payable To Employees After Termination
Employers are not required to contribute to any allowance that is payable to employees after termination, unless otherwise agreed by the parties in the labour contract, provided that all required severance payments up to the date of termination (where applicable) were fully paid.
Time Limits For Claims Following Termination
In terms of a claim arising from the disciplinary measures resulting in dismissal, or a dispute arising from a unilateral termination of the labour contract or disputes relating to payment of compensation for loss and damage or payment of allowances, the statute of limitations for an individual labour dispute is 6 months if the dispute is referred to a labour conciliator, 9 months if the dispute is referred to a labour arbitration council, and one year if the dispute is referred to the court from the date of occurrence of conduct which any disputing party claims breached its rights or benefits.