1. Cases of labour contract termination under the labour laws of Vietnam
Under the labour law of Vietnam, the labour contract between the Company and the concerned Employee may be lawfully terminated under any of the following cases under Article 34 of the Labour Code 2019:
(a) On expiry of the labour contract, except in the case the Company must extend the labour contract already entered into until the end of the term of office of any concerned Employee being a member of the leadership of an organization representing employees at the Company if his or her labour contract expires during the term of such office;
(b) The concerned Employee has finished the work as stated in the labour contract;
(c) Both parties agree to terminate the labour contract;
(d) The concerned Employee is sentenced to a jail term but not to a suspended sentence and not within the cases of entitlement to release/freedom as prescribed in the Criminal Procedure Code, or is sentenced to the death penalty, or is prohibited from performing the job prescribed in the labour contract by a legally enforceable verdict or decision of a Court;
(e) The concerned Employee being a foreigner working in Vietnam is deported pursuant to an enforceable decision or verdict of a Court or pursuant to a decision of a competent State agency;
(f) The concerned Employee dies; or is declared by a Court to have lost legal capacity for civil acts, to be missing or to be deceased;
(g) The Company terminates its operation or the specialized agency for business registration under the provincial people's committee issues notification that the Company no longer has a legal representative or an authorized person to exercise the rights and discharge the obligations of the legal representative;
(h) The concerned Employee is disciplined in the form of dismissal;
(i) The concerned Employee unilaterally terminates the labour contract in accordance with article 35 of the Labour Code 2019;
(j) The Company unilaterally terminates the labour contract in accordance with article 36 of the Labour Code 2019;
(k) The Company permits the concerned Employee to cease work as prescribed in articles 42 and 43 of the Labour Code 2019;
(l) The work permit of the concerned Employee being a foreigner working in Vietnam expires; or
(m) There is an agreement on probationary work stipulated in the labour contract, but the probationary work did not satisfy the requirements or either party rescinded the agreement on probationary work.
2. Termination of the indefinite term labour contract by the Company
Under the Labour Code of Vietnam, the termination of the indefinite term labour contract by the Company itself shall be in one of the following circumstances, provided that the Company has good cause and strictly comply with the legal procedural steps as mentioned in each option below:
2.1 Termination of the indefinite term labour contract due to the organizational restructuring, technological changes or changes for economic reasons of the enterprise
Pursuant to Articles 34.11 and 42 of the Labour Code 2019, the employer has the right to terminate the labour contract with its employees, regardless of the type of labour contract i.e. an indefinite term labour contract or definite term labour contract, due to restructuring, change of technology, or change for economic reasons.
The following circumstances are deemed to be restructuring or a change of technology under Aricle 42.1 of the Labour Code 2019:
- A change of organizational structure or employee/staffing structure;
- A change of the production or business processes, technology, machinery or equipment associated with the production and business industry or trade of the employer;
- A change of products or product structure.
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If restructuring or a change of technology adversely affects the jobs of many employees, the employer must formulate and implement a labour usage plan in accordance with article 44 of the Labour Code; if new jobs are created, then the employer must prioritize retraining employees in order to continue to employ them.
The following circumstances are deemed to be a change for economic reasons under Aricle 42.2 of the Labour Code 2019:
- An economic depression or rescission;
- Implementation of State policies or law on restructuring of the economy or implementation of an international commitment.
If for economic reasons many employees are in danger of losing their jobs and must be retrenched, then the employer must formulate and implement a labour usage plan in accordance with article 44 of the Labour Code 2019.
If the employer is unable to resolve or create new jobs but must retrench employees, then the employer must pay severance allowances for job loss to employees.
Furthremore, employees may only be retrenched after there have been discussions with the organization representing employees at the grassroots level in the case of enterprises which have such an organization and of which the employees are members, and after thirty (30) days' advance notice has been provided to the provincial people's committee and to the employees.
2.2 Unilateral termination of the indefinite term labour contract by the Company under Article 36 of the Labour Code 2019 of Vietnam
Under Article 36.1 of the Labour Code 2019, amongst other good causes, the Company is entitled to unilaterally terminate the indefinite term labour contract with the concerned Employee if the concerned Employee repeatedly fails to perform the work in accordance with the terms of the indefinite term labour contract (a kind of poor performance) as determined in accordance with the criteria for assessing the level of completion of work as set out in the rules of the Company. Rules on assessment of the level of completion of work shall be issued by the Company but only after consulting the opinion of the organization representing the employees at the grassroots level in the case of enterprises which have such an organization.
Accordingly, to apply this option, the Company is obligatory to prove that the concerned Employee does not satisfy the respective key performance indicators regulated in the Company’s internal rules which were already promulgated by the Company after consulting with the organization representing employees at the grassroots level. In this case, the Company needs to make the following solid grounds available in the proper manner:
- Job descriptions clearly stating the respective key performance indicators, the assigned work or tasks of the concerned Employee (recommended);
- Criteria for assessing the level of completion of the assigned work/tasks (including the respective key performance indicators) to provide the basis for assessing whether the concerned Employee has repeatedly failed to complete her work according to the indefinite term labour contract and the job descriptions; and
- Rules for assessing the level of completion of the assigned work/tasks shall be issued by the Company after obtaining the opinion of the organization representing the employee collective at the grassroots level.
In addition, in practice, to have a solid ground to unilaterally terminate the indefinite term labour contract with the concerned Employee by this option, the Company is recommended to conservatively follow the below additional requirements:
- The Company has to prove that the concerned Employee has not completed his/her working tasks due to subjective reasons; and
- The Company must prove further that the concerned Employee still does not improve his/her working performance after being warned by the Company.
In addition, apart from having one of the above good causes, the Company is also required to strictly comply with respective legal procedural steps provided by the labour law to terminate the indefinite term labour contract with the concerned Employee. Especially, the Company must inform to the concerned Employee about the termination of the indefinite term labour contract at least 45 calendar days prior to the proposed terminating date as the indefinite term labour contract is an indefinite-term one under Article 36.2(a) of the Labour Code 2019. Lastly, the employment relationship in this case of termination will be terminated only when the Company issue a decision on the same.
In case of not having the good cause as aforesaid or missing any legal procedural step in respective procedural steps, the termination of the indefinite term labour contract by the Company may be ruled as illegal in case of any labour dispute with the concerned Employee. Hence, the Company may incur the legal consequences as mentioned at Section 2.3 below.
2.3 Legal consequences in cases of illegal termination of the indefinite term labour contract with the concerned Employee
Given the fact that the Company meets the legal conditions of one of options for the termination of the indefinite term labour contract as mentioned from Sections 2.1 and 2.2 to terminate the indefinite term labour contract with the concerned Employee, the concerned Employee may feel unhappy with the same and may take legal action against the Company. In the worst scenario, if the unilateral termination of the indefinite term labour contract is ruled as illegal by the local competent court of Vietnam, the Company shall bear legal consequences as stipulated by Article 41 of the Labour Code 2019, namely:
(a) The Company must receive the concerned Employee back to work in accordance with the executed labour contract, must pay (i) wages and premiums for social insurance, health insurance and job loss/unemployment insurance for the days on which the concerned Employee did not work, and also (ii) a sum of money equal to at least 2 months' wages as prescribed in the labour contract;
After re-employing the concerned Employee, the concerned Employee must refund the Company the severance allowance and retrenchment (job loss) allowance received from the Company.
If there is no longer the working position or job for which the labour contract was entered into and the concerned Employee wishes to continue to work, then the two parties shall reach agreement in order to amend or supplement the labour contract.
If there is a breach of the provisions on advance notice prescribed in Section 2.2 above, then a sum of money equivalent to the wages prescribed in the labour contract for the days for which advance notice was not provided, must be paid.
(b) If the concerned Employee does not wish to continue working, then the Company must pay, in addition to the amount as above, a severance allowance for his/her probationary period (if any) in order to terminate the labour contract.
(c) If the Company does not wish to receive the concerned Employee back to work and the concerned Employee agrees, then, in addition to the amount prescribed in item 2.3.(a) above and the severance allowance for his/her probationary period (if any) payable by the Company, the two parties shall reach agreement on an additional amount of compensation for the concerned Employee which shall equal at least 2 months' salary as prescribed in the labour contract in order to terminate the labour contract.
3. Other feasible lawful options for termination of the indefinite term labour contract with the concerned Employee
Apart from the above options, under the labour laws of Vietnam, the Company may consider other alternatively lawful and feasible options for termination of the Indefinite term Labour Contract with the concerned Employee as below:
3.1 Option 1: The Labour Contract shall be terminated by the resignation of the concerned Employee
For this option, as a matter of law, the concerned Employee has the right to unilaterally terminate his/her labour contract due to any of some good causes provided by the labour law, in which his/her personal reason(s) (he/she or his/her relatives face difficulties which cause he/she cannot continue implementing the indefinite term labour contract) may be applied, provided that notice is provided 45-calendar day in advance to the Company under Article 35.1(a) of the Labour Code 2019. In doing so, it is understood that the indefinite term labour contract shall be terminated after 45 calendar days from the date when the notice is given with the assumption that there is no offset of the notice days against other days such as unused annual leave or compensation leave.
Unilateral termination of a labour contract in this case usually arises from the concerned Employee’s will rather than the Company’s wish – normally it will happen when an employee does not want to work for the employer anymore. However, in the Company’ case, the termination of the indefinite term labour contracts with the concerned Employee is from the Company’s desire, and the voluntary submission of the resignation letter by the concerned Employee to the Company is not practical. Thus, the Company should convince the concerned Employee to submit his/her resignation letter and after that the Company will issue a respective acceptance letter of his/her resignation.
Pursuant to Article 46.1 of the Labour Code, the Company is just obligated to pay severance allowance, at the rate of a half of month of salary for each working year, for the concerned Employee in case where he/she has regularly worked for the Company from a full period of 12 months or more only.
Otherwise, the Company must pay to the concerned Employee an allowance for the period of not contributing the unemployment insurance premiums only in addition to his/her contractual rights and benefits until the termination date of the indefinite term labour contract to terminate the iIndefinite term labour contract.
Of note, severance allowance paid within the requirement of law is a non-taxable income of the personal income tax of the concerned Employee under the Law on Personal Income Tax.
3.2 Option 2: The Labour Contract shall be terminated by mutual agreement for termination of the indefinite term labour contract by the Company and the concerned Employee
Similarly as Option 1 above, the Company may negotiate or convince the concerned Employee to reach an agreement on termination of the indefinite term labour contract, but it is conducted according to Article 34.3 of the Labour Code 2019. Factually, termination of the indefinite term labour contract with the concerned Employee by Option 1 in the Company’ case is not different because the Company can even negotiate and convince the concerned Employee to get his/her agreement on termination of the indefinite term labour contract whatsoever even though the legal grounds of the case is different.
As we all know, litigation in Vietnam is highly risky as the outcome of a case is almost impossible to predict. In addition, the labour laws of Vietnam and the Vietnam’s courts generally rule in favour of employees as well as the fact that the general public has a negative opinion of the unilateral termination of labour contracts by employers due to either poor working performance provision or labour restructure, and so, to a certain degree, puts further pressure on the decision of judges.
With the above in mind, the safest method for the Company to put an end to the implementation of the indefinite term labour contract with the concerned Employee without worrying about any risk of dispute with his/her later, in our opinion, is to reach a mutual agreement with the concerned Employee on the termination of the indefinite term labour contract under Article 34.3 of the Labour Code 2019, the Company is expected to sit down and talk openly and respect the concerned Employee in which both parties are free to negotiate the terms and conditions of the termination agreement.
Typically, the Company will agree to pay a generous package to the concerned Employee. In exchange, the concerned Employee will agree to terminate the employment relationship with the Company and commit to release the Company from any and all obligations and liabilities prescribed by law in connection with the employment of the concerned Employee under the indefinite term labour contract, including but not limited to his/her rights to conclude a proceeding before a competent court of Vietnam against the Company relating to the termination of the indefinite term labour contract.
If this option is selected, the following issues should be taken into account:
(a) It should be a straightforward and respectful talk when the Company decides to start negotiating the termination of the labour contract with the concerned Employee. The Company’s desire to terminate the indefinite term labour contract should be communicated to the concerned Employee in a way to make his/her understand that he/she is respectfully leaving.
(b) Who will talk with the concerned Employee? It should be a person who has no personal issues with the concerned Employee and it is better if it is the General Director of the Company because the concerned Employee can feel he/she is being respected if his/her boss talks with him/her directly about this kind of matter.
(c) Our experience is that sometimes the agreement may not be reached immediately. The concerned Employee may say that he/she needs some time to think about the offer. If this is the case, the Company will give him/her a reasonable and definite time (i.e. about one week as may be agreed) for him/her to give feedback. The termination agreement should be available for meeting with the concerned Employee. In cases where the concerned Employee agrees with the amounts offered by the Company, the termination agreement should be signed immediately to avoid any change of mind by the concerned Employee.
(d) In the case of signing the termination agreement, the Company may be obligated to pay the severance allowance to the concerned Employee, at the rate of half a month of salary for each working year. However, the Company may consider paying the concerned Employee at a higher level than prescribed by the laws to immediately terminate the labour relationship with him/her.
However, the termination package offer should be given to the concerned Employee verbally, and not in writing, even in emails, prior to signing the termination agreement because it may be used against the Company before the local competent court of Vietnam in case of a dispute at a later stage. Notwithstanding the large amounts to be paid by the Company, it is in our belief of a prudent approach, saving time and costs in case of a dispute with the concerned Employee and a final resolution through the court.
ADK Law Firm
