Vietnam Labor Code Regarding Terminations

30 days’ notice to terminate doesn’t mean much in Vietnam

Vietnamese labor law related to terminations is generally employee friendly and subject to formal requirements and procedures based on statute. Notably, Vietnamese labor law applies to all employers operating in Vietnam, irrespective of whether the employees are Vietnamese or foreign nationals. An exception applies, however, where foreign nationals are working in Vietnam under an internal company transfer and a foreign labor contract.

After an employee has been contracted to work for a company, Vietnam’s labor code outlines several events which can give rise to the termination of an employment contract. Among the most common include the expiration of a contract, the completion of work, an agreement by both parties to terminate the contract, the employee reaches the legal age of retirement, the employee is sentenced to prison, the employee dies, the employee loses capacity, layoffs due to economic conditions, structural changes to  the company, including mergers, acquisitions, consolidations or divisions, or the unilateral termination of the contract by the employee or the employer.

It’s important to understand the conditions under which unilateral termination of contracts may take place – both from an employer and employee standpoint. For example, both employers and employees are required to provide notice if they wish to terminate a labor contract. The length of notice period is dependent on the type of contract in place and differs between employers and employees.

For example, Vietnamese labor law mandates that at least 15 days’ notice must be given to workers where they will no longer be needed at the expiration of a definite term labor contract. After the employee’s last day, employers must make all payments due to an employee within 7 days.

When a labor contract is terminated, an employer may be required to pay severance to the employee.  The amount of the severance will depend on employee salary, time in position and time covered by social insurance.

Severance is available to all employees who have been working for a company for 12 months or longer.  Payments are required where one or more general termination triggers or unilateral termination provisions have occurred during employment.

Vietnam’s Labor Code directs that severance shall amount to half a month’s wages for every year the employee has been working. For example, when an employee works for three years, he or she would receive one and a half months’ pay. Pay will be calculated by looking at payments made during the preceding six months as outlined in the labor contract. Employers may be able to deduct social insurance payments from the severance payout, subject to official guidance at the time severance is calculated.

Violating Vietnamese labor law can be expensive

In 2018, a Ho Chi Minh City Court upheld a previous judgment which held a teacher had been dismissed unilaterally in violation of Vietnamese labor law by the International German School (IGS) – and it awarded 2 Billion VND ($87,000) to the dismissed employee. The terminated employee began working at the school in 2013 on a salary of VND 88 Million ($3,826) — plus allowances of VND 200 Million per year.

The employee’s contract had expired in 2015, and the school didn’t renew it. However, the employee continued to work at the school with an unchanged salary. The school dismissed the employee in 2016 for what they described as a disrespectful attitude to the staff and violations of school regulations. The employee reported the termination to the labor department of Ho Chi Minh City’s District 2 – on the basis that he believed the termination to be illegal.

The employee’s attorney argued that under Vietnamese labor law, the failure to sign a new contract within 30 days of expiry of the previous one rendered the original contract of indefinite duration. In 2018, the appeals court then upheld the original decision that the termination was invalid, requiring the school to pay the employee VND 2 Billion.

 A local Employer of Record In Vietnam can help you avoid costly problems

If you’re considering entering the Vietnamese market, working with a Vietnam EOR will ensure you have local team members on the ground that are capable of navigating through Vietnam’s complex terminations landscape.