Vietnamese labor legislation is generally considered to be ‘pro-employee’. As such, it is imperative that companies prepare and devise a termination plan in compliance with the laws to avoid any potential disputes at Court. This plan should be prepared and standardized prior to the termination of the employment relationship.

This executive brief is to provide corporate leaders with an overview of the acceptable methods of employment termination to assist in finding optimal solutions that match the company’s business direction and culture. From a legal perspective, the allowable termination methods include (i) automatic termination, (ii) mutual separation, (iii) termination by the company, and (iv) unilateral termination by the employee.

Automatic Termination

An employment contract may be automatically terminated upon the expiration of the contract term or the employee’s completion of the agreed job. In such a case, the company may be required to provide severance pay to the employee if the service term is at least 12 months (if not covered by unemployment insurance).

Mutual Separation

The law respects mutual termination of employment between the parties. At the company’s discretion, the final compensation package for the employee may consist of severance pay, contractual benefits, and monetary support.

Termination by the Company

Unilateral Termination by the Company: The company has the ability to unilaterally terminate the labor contract if it can produce sufficient evidence to support the legal justification of its termination decision. Furthermore, the company is absolutely required to ensure that the employee receives a prior termination notice of 30 days, 45 days, 90 days, or 120 days corresponding to the specific contract type, job position, and the nature of the business. The final compensation package may include severance pay and contractual benefits.

Retrenchment: The law provides for a termination procedure if the employee becomes redundant as a result of “organizational restructure, technological change or economic reasons”. This process, called retrenchment, involves substantial detailed requirements in order to be considered lawful, including but not limited to labor usage plan formulation and notification to the labor authorities. The retrenchment package may include job-loss pay and contractual benefits.

Dismissal: The company may dismiss an employee who has committed an offence specified by the law, the internal labor regulations, or the labor contract. The labor law requires companies to strictly comply with numerous requirements before the dismissal may be considered lawful. If an employee is dismissed in this fashion, no final compensation package is required and the employee may also be obligated to compensate the company and any third party (if any) according to the law.

Unilateral Termination by the Employee

An employee may, without proving a plausible cause, unilaterally terminate the employment contract by serving prior notice to the company. Similar to unilateral termination by the company, the notice period depends on the specific contract type, job position, and the nature of the business. However, it should be noted that there are exemptions from the prior notice obligation in cases of sexual harassment or when the employee reaches the statutory retirement age.

If you have any questions or concerns involving the establishment of lawful evidence for a legal cause of termination or devising a regulatory termination plan, our experienced lawyers are always available at letran@corporatecounsels.vn