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    Overview of Labor Law

    Employment Term and Probation Period

    Definite-term labor contract

    Term: not exceed 36 months (exclusive of probationary period).

    You cannot use this type of contract if: it is the third labor contract with that employee.  For the third labor contract, you must sign indefinite-term contract.

    What happens if the employee continues to work after the expiry of the contract?

    After the expiry of contract, if the employee continues working without signing any new contract within next 30 days, the contract will be automatically converted into an indefinite-term contract.

    Indefinite-term labor contract

    Term: indefinite.

    Is there any condition for signing this type of contract?

    No. You can always sign this type of contract, but it is usually not recommended because you will have to offer indefinite employment to the employees.

    Does this mean that the employee will also have to work for the company indefinitely?

    No.  For this type of contract, the employee can unilaterally terminate the employment at any time without any reason, only a 45-day-notice is required (or a 120-day-notice if the employee holds a managerial position prescribed by law).

    Employment term of the foreign employees

    Please note that the employment term of a foreign employee cannot exceed the term of his/her work permit.

    Because the term of work permit is limited (currently not exceeding 02 years), indefinite-term labor contract is not applied to foreign employees, and the law also does not require you to use indefinite-term labor contract in the third labor contract (as mentioned in the explanation about definite-term labor contract).

    Collective bargaining agreement

    What is collective bargaining agreement?

    It is an agreement between the employer and all employees (usually represented by the trade union).

    What is the purpose of having the collective bargaining agreement?

    The main purpose is to record the employment benefits that are applied to majority employees so that such benefits can be considered as expenses of the company when calculating corporate income tax.

    Probationary period

    Probationary period can be applied by regulating in the labor contract or in a separate probation agreement. Probationary period, however, is not applied for employees whose employment term is below one month.

    Maximum probationary period: It varies depending on the qualification required for the job. For instance, enterpirse managerial jobs may have probationary period of 180 days at most, and jobs that require qualification of bachelor’s degree may have probationary period of 60 days at most. However, jobs that require no qualification (e.g. normal workers) may only have probationary period of 06 working days at most.

    Q&A:

    Q: In case the probationary period expires but the company needs more time to evaluate the employee, should the company extend the probationary period?

    A: No. The company should not do so. Probationary period can only be applied one time with a strict maximum limit under the law. If the employee continues working after the expiry of the probationary period, the company may be deemed as having employed such employee under an indefinite-time labor contract.

    Employee protection principle

    Any obligation imposed on the employees can be voided if such obligation is less favorable for the employees than what provided by the law.

    Q&A:

    Q: If we add a clause in an indefinite-term labor contract requiring an employee to give 6-month notice before resigning, is that clause enforceable?

    A: No. That clause may be voided by the court because the law only requires 120-day or 45-day notice. Requiring 6-month notice is less favorable for the employee and as a result, violates the employee protection principle.

    Employment Termination by Employee

    The law strongly protects the jobs of the employees, so it is very difficult for the employer to unilaterally terminate the employment.  Usually, to commit a unilateral termination, 02 things are required:

    Having the grounds (i.e. reasons) provided by the law

    The grounds provided by the law are limited and usually require either serious violation from the employee (e.g. long absent from work without plausible reason, stealing, embezzlement, etc.) or the inability of the employer to provide the job (e.g. force majeure, restructuring, M&A that make the employer has no job to continue employing the employee).

    Q&A:

    Q: Can we add more grounds for termination to the labor contract to overcome the limited grounds provided by the law?

    A: No. Additional grounds for termination may be voided by the court because they are less favorable for the employees than what provided by the law (as explained above about the employee protection principle).

    Fulfilling all the documentation and procedures required by the law

    Besides the lawful grounds for termination, you will need sufficient documentation and fulfilment of all procedures as required by the law for each case.  Missing any single document or step in the procedure may make the whole termination of employment become illegal.  For instance, the employee may steal money from the company but if the company terminates the employment without proper disciplinary hearing, the termination will be illegal, and the employee can sue the company to ask for compensation.

    Documentation and procedural requirements of the law are quite complicated and should be handled by qualified attorney on a case by case basis.

    Burden of proof

    In the dispute relating to the unilateral termination of employment, the burden of proof falls to the employer (even though the employee is the plaintiff). Usually, in this type of dispute, the employee only needs to prove that there is a unilateral termination (which is easy) and the employer will need to prove that everything relating to such unilateral termination is compliance with the law (which is difficult).

    Conclusion

    Fulfilling the above 02 requirements are very difficult and time-consuming in most cases.  Thus, it is quite common in Vietnam that the employer will seek for a mutual termination first, i.e. offering to pay an amount of money so that the undesired employee will voluntarily resign and leave in peace.  Unilateral termination is usually the final option when there is no other choice.

    Consequence when illegally terminating labor contract with the employee

    If the unilateral termination is deemed illegal by the court, the employer may have to pay the following compensation:

    • Pay the compensation of 02-month salary.
    • Pay the salary, compulsory insurances from the termination to the reinstatement or to when employment legally ends (e.g. the employment term expires, the employee waives the reinstatement, etc.).
    • Salary payment for the period for which the employer fails to give the notice, e.g. if the employer is required to give a 30-day notice, but they only give a 10-day notice, 20 days’ salary payment is required.
    • In addition to the above compensations, the employee may ask for reinstatement. In case the employer cannot reinstate the employee (e.g. because the position is no longer available), the court may impose an additional compensation for the employee in lieu of the reinstatement (minimum of 02 months’ salary, there is no maximum amount under the law). Please note that in case of no reinstatement (i.e. the employment ends), the employer also has to fulfil the relating obligation arising at the end of the employment, e.g. compensation for unused annual leave, statutory severance allowance 1, etc.

    Working Time

    The rules on working time are mainly about the standard working time and overtime limits.

    Standard working time

    It is the time that the employees are expected to work (exclusive of overtime). Standard working time is identified under the labor contract, but it shall not exceed the limits set by the law (which may be updated from time to time).

    Examples on some limits set by the law
    • In a day: usually 08 working hours.
    • In a week: usually at least one day-off is required.
    • In a year: days-off on public holidays and annual leave (usually 12 working days per year) are required.

    The numbers above are only for reference because the limits may change from time to time and may change based on the characteristics of the employment.

    Passing the limits on standard working time

    Usually, working time exceeding the standard working time is considered as overtime, which requires additional payment (overtime payment). Thus, limits on standard working time are usually soft limits and you can pass such limits if:

    • The employees agree to work overtime;
    • You pay the overtime payment; and
    • The overtime (i.e. working time exceeding the standard working time) shall not exceed the overtime limits.

    Overtime limits

    There are limits on the total overtime under the law. Such limits are set mainly to protect the employees’ health.

    Examples on some limits set by the law
    • In a day: usually not exceeding 50% of the standard working time, e.g. if the normal working time in a day is 08 hours, the employees may work overtime for a maximum of 04 additional hours.
    • In a month: usually not exceeding 40 additional hours.
    • In a year: usually not exceeding 200 additional hours (or 300 additional hours in some special cases, which may require notification to the authorities).

    Passing the overtime limits

    Overtime limits are usually hard limits to protect the employees’ health. Therefore, passing such limits may not be allowed, even with the consent of the employees.

    Overtime payment

    Payment for overtime (i.e. working time exceeding the standard working time) is significant higher than the payment for standard working time.

    Example: Assuming that you pay VND300,000 for each working hour under the labor contract, you may have to pay: (i) VND450,000 for each working hour exceeding the 08 working hours in a day (assuming the applied standard working time in a day is 08 hours); (ii) VND600,000 for each working hour in the weekly day-off. These numbers are only for reference because the law may change from time to time and it also depends on the relating facts of the case.

    Flexible working time for some special jobs

    The normal rules on working time (e.g. 08 hours per day, 06 days per week, etc.) may not be applied to some special jobs that require the flexibility in working time such as offshore employees in petroleum industry, sailors, train driver, pilot, etc.

    For these jobs, the law may provide different ways to schedule the working time and rest time, which may allow the employees to work in long hours for a period of time and then, take long rest in a later period of time to meet the job requirements. The rule varies depending on each job.

    Thus, if you consider that the job requires special working time, you should check to see if there is any special rule applied to provide you with the flexibility to schedule the working time.

    Labor Discipline

    Currently, there are four (04) labor disciplinary measures available under the law:

    Warning

    Prolongation of salary increase period for no more than 06 months

    For example, if the company promises to increase the salary after the employee has finished 01 year of employment, prolongation of salary increase period for 06 months will mean that the salary will only be increased after 1.5 years instead of 01 year. This may not be practical because most companies do not have the policies to increase the salary based on time (because salary is usually increased based on performance and subject to the discretion of the company).

    Demotion

    This means removing the employee from the high position in the company (e.g. head of a department) and removing the benefits associated with such position. Then, the employee will continue to work under a normal position (e.g. normal staff in the department).

    This may not be practical if the employee does not hold a high position or the company does not have executive benefits for high positions.

    Dismissal

    This means the termination of employment.

    Q&A:

    Q: Can we regulate different disciplinary measures in our policies or labor contract?

    A: No, you cannot. You can only apply the 04 disciplinary measures provided by the law.

    Q&A:

    Q: How do we know which disciplinary measure should be imposed for which violation?

    A: For warning, prolongation of salary increase period and demotion, they are subject to the internal labor regulations (ILRs) that are issued by the company (i.e. the company can mostly decide which disciplinary measure imposed for which violation). For dismissal, however, the limits that it can only be imposed for serious violations (listed by the law), which may include acts of theft, embezzlement, intentional infliction of injury, use of drugs inside the workplace, trade-secret disclosure, sexual harrassment and acts which cause serious damage or threaten to cause extremely serious damage to the employer.

    Q&A:

    Q: What is ILRs? Are they necessary?

    A: ILRs are the rules that are set by the company for the employees to follow. ILRs will be commented (but not decided) by the trade union and registered with the authorities. The main purpose of ILRs is to list out all possible violations and the corresponding disciplinary measures so that the company will have the grounds to discipline the employees in the future. If there is any violation that is not regulated in the ILRs, you may not be able to apply disciplinary measures against that violation, regardless of how serious it is. Therefore, ILRs are considered as the most important labor document of a company and insufficient ILRs may make the company unable to discipline the employees.

    Q&A:

    Q: We do not have the policies to increase salary after a period of time, i.e. salary increase is based on performance only. Is there any merit to impose prolongation of salary increase period when we have no salary increase period?

    A: Yes, there is a merit. Such disciplinary measure will create a bad record for the employee and if the employee repeats the violation within a provided period of time, the violation can be deemed serious and dismissal may be allowed. Thus, in some cases where the straight dismissal is not allowed, you may need to take 02 steps, i.e. (i) imposing prolongation of salary increase period first and then (ii) imposing the dismissal when the employee repeats the violation within the period of time provided by the law.

    If you have any questions or concerns about the labor regulations in Vietnam, our experienced labor and employment lawyers are always available at info@letranlaw.com.


    1. Except for some special cases provided by the law, statutory severance allowance is only granted for the employee working for the company for full 12 months or more; and calculated based on the employee’s total year of service until the termination (excluding the period that is covered by the unemployment insurance), as such, for one year of service, the employee is entitled to receive a half of monthly salary.