1. Overview of Vietnam’s labour law framework

Vietnam’s labour law is extremely employee-friendly, and includes extensive regulations.  The main source of law governing the employer-employee relationship is Law No. 10/2012/QH13, which the National Assembly passed on 18 June 2012 and which took effect from 1 May 2013 (the “Labour Code”). In addition to the Labour Code, the following laws are relevant to the labour framework:

1. Law No. 58/2014/QH13 passed by the National Assembly on dated 20 November 2014, as amended and supplemented (“Law on Social Insurance”);
2. Law No. 25/2008/QH12 passed by the National Assembly on 14 November 2008, as amended and supplemented (“Law on Health Insurance”);
3. Law No. 38/2013/QH13 passed by the National Assembly on 16 November 2013 (“Law on Employment”);
4. Law No. 04/2007/QH12 passed by the National Assembly on 21 November 2007, as amended and supplemented (“Law on PIT”).

These laws state regulations in general terms, which are further clarified with implementing decrees issued by the Government. Circulars issued by specialized ministerial/administrative agencies under the Government (e.g., the Ministry of Labour, War Invalids, and Social Affairs, the Ministry of Finance, the State Bank of Vietnam, etc.) add further details, as well as prescribed forms.

2. Key labour issues

2.1 Labour Contracts

 In Vietnam, there are three types of employment contracts:

1. Indefinite term labour contract: a permanent labour contract;
2. Definite term labour contract: labour contract with a defined term ranging from 12 to 36 months;

It is only possible for an employer and employee to sign two definite-terms contracts.  After that, the parties must enter into an indefinite-term contract if they intend to continue the employment relationship.

       iii. Seasonal or short-term labour contract: labour contract for seasonal jobs or specific jobs with a term of less than 12             months.

Please note that a job must be truly seasonal or project-based in order to place an employee on a contract for a term of under 12 months. If an employee is placed under a labour contract for a term of under 12 months despite the job’s failure to conform to these conditions, the employer could face administrative fines.

2.2 Wage

• There are two types of minimum wages in Vietnam: (i) general minimum wage (“GMW”), which is used to calculate contributions and benefits for statutory social and health insurance, and (ii) regional minimum wage (“RMW”), which sets the minimum monthly wages an employer may pay its employees.

• The GMW is VND 1.39 million per month, as of 1 July 2018.

• Vietnam is divided into four regions for the purposes of RMW, whereby each region has its own RMW, based upon the level of economic development within each region.

• As of 1 January 2018, the RMW for the four regions is as follows:

• “Wages” for the purposes of statutory insurance contributions are defined as:

1. Wages for the job or position in accordance with the wage scale and wage table designed by the employer;
2. Wage allowance, an amount of money to cover labour conditions, job complexity, living conditions, or the need to attract labour that have not been included or fully included in the wage for the job or position; and
3. Other amounts in addition to the wage and the wage allowances, relevant to the performance of the job or taking of the position stipulated in the labour contract.

•  However, the following items are not considered as part of "wages"

(i)  Bonuses;

(ii)  Allowances for meals between shifts; and,

(iii) Subsidies provided by the employer which are not relevant to the performance of the job or taking the position stipulated in the labour contract.

2.3 Working hours and rest breaks

• Employers may schedule working hours on an hourly or daily or weekly basis. Regular working hours are eight hours per day (or 48 hours per week based on a six-day working week), however, in the case of heavy, noxious or dangerous jobs, working hours will be six hours per day.

• Each week, an employee must have a break of at least 24 consecutive hours. In exceptional circumstances where it is impossible for the employee to have weekly leave, the employer must ensure that the employee has at least four days off per month.

• Overtime hours are limited to 50% of the regular working hours, and are also capped at 30 hours per month and 200 hours per year. In order to extend the amount of overtime to more than 200 hours a year, an employer must obtain approval from the local Department of Labour, Invalids and Social Affairs (“DOLISA”). However, even with approval, the maximum amount of overtime is capped at 300 hours a year.

2.4 Annual leave

• Employees working for a full 12 months under normal conditions are entitled to 12 days of annual leave with full pay, with one additional day for every five years of service. Employees working in certain areas, of a certain age or who have been with an enterprise for a certain time, may be eligible for longer periods.

• The Company has the right to fix the timetable for annual leave after consulting with the employees and must give prior notice to the employees regarding the timetable.

• An employee may reach an agreement with the employer on taking annual leave in instalments or combining annual leaves, so that the employee takes one period of annual leave combining a maximum of three annual leaves.

2.5 Trade Union

• In Vietnam, there is only one trade union system under the Vietnam General Confederation of Labour Unions (“VGCL”), which includes four levels.  The corporate level (or grassroots level) trade union is usually the entity with which the employer interacts. Organizations lacking their own corporate level trade unions must then deal with the immediate upper level trade union, which is usually the trade union of the district where the organization’s registered office is located.

• The following issues must be consulted upon with the corporate level trade union, or if one does not exist, the immediate upper level trade union:

1. Formulation of internal labour regulations (“ILRs”);
2. Formulation of a performance management policy (“PMP”);
3. The negotiation of a collective labour agreement;
4. Formulation of salary schemes;
5. Application of disciplinary action - a representative of the trade union’s executive committee must attend the disciplinary hearing and opine on the employee’s alleged misconduct; and
6. Redundancy – as part of the legal process, the employer must prepare a labor usage plan in consultation with the trade union.

• The Labour Code is currently being revised, and it is anticipated that the revised Labour Code will be submitted to the National Assembly in May, 2019, passed by October, 2019 and in force as of 1 January 2021.  Under the new Labour Code, alongside VGCL trade unions, there will be independent trade unions. Under the draft revised Labour Code, these independent trade unions will require a minimum of 20 members, and will have the right to draft their own constitutions and mandates.  Thus, large companies may have multiple trade unions within them in the next few years.

2.6 Termination of labour contract

• Under Vietnamese law, a labour contract may automatically terminate, or may be unilaterally terminated by either the employer or the employee subject to certain conditions.

a) Automatic termination of the labour contract

• Under the Labour Code, a labour contract automatically terminates under the following circumstances:

1. The labour contract expires;
2. The job has been completed in accordance with the labour contract;
3. The employer and the employee mutually agree to terminate the labour contract;
4. The employee has reached the retirement age (60 years of age for men, and 55 years of age for women) and contributed to social insurance for at least 20 years;
5. The employee is sentenced to a jail term or receives the death penalty, or is prohibited from performing the assignments prescribed in the labour contract pursuant to a court decision;
6. The employee dies; or is declared by a court to have lost legal capacity for civil acts (incapacitated), to be missing or to be legally declared deceased (death in absentia); or,
7. The employer terminates its operation.

b) Grounds for the employer’s unilateral termination of labour contract

• Under the Labour Code, an employer may terminate an employee’s employment only under a limited number of legal bases, which include disciplinary dismissal, redundancy and other bases, as set out immediately below.

General bases for the employer’s unilateral termination

• The employer has the right to unilaterally terminate a labour contract with an employee under the following circumstances:

1. The employee repeatedly fails to perform his or her prescribed job or assignments (i.e, poor performance);
2. Where an employee suffers illness and remains unable to work after having received treatment for 12 consecutive months in the case of an indefinite labour contract, or six consecutive months in the case of a definite term labour contract;
3. The employer is forced to reduce production and employment after trying all measures to recover from a natural disaster, fire, or another event of force majeure as stipulated by the Government;
4. The employee fails to attend the workplace within fifteen (15) days from the expiry of the term of suspension of performance of the labour contract.

In respect of poor performance terminations, the employer has the right to unilaterally terminate an employee’s labour contract if the employee repeatedly fails to perform his or her prescribed job or assignments. However, in order to terminate an employee under this legal basis, the employer must have a performance management policy (“PMP”) which specifies the criteria by which the employee’s performance will be judged, which has been consulted upon with the corporate trade union, or if one does not exist, the immediate upper level trade union.

• Generally, before unilaterally terminating the labour contract with the employee, the employer must give advance notice to the employee as follows:

1. 45 days for an indefinite term labour contract;
2. 30 days for a definite term contract;
3. Three working days if the employee is ill or injured and remains unable to work for a long time, or for a seasonal or specific job labour contract with a duration of less than 12 months.

Disciplinary Dismissal

• Under the Labour Code, an employer may dismiss an employee in any of the following circumstances:

1. Where an employee commits an act of theft, embezzlement, gambling, deliberate violence causing injury, drug use within the working place, disclosure of business or technology secrets, intellectual property infringement or other conduct that is seriously detrimental to the assets or interests of the enterprise;
2. Where an employee, who is disciplined by extension of the period for wage increase or demoted, commits another offence during the applicable disciplinary period; or
3. Where an employee takes an accumulated five days off in one month or an accumulated 20 days off in one year without proper reasons.

Proper reasons are defined as natural disasters or a fire, employee’s illness, illness of employee’s family members certified by a medical establishment and any other cases as stipulated in the employer’s ILRs.

• In addition to conforming to one of the above legal bases for dismissal, the employee’s act of misconduct must also be set out in the employer’s ILRs, which are registered with the labour authority. If the employer lacks ILRs, it is prohibited from undertaking any disciplinary action, including dismissal.

          Redundancy

• Redundancy is recognized as a legal ground for termination under the following circumstances:

1.  Organizational restructuring or change of technology, which is defined as:

• Change of organisational structure, re-organisation of employment;
• Change of products, product structure;
• Change of technology process, machinery, equipment related to the manufacturing activity and the business of the employer;

1. Economic reasons, which is defined as:

• Economic crisis and economic recession; or
• Implementation of the governmental policy on restructuring the economy or implementation of international commitments.

1. Merger, consolidation or division of an enterprise.

• Since “economic reasons” was only introduced as a ground for redundancy in 2013, and its definition is vague, we recommend relying on an additional legal ground for the redundancy to the extent possible.
• Where the legal basis of organizational restructuring or change in technology or economic reasons are relied upon and two or more employees will be retrenched, the employer must formulate a labour usage plan in consultation with the corporate trade union, or if one does not exist, the immediate upper level trade union.

Protected Employees

• The employer is not permitted to unilaterally terminate the labour contract with an employee in the following circumstances:

1. An employee is ill or suffered a work-related injury or illness, is being medically treated, except for the case where the employee is ill or injured and remains unable to work after having received treatment for a period of 12 consecutive months in the case of an indefinite term labour contract, or six consecutive months in the case of a definite term contract, or more than half the duration of the contract in the case of a short-term labour contract;
2. The employee is on annual leave, personal leave, or any other type of leave agreed by the employer;
3. A female employee is getting married, pregnant, is on maternity leave or is raising a child under 12 months;
4. The employee who is on leave pursuant to the parental leave regime as prescribed by the Law on Social Insurance.

Consequences of Unlawful Termination by the employer

• If the employer unlawfully terminates a labour contract and the employee brings a wrongful termination lawsuit and wins, the employer would be responsible for:

1. Reinstating the employee and paying compensation equal to the amount of wages, statutory insurance contributions for the period the employee was not allowed to work, plus at least two months' wages as compensation for emotional distress;
2. Paying an additional amount of compensation equal to at least two months’ wages in addition to the above mentioned compensation and the severance allowance (if applicable) if the employee and employer agree that the employee will not come back to work;
3. Negotiating to amend or supplement the labour contract if the job agreed in the labour contract no longer exists while the employee still wishes to do that job, in addition to the payment of salary, statutory insurance contributions for the period the employee was not allowed to work and at least two months’ wages pursuant to the labour contract;
4. If the employer failed to give notice as required under the Labour Code, paying compensation to the employee in an amount equal to the wages that would have been paid to the employee if he or she had been notified as required under the law.

c. Grounds for the employee’s unilateral termination of labour contract

• In Vietnam, like employers, employees are also restrained in their ability to terminate the labour contract.  Employees working under definite-term or seasonal contracts may only unilaterally terminate their labour contracts in the following circumstances:

1. The employee is not assigned the correct job or workplace, or is not ensured the working conditions agreed in the labour contract;
2. The employee is not paid in full or on time as agreed in the labour contract;
3. The employee is mistreated, sexually harassed, or is subject to labour coercion;
4. The employee is unable to continue performing the contract due to personal or family difficulties;
5. The employee is elected to do fulltime public office duties in a body elected by the people or is appointed to a position in the State body;
6. A female employee is pregnant and must cease working as advised by a medical establishment; and
7. The employee is ill or injured and remains unable to work after having received treatment for 90 consecutive days in the case of work under a definite term labour contract, or for a quarter of the duration of the contract in the case of work under a short term labour contract with a duration of less than 12 months.

• An employee working under an indefinite term labour contract has the right to unilaterally terminate the contract, but must provide the employer with at least 45 days' advance notice, except in the case of pregnant female employees with a certificate from a medical consulting or treating establishment certifying that continued employment would adversely affect her fetus.

• If the employee fails to unilaterally terminate labour contract in compliance with said regulations, the employee bears the responsibility to:

1. Compensate the employer with an amount equivalent to half a month’s salary under the employee’s labour contract;
2. If the employee failed to give notice as required under the law, to pay the employer an amount equivalent to salary payable to the employee over the required notice period; and
3. Reimburse the employer for any training and education costs.

In this case, the employee is not entitled to severance allowance.

2.7 Work Permit, Work Visa and Temporary Residential Card for foreign employees

• All foreigners working in Vietnam must be granted a proper Work Permit (“WP”) or Confirmation on WP exemption, except for the following cases:

1. foreigners entering Vietnam holding the positions of experts, managers, chief executive officers or technicians for a period of under 30 days and an accumulated working period of under 90 days per year;
2. foreigners entering Vietnam for a period under three months to offer services for sale; or
3. foreigners entering Vietnam for a period of under three months to deal with complicated technical or technological problems that adversely impact or are at risk of exerting adverse impacts on production and business activities and these problems cannot be handled by Vietnamese and foreign experts who are currently in Vietnam.

• The WP or Confirmation on WP exemption is for a maximum term of two years, but can be renewed upon its expiry.

• After being granted a WP or Confirmation on WP exemption, the foreign employee must apply for a work visa for residence in Vietnam, which usually has a term of 12 months. The foreign employee may also apply for a Temporary Residential Card, to replace the work visa, and would be valid for a maximum of two years (i.e., the same as the term of the WP or Confirmation on WP exemption).

3.1 Statutory Insurance

• Employers and employees must contribute to statutory insurance as follows:

• The employers’ social insurance contribution (i.e., 17.5%), is divided among the various social insurance regimes as follows: 3% is allocated to the sickness and maternity fund, 14% is allocated to the retirement and survivorship allowance fund and 0.5% is allocated to labour accident and occupational disease fund.  The portion contributed by employees (i.e., 8%) goes towards the retirement and survivorship allowance fund.

• The calculation of social, health and unemployment insurance contributions is currently based on the contractual salary and allowances, but these amounts are subject to caps. For social and health insurance, the capped amount for contribution is 20 times the GMW, which has been VND 1,390,000 since 1 July 2018, meaning the capped salary is VND 27.8 million. Unemployment contributions are capped at twenty (20) times the regional minimum wage, so is currently VND 79.6 million for Region I, which includes HCMC and Hanoi.

Foreigners’ Participation in Statutory Insurance

• Foreign employees currently participate in health insurance in the same manner as Vietnamese employees, but do not participate in unemployment insurance.

• As of 1 December 2018, foreign employees will also participate in social insurance.  However, from the period from 1 December 2018 until 31 December 2021, foreign employees will only participate in the short-term social insurance regimes which are maternity, sickness and occupational accidents and diseases.  During this phase, only employer-side contributions will be due, at 3.5%, subject to the capped salary of VND 27.8 million.  As of 1 January 2022, foreigners will fully participate in social insurance at the same rates applicable to Vietnamese employees.  Please see the table below providing an overview of the applicable contribution rates: