Managing Contracts and Severance in Vietnam

Issue 28

•

December 2016

•

ietnam

riefing

• The employee reaches the legal age of

retirement;

• The employee is sentenced to prison;

• The employee dies;

• The employee is ruled to have lost the capacity

to act in a civil capacity;

• Layoffs related to economic conditions or

structural changes to the company including

merger, acquisition, consolidation, or division;

• Unilateral termination on the part of the

employee; or

• Unilateral termination on the part of the

employer.

Grounds for unilateral termination

Of all the categories of termination that are

listed above, unilateral termination of contracts

should be watched closely. Primarily to protect

operations from turnover, but also to maximize

staffing opportunities, it is important for employers

to understand the circumstances under which

unilateral termination of work contracts – both

from an employer and employee perspective –

may occur.

Notice

Both employers and employees are required to

give notice to their counterparty if they wish

to terminate a labor contract pursuant to one

or more reasons listed above. The length of the

notice period differs slightly between employers

and employees and is dependent on the type of

contract that both parties are signatories.

Post-employment

financial obligations

In the event that a labor contract is terminated,

employers may be liable for severance payment to

the employee in question. The nature of severance

payment is dependent on the salary of a given

employee, the amount of time that the employee in

question has beenworking in their current position,

and the amount of time the employee has been

covered under social insurance.

Termination compliance for employers

When terminating employees, employers will

be required to notify the employee in question

in accordance with the schedule that is outlined

above. As indicated, at least 15 days’ notice must

also be given to workers whose services will no

longer be engaged following the expiry of a definite

term labor contract.

Following the last day of an employee’s work at

the company in question, the employer will have

seven days tomake any and all payments pursuant

to severance or job loss benefits outlined below.

Severance

Triggering severance

Eligibility for severance payments is open to all

employees who have been working for a company

for 12 months or longer. Severance payments will

be required in instances where an employer or

employee can prove that one or more general

termination triggers or unilateral termination

provisions have occurred during employment.

Severance payments

Under the Vietnamese Labor Code, severance

compensation shall amount to half amonth’swages

for every year that the employee has beenworking.

For example, an employee that had been with a

company for three years would be eligible for one

and a half months’ pay.

Calculating wages

The level of pay that is to be paid to the employee

will be calculated by looking at the payments

during the preceding six months that are outlined

in the labor contract.

Social insurance deductions

It should be noted that employers may be eligible

to deduct social insurance payments from the

total severance payout. To ascertain the conditions

and specifics surrounding these deductions, it is

recommendedthatofficialsandseasonedinvestment

professionals be consulted for information on the

latest official guidance on the matter.

Statutory Periods of Termination Notice under Vietnamese Labor Law

Contract Structure

Employer

Employee

Seasonal

3 working days

Definite term

30 days*

30 days

Indefinite term

45 days

*Note: the employer must provide the exact date and time fromwhich a contract will no

longer be valid 15 days in advance of a definite term contract which will be allowed to expire.