TERMINATION OF THE LABOUR CONTRACT

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The employment relationship ends in the following cases:

Reason for termination Prior notice Payments to employee
Expiry of the labour contract No notice requirement Severance allowance of 1/2 month’s worth of salary for each year of employment (*)

 

 

 

 

       

Tasks stated in the labour contract have been completed
Both parties agree to terminate the labour contract
Employee is sentenced to serve a prison term or is prevented from performing his or her former job by a judgment or decision of a court
Employee dies or is declared missing by a court
Lawful unilateral termination by the employer 3 or 30 or 45 working days depending on the term of the labour contract and the reason for termination. Depending on reason for termination, one of the following allowances applies (*):

 

§ Severance allowance of 1/2 month’s worth of salary for each year of employment (no severance allowance in case of termination for certain grave misconduct on the side of the employee)

 

§ Job-loss allowance of 1 month’s worth of salary for each year of employment but at least 2 months’ worth of salary (if termination is due to business restructuring)

Lawful unilateral termination by the employee Definite term labour contract: 3 or 30 working days, depending on the reasons for termination

 

Indefinite term labour contract: 45 working days. If termination due to prolonged illness: 3 working days

Severance allowance of 1/2 month’s worth of salary for each year of employment. (*)

(*) No severance allowance or job-loss allowance has to be paid for years in which contributions to compulsory unemployment insurance were made. Compulsory unemployment insurance was introduced with effect as from 1 January 2009 and applies to businesses with 10 or more employees.

An employee can unilaterally terminate a definite term labour contract prior to the expiry of the term only for specific reasons stated in the Labour Code (e.g. prolonged illness). The “penalty” for an employee who unlawfully terminates a labour contract consists in (i) payment of 1/2 month’s worth of salary as compensation, (ii) loss of the severance allowance, (iii) obligation to repay training expenses. The employee can terminate an indefinite term labour contract any time without any reasons by giving 45 working days prior notice.

An employer can unilaterally terminate a labour contract (independent of whether its term is definite or indefinite) only for the following reasons:

Reason for unilateral termination by the employer Consent of the trade union / notification to DOLISA required?
The employee repeatedly fails to perform the work in accordance with the terms of the labour contract (2 warning letters within one month required) yes
Disciplinary dismissal (see “Disciplinary actions”) yes
Prolonged illness (12 months or more in case of an indefinite term contract; 6 months or more in case of a definite term contract) yes
Production is reduced due to force majeure no
Organizational restructuring or technological changes yes
Termination due to merger, consolidation, division, separation, transfer of ownership of assets yes
Enterprise ceases operation no

If there is no trade union in an enterprise but the law requires trade union involvement, the employer must ask the higher-level union to set up a temporary union executive committee to participate in the procedure.

If the consent of the trade union is required and the trade union refuses to grant its consent, the employer must notify DOLISA accordingly and can go ahead with the procedure for terminating the employment contract 30 days after the notification.

Whether it is possible for an employer to reduce staff if the amount of work is reduced (e.g. due to less orders coming in) is a gray area. The present Labour Code states that “organizational restructuring or technological changes” can be grounds for reducing staff. The employer must select staff whose employment contracts are to be terminated on the basis of business requirements, seniority, skills, family conditions. The consent of the trade union (Labour Code 2013: “consultation with the trade union”) and prior notification of DOLISA are required. The employer has to pay a job-loss allowance equivalent to one month’s worth of salary for each year of employment (minimum amount: 2 months’ worth of salary); no job-loss allowance has to be paid for years which are covered by unemployment insurance.

The consequences of unlawful termination on the part of the employer are as follows:

If only the notice period was too short, the employer has to pay to the employee an amount equivalent to the salary for the missing days.

In all other cases, one has to distinguish as follows:

Payment of 2 months’ worth of salary as compensation Payment of the salary for the period in which the employee was not allowed to work Payment of a severance allowance of 1/2 month’s worth of salary (*) Additional compensation agreed by the parties
Employee agrees to return to work yes yes no no
Employer asks employee to return to work, but employee refuses yes yes yes no
Both employer and employee agree to discontinue the employment relationship yes yes yes yes

(*) No severance allowance has to be paid for years in which contributions to compulsory unemployment insurance were made. Compulsory unemployment insurance was introduced with effect as from 1 January 2009 and applies to businesses with 10 or more employees.

If the termination is unlawful and the employer does not wish the employee to return to work, it must reach an agreement with the employee to this effect. It is not possible under Vietnamese law for an employer to unilaterally prevent the employee from returning to the enterprise if the termination of the employment contract was unlawful.

Unlawful termination can be quite expensive for the employer: If the employee takes the case to court, it can take a lot of time until a final judgment is issued. If the court rules that the termination was unlawful, the employer has to pay the salary for the period in which it did not allow the employee to work/.