Termination of the Labour Contract Under Vietnamese Labour Law
Terminating a labour contract in Vietnam is rarely a simple administrative step. Whether the initiative comes from the employer or the employee, Vietnamese labour law imposes strict conditions on the grounds for termination, the notice period to be observed, and the financial obligations that follow. Employers who overlook these requirements expose themselves to claims for reinstatement, back pay, and compensation, while employees who terminate unlawfully risk losing their severance entitlements and may even have to reimburse training costs advanced by the employer. Understanding the full framework — not just the headline rule that “45 days’ notice is required” — is therefore essential for both sides of the employment relationship. This article expands on the general grounds for termination, the payments due to employees, and the specific conditions under which an employer may lawfully end a labour contract unilaterally.
Why the distinction between termination grounds matters
Vietnamese labour law does not treat all terminations equally. The law distinguishes between terminations that occur automatically or by mutual consent (such as expiry of the contract term, completion of the agreed work, or agreement between the parties) and terminations that are unilaterally imposed by one party against the wishes of the other. This distinction is not merely academic — it determines whether a notice period must be observed, what payments are owed, and whether the termination can later be challenged as unlawful.
In the first category — expiry of contract, completion of tasks, mutual agreement, imprisonment or a court-imposed prohibition on performing the job, or the employee’s death or court declaration of disappearance — no notice is required because the employment relationship ends by operation of law or by consensus rather than by a unilateral act. In these situations, the employee is generally entitled to a severance allowance equal to half a month’s salary for each year of employment, subject to the important carve-out that no severance is payable for years during which compulsory unemployment insurance contributions were made. Since compulsory unemployment insurance became mandatory for enterprises with ten or more employees from 1 January 2009, in practice this means severance allowance calculations today usually cover only a residual period — for example, service prior to the introduction of unemployment insurance at a given employer, or periods explicitly excluded from unemployment insurance coverage.
Unilateral termination: a stricter, more contested category
Unilateral termination — by either the employer or the employee — is treated far more cautiously by the law because it involves one party unilaterally ending a relationship that the other party may wish to continue. For this reason, the law limits the permissible grounds, mandates specific notice periods, and attaches consequences for non-compliance.
From the employee’s side, a worker under an indefinite-term contract may resign at any time for any reason, provided 45 working days’ prior notice is given. This flexibility reflects the general policy of Vietnamese labour law to protect employees’ freedom to change employment. Employees under a definite-term contract, however, do not enjoy the same latitude: they may terminate before the contract’s expiry only for specific reasons enumerated in the Labour Code, such as prolonged illness or other statutorily recognised circumstances, and the applicable notice period (3 or 30 working days) depends on the ground invoked. An employee who resigns from a definite-term contract without falling within one of these permitted grounds is considered to have terminated unlawfully, and faces a three-fold “penalty”: payment of compensation equal to half a month’s salary, forfeiture of the severance allowance that would otherwise have been due, and an obligation to reimburse any training expenses the employer had invested in that employee. This last consequence is particularly significant for employers who sponsor employees for professional qualifications, overseas training, or specialised certifications, since it gives the employer a contractual and statutory basis to recover sunk training costs if the employee leaves prematurely and without lawful cause.
Employer-initiated termination: notice periods tied to contract term and reason
On the employer’s side, unilateral termination is subject to even tighter constraints, since Vietnamese labour law is generally protective of employees against dismissal. An employer may only terminate unilaterally for reasons expressly recognised by law, and the required notice period — 3, 30, or 45 working days — varies depending on both the term of the labour contract and the specific ground relied upon. A shorter three-day notice period typically applies to more serious or urgent grounds (for instance, situations analogous to prolonged unauthorised absence or comparable circumstances specified by law), while the standard 30-day period applies to definite-term contracts and the 45-day period applies to indefinite-term contracts terminated on ordinary grounds.
The financial consequences of employer-initiated termination also differ depending on the underlying reason. Where the termination results from ordinary performance-related or contractual grounds, the employee is generally entitled to the standard severance allowance of half a month’s salary per year of service (again, net of any years covered by compulsory unemployment insurance). However, where termination for certain grave employee misconduct is legally justified, the severance allowance may be forfeited entirely — reflecting the law’s view that an employee dismissed for serious wrongdoing should not benefit from the same allowance as an employee whose position was simply eliminated. Conversely, where termination arises from business restructuring, technological change, or similar operational reasons attributable to the employer rather than to the employee’s conduct, the employee is entitled to a job-loss allowance calculated at one month’s salary per year of employment, subject to a statutory minimum of two months’ salary — a materially more generous entitlement than the ordinary severance allowance, reflecting the fact that the employee bears no fault for the loss of employment.
This layered structure — different notice periods and different allowances depending on which specific ground is invoked — means that employers cannot simply assert “termination” as a blanket justification. Each dismissal must be mapped precisely to one of the recognised statutory grounds, with the correct notice period observed and the correct allowance calculated and paid. Getting this wrong is one of the most common sources of labour disputes in Vietnam, since an employee who believes the termination was improperly characterised, under-notified, or under-compensated has strong grounds to challenge the dismissal before the competent labour authorities or courts.
Consequences of unlawful unilateral termination
Where an employer’s unilateral termination is later found to be unlawful — whether because the ground invoked did not actually exist, the notice period was too short, or the internal procedure was defective — the consequences are considerably more severe than simply having to pay the ordinary severance or job-loss allowance. The law requires the employer to reinstate the employee to the original position under the original labour contract, to pay wages for the entire period during which the employee was unlawfully kept out of work, and to make good the compulsory social insurance, health insurance, and unemployment insurance contributions that would otherwise have accrued during that period. On top of this “back pay” package, the employer must also pay an additional sum equivalent to at least two months’ salary as a statutory penalty for the unlawful act itself. If the employee, once reinstated, no longer wishes to continue working — a common and understandable outcome after a contentious dismissal — the employer must instead pay a further sum of at least two additional months’ salary in lieu of reinstatement, on top of the job-loss or severance allowance otherwise due. In practice, this stacking of remedies means that an employer who miscalculates a termination can end up paying several times more than if the dismissal had simply been characterised, notified, and compensated correctly from the outset.
The mirror-image scenario also exists on the employee side. Where an employee unilaterally terminates the labour contract without a lawful ground or without observing the required notice period, the employee is not entitled to any severance allowance, must compensate the employer for any damage caused by the breach — including, in some circumstances, an amount equivalent to half a month’s salary — and must reimburse training costs where these were contractually agreed and the departure occurred before the committed period of service expired. This is precisely the counterpart to the “sunk training cost” risk noted at the outset: the law gives employers a genuine, enforceable remedy against employees who leave prematurely, but only if the training agreement was properly documented and the departure genuinely falls outside any lawful ground for unilateral resignation.
Statutory requirement versus how the requirement is actually tested
On paper, the statutory framework reads as a relatively mechanical checklist: identify the correct ground, apply the correct notice period, calculate and pay the correct allowance, and the termination should stand. In practice, however, labour dispute resolution bodies tend to scrutinise the substance behind each of these steps far more closely than the checklist itself suggests, and this is where the gap between “law as written” and “law as applied” becomes commercially significant. The statute permits termination for grounds such as an employee’s failure to meet performance criteria, provided those criteria were set out in advance in an internal regulation or in the labour contract itself. In dispute resolution practice, however, the mere existence of a performance policy on paper is rarely sufficient; the employer is typically expected to show a documented, contemporaneous evaluation process — performance reviews, warnings, or improvement plans that were actually communicated to the employee — rather than an evaluation criterion invoked retrospectively, after the decision to terminate has already been made. Employers who treat the “performance ground” as a formality to be satisfied after the fact, rather than a standard to be applied and documented in real time, frequently find that what looked like a straightforward, well-notified dismissal on paper is reclassified as an unlawful unilateral termination once tested, exposing the employer to the full stack of reinstatement, back pay, and penalty payments described above rather than the modest severance allowance it had budgeted for.
A similar gap appears around the procedural side of termination for serious misconduct. The law permits forfeiture of the severance allowance where dismissal is based on defined serious violations, but it also requires that the internal disciplinary procedure — notice to the employee, the right to be heard, and the presence of the required participants — be followed with some rigor. In practice, this procedural layer is often where employer-initiated terminations fail even when the underlying misconduct itself is not seriously disputed. An employer that has clear evidence of an employee’s wrongdoing but skips or compresses the disciplinary meeting, fails to give adequate advance notice of the meeting, or does not properly document the employee’s opportunity to respond, risks having the termination invalidated on procedural grounds alone — with the underlying misconduct becoming legally irrelevant to the outcome. This distinction between substantive justification and procedural compliance is one that businesses operating in Vietnam, particularly those accustomed to more flexible at-will termination regimes elsewhere, tend to underestimate until they are already in dispute.
Practical implications for drafting and internal process
The practical upshot of this gap between statutory drafting and dispute-resolution practice is that termination decisions should never be treated as a single administrative act performed at the moment of dismissal. They are, in effect, the final step of a process that needs to be built well in advance: internal labour regulations and performance criteria need to be adopted, properly promulgated, and consistently applied long before any specific termination is contemplated; disciplinary and performance issues need to be documented as they occur rather than reconstructed afterwards; and the choice of statutory ground, notice period, and allowance needs to be mapped out and cross-checked against the contract term and the employee’s actual insurance history before notice is given, not after. Because the financial exposure of getting this wrong is not limited to the allowance itself but extends to reinstatement, full back pay, and statutory penalties, the cost of front-loading this diligence is, in almost every case, far lower than the cost of defending — or losing — a wrongful termination claim after the fact.
Frequently asked questions
Is the Labour Code the same as a company’s internal labour regulations?
No. The Labour Code is the national statute that sets the outer boundaries of what an employer may and may not do — the grounds on which a contract may be unilaterally terminated, the minimum notice periods, and the conditions under which a severance allowance is owed or may be forfeited. Internal labour regulations are a separate, employer-drafted document that operationalises those statutory boundaries inside a specific business: the performance criteria used to judge underperformance, the categories of conduct treated as serious violations, and the disciplinary steps to be followed. As discussed above, a termination that is technically permitted under the Labour Code can still be struck down if it is not also supported by internal regulations that were properly adopted and consistently applied before the incident in question. The two instruments have to line up; neither one substitutes for the other.
What is the practical difference between the Labour Code and the Labour Contract when a dismissal is being challenged?
The Labour Contract is the individual agreement between employer and employee — it fixes the contract term, the position, and the terms that determine, among other things, whether the employee falls into a fixed-term or indefinite-term category for severance purposes. The Labour Code is the statute against which that contract, and any termination of it, is measured. In a dispute, a labour tribunal will not simply ask what the contract says; it will ask whether the termination — and the contract terms invoked to justify it — comply with the Labour Code’s requirements on notice, grounds, and allowance calculation. A Labour Contract clause that conflicts with the Labour Code’s mandatory provisions will not protect an employer, which is why, as noted in the previous section, contract terms need to be cross-checked against the statute before notice is given, not treated as self-sufficient.
Does a trade union representative have to be present when an employee is disciplined for serious misconduct?
Yes, and this is precisely the kind of procedural requirement that businesses tend to underestimate. As set out above, the internal disciplinary procedure for dismissals based on serious misconduct is not limited to giving the employee advance notice and an opportunity to respond — it also requires the presence of the participants the law specifies for that meeting, which includes trade union representation of the employee. Where that participation is skipped, compressed, or inadequately documented, the resulting termination is exposed to being invalidated on procedural grounds alone, regardless of how well-evidenced the underlying misconduct is. Employers should treat trade union involvement as a mandatory checklist item to be confirmed and recorded before, not after, the disciplinary meeting is held.
If the Labour Contract has already expired, does the employer still need to follow the Labour Code’s termination procedure?
Natural expiry of a fixed-term Labour Contract is a different scenario from a unilateral termination, and it does not trigger the same disciplinary procedure discussed above — there is no misconduct being adjudicated, so there is no need for a disciplinary meeting or trade union presence. However, the Labour Code still governs the consequences of that expiry, including whether a severance allowance is due and how it should be calculated by reference to the employee’s actual working and insurance history. Employers should not assume that reaching the end date of a Labour Contract closes the matter administratively; the allowance calculation still needs to be checked against the statute before final settlement is paid.
Getting termination decisions right before they are made
The recurring theme across the grounds for termination, the severance allowance, and the disciplinary procedure is the same: Vietnamese labour law rewards employers who plan the termination before it happens and penalises those who try to justify it afterwards. The Labour Code sets the statutory framework, the Labour Contract fixes the individual terms that framework has to be checked against, and internal labour regulations and trade union procedures fill in the operational detail that tribunals actually scrutinise in a dispute. Getting any one of these pieces wrong — an unverified insurance history, a disciplinary meeting held without the required participants, an internal regulation that was never properly promulgated — can turn an otherwise defensible termination into a costly one.
Unilaw advises businesses operating in Vietnam on structuring termination decisions, severance calculations, and internal disciplinary procedures so that they hold up under scrutiny, and on resolving labour disputes where a termination is already being challenged. If your business is planning a termination, reviewing its internal labour regulations, or facing a labour dispute, contact Unilaw for advice tailored to your specific situation.
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