The Process of Terminating a Labor Contract in Vietnam

Recent turbulence in the global labor market, including “mass layoffs” across leading corporations, has highlighted the importance of understanding the legal framework surrounding labor contract termination. As businesses in Vietnam face economic challenges, it is crucial to grasp the circumstances under which labor contracts can be terminated, the processes and procedures involved, and the financial and other obligations that must be fulfilled.

Contract termination triggers

The termination of a labor contract can arise from various objective and subjective reasons from both the employer and the employee. Both employer and employee can unilaterally terminate a contract.  If an employer wants to end an indefinite contract or one that lasts 12 months or more, they need to let the employee know at least 120 days in advance. For contracts shorter than 12 months, the warning period should be at least one-fourth of the contract’s total length.

Employees have the right to quit without any notice if they’re mistreated, pregnant, or if their employer doesn’t pay them on time.

13 common reasons for ending contracts, as stated in Vietnam’s labor laws, include: 

1. When the labor contract reaches its agreed-upon expiration date, the employer and employee must follow specific procedures to either extend or terminate the contract.
2. If the job or task specified in the labor contract is completed, the contract can be terminated.
3. The employer and employee can mutually agree to terminate the labor contract at any time.
4. Employee’s legal issues (jail term, death penalty, deportation)
5. Employee’s death or loss of legal capacity
6. Employer’s death or loss of legal capacity
7. Employer’s operational termination (due to economic reasons or restructuring)
8. Employee’s dismissal due to disciplinary action as outlined in the Labor Code.
9. Employee’s unilateral termination under certain circumstances, such as being subjected to workplace abuse or not receiving their agreed-upon wages.
10. Employer’s unilateral termination, but they must follow specific procedures and provide justified reasons as per the Labor Code.
11. Changes in organizational structure
12. Expiration of foreign employee’s work permit
13. Probationary work failure

The process of terminating a labor contract in Vietnam

The process of terminating a labor contract in Vietnam varies depending on the specific circumstances and the type of contract.

Labor Contract Expiry

When a labor contract reaches its expiry date, the process for termination is quite straightforward. 

• Notify the employee in writing about the expiration of the labor contract at least 15 days before the expiration date.
• If the employee is a member of the leadership board of the employee representation organization in tenure, the employer must extend the contract until the end of the employee’s term.

Unilateral Termination Due to Employee’s Poor Performance

In cases where the employer wishes to terminate the labor contract due to the employee’s poor performance, the process involves several steps:

1. Establish and agree on specific performance criteria with the employee.
2. Seek opinions from the employee representation organization (if any) before terminating the contract.
3. Providing the employee with advance notice of the termination, with the required notice period depending on the type of contract (45 days for indefinite-term contracts, 30 days for definite-term contracts of 12-36 months, or 3 days for contracts under 12 months).

Restructuring Leading to Termination

When an employer’s organizational restructuring leads to the termination of labor contracts, the process includes the following steps:

1. Issuing a formal decision regarding the restructuring.
2. Compiling a list of employees who will be retrained or retrenched.
3. Establishing a labor usage plan to manage the transition.
4. Conducting dialogues with the affected employees and gathering their opinions.
5. Notifying the local labor authorities at least 30 days in advance.
6. Notifying the affected employees about the retrenchment at least 30 days in advance.
7. Settling all financial obligations within 30 days of the termination.

The allowance for an employee whose labor contract is terminated in this scenario is equivalent to one month’s salary for every year of employment, with a minimum of two months’ salary

Disciplinary Dismissal

If an employee’s dismissal is due to a disciplinary violation, the employer must strictly adhere to the procedures outlined in the Labor Code and related regulations, including:

• Documenting the specific behaviors that constitute a violation, as outlined in Article 125 of the Labor Code 2019.
• Strictly following the procedures described in Article 70 of Decree 145/2020/ND-CP, such as making violation minutes, holding disciplinary meetings with compulsory participants, and issuing disciplinary decisions within the statute of limitations.

Financial and Other Obligations

Regardless of the reason for termination, the employer has certain financial and other obligations to fulfill:

• Fully settling all financial obligations, including unpaid wages, social insurance contributions, and other benefits, within 14 working days from the date of termination. This period can be extended to 30 days in some cases.
• Fulfilling other obligations as stipulated in Article 48 of the Labor Code 2019, such as providing the employee with a certificate of employment upon request.

Navigating the complex landscape of labor contract termination in Vietnam can be a challenging task for employers. Talentnet offers a range of compliance services designed to help businesses in Vietnam stay in line with local HR regulations. These services are tailored to ensure that businesses can handle HR administration and HR-related issues compliantly, with a focus on local expertise and international standards of confidentiality and security. 

Talentnet’s experience in the local market positions them as a valuable partner for companies navigating the complexities of regulatory compliance. By partnering with Talentnet, employers can ensure that they terminate labor contracts in a legally compliant and employee-friendly manner, maintaining positive relationships with their workforce and avoiding potential legal issues.