EMPLOYMENT

Following the promulgation of the Labour Code in June 1994 (as amended), a series of implementing regulations have been issued to govern particular areas of labour law, including labour contracts, employment procedures , working hours and salary (referred to collectively as the "Labour Code"). The Labour Code can be complex, and some foreign firms have found it difficult to comply with its requirements.


EMPLOYMENT

(April 2007 Update)



Following the promulgation of the Labour Code in June 1994 (as amended), a series of implementing regulations have been issued to govern particular areas of labour law, including labour contracts, employment procedures, working hours and salaries/remuneration (referred to collectively as the "Labour Code"). The Labour Code can be complex, and some foreign firms have found it difficult to comply with its requirements.

1. Recruitment

Under the Labour Code, FICs are allowed to recruit Vietnamese employees directly or through a recruitment centre. Before recruiting, FICs are required to make a public announcement (on either local or central mass media) and post at their head office their recruitment requirements such as job description, qualifications, number of labourers to be recruited, contract term, salary and working conditions. Within seven days of each recruitment, FICs are required to provide a list of recruited labourers to the DOLISA.

International or foreign organisations and companies, including representative offices and branches in Vietnam, are required to recruit Vietnamese employees through a recruitment centre. In the event that the recruitment centre fails to supply the required candidates within 15 days of request, the representative office or branch is entitled to recruit employees directly.

Where highly technical, managerial or other qualifications are required for which Vietnamese personnel are not available, a FIC may recruit expatriates. However, there must be a training programme to allow Vietnamese employees to eventually replace such expatriates. Vietnamese law recently imposed a cap on the total number of expatriate employees, which cannot now exceed 3% of the total workforce. However, an FIC may, in limited circumstances and on a case by case basis, employ more expatriates if it obtains approval from the Chairman of the provincial People's Committee. Certain employers are not subject to the 3% cap. However, they can only employ foreigners if this is approved by the Chairman of the provincial People's Committee.

2. Labour Contracts

A labour contract must, with the exception of contracts with a term of less than 3 months, be in writing and signed directly between an employee and the legal representative of the employer. The contract must be made in the standard form issued by the MOLISA. The contract must contain the following details: work to be carried out, working hours and length of break, wage, work place, term of contract, health and safety provisions, and social insurance. The standard form also contains a provision allowing the employer to specify further employment terms and conditions.

The contents of a labour contract must be in compliance with the laws of Vietnam and the collective labour agreement of the relevant company if there is one.

Obligations of employees

The MOLISA standard form employment contract does not contain provisions designed to protect the interests of employers. To overcome this problem, a company should consider the following steps

1.

specify additional employment terms and conditions for particular employees, including major obligations such as non-disclosure of business information and trade secrets; non-competition (working for or advising the employer's competitors); and code of conduct (receipt of gifts, financial incentives, and so on); and
2.

create a set of working rules ("Working Rules") which set out the obligations and requirements applicable to all employees (which provisions would generally be too voluminous to include in the (rather short) standard contracts).

Signing of a labour contract together with the employer's Working Rules maximises the protection for employers and provides them with remedies under law. In the absence of these documents, it may be difficult for an employer to dismiss the employee who breaches the labour regulations.

Types of labour contracts

The Labour Code introduced three types of labour contracts:

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non-fixed term labour contract;
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fixed term labour contract (from 12 to 36 months); and
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"seasonal" labour contract (less than 12 months).

One problem concerning non-fixed term labour contracts is that a company can only terminate such a contract in the very limited circumstances provided for in the Labour Code. Many companies previously entered into multiple one-year labour contracts to allow termination upon expiry. However, the recent amendment to the Labour Code only permits a company to enter into more than two fixed-term labour contracts with an employee in the following circumstances:

1.

where the first fixed-term labour contract has expired but the employee continues to work, a new labour contract must be signed within 30 days from the expiry date of the first contract;
2.

if the parties fail to sign a new labour contract by the expiry of that 30-day period and the employee continues to work, the first fixed-term labour contract will automatically become a non-fixed term labour contract;
3.

if a new fixed-term labour contract is signed, the duration of this second contract must not exceed 36 months; and thereafter, if the employee continues to work, a non-fixed term labour contract must be signed.

Probationary period

A probationary period can be applied before execution of a labour contract. During the probationary period, either party can terminate the employment contract without prior notice. The probationary period must be:

1.

no more than 60 days, for positions requiring college level qualifications;
2.

no more than 30 days, for positions requiring vocational level qualifications; and
3.

no more than 6 days for manual employment labour.

3. Termination of Employment

Unilateral termination

The Labour Code only allows unilateral termination of a labour contract in limited circumstances, irrespective of any mutual agreement or other circumstances. There are different procedures for termination by employers and employees. Generally, a party terminating a labour contract unilaterally must give prior notice of termination to the other party.

Unilateral termination by an employee

An employee who signs a labour contract with a fixed term of 12-36 months, or for seasonal work or a specific task of less than 12 months, is entitled to unilaterally terminate the contract prior to expiration if the employee:

1.

is not assigned to the work or workplace, or working conditions that are not as agreed under the labour contract;
2.

is not paid the full amount or at the time specified in the labour contract;
3.

is subject to maltreatment or forced labour;
4.

cannot continue their employment due to adverse personal or family difficulties;
5.

is elected to a full-time position in a representative public office or is appointed to an office in the State apparatus;
6.

is sick or involved in an accident requiring medical treatment for either three consecutive months in respect of a fixed-term labour contract of 12 months to 36 months, or a quarter of the contract term in respect of a seasonal job or a specific job with a term less than 12 months; or
7.

in the case of female employees, is pregnant and must stop working based on the advice of a doctor.

An employee who signs a non-fixed term labour contract is entitled to unilaterally terminate the contract whenever he/she wishes so, provided that a 45 day prior notice is duly given to the employer.

Unilateral termination by an employer

It is difficult for employers to unilaterally terminate labour contracts in Vietnam. During the term of a labour contract, unilateral termination by an employer is permitted only in the following circumstances:

1.

the employee regularly fails to perform his contractual duties;
2.

the employee is dismissed for disciplinary reasons;
3.

the employee has been sick for an extended period (6 months or 12 months depending on the term of the employment contract);
4.

the employer is forced to make cuts in the production and workforce due to force majeure events such as fire or natural disaster; or
5.

the company or organisation ceases operations.

The most common circumstance for unilateral termination is dismissal for disciplinary reasons. However, there are legal restrictions as well as procedural requirements of which employers should be aware when dismissing employees (see below). In addition, under items (i), (ii) and (iii) above, an employer must obtain the trade union's opinion prior to unilateral termination.

Dismissal

Dismissal is permitted only when the employee has committed one (or more) of the following acts (prescribed by Article 85 of the Labour Code):

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theft;
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embezzlement;
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disclosure of technological and business secrets;
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any act that causes severe losses to the company's assets or interest;
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repeating a breach while a disciplinary sanction remains in place for an earlier breach (this is only applicable where the sanction in question involves either a delay in awarding a salary rise to the relevant employee or the transfer of the relevant employee to another job);
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repeating a breach after being demoted for the earlier breach; or
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absence for 5 working days or more in a month or 20 working days in a year without justifiable reason.

Circular 19 of MOLISA dated 22 September 2003 provides some flexibility to employers in this regard by allowing them to set the monetary threshold applicable to the first four types of offences listed above and damage in the amount higher than such threshold will justify dismissal. While companies should pay more attention to the drafting of detailed dismissal provisions in their Working Rules, it should be noted that Official Letter 1593 dated 27 May 2005 indicates that the employee's act must have actually caused the damage to the company's assets or interests. In the absence of such a causal relationship, a dismissal based on the concept of severe damage could be challenged.

Companies should exercise caution when dismissing employees. The laws and practice of Vietnam differ from those in certain other countries. The concept of employee conflict of interests or employee loyalty is not well developed. For example, in certain other countries, an employee may be prevented from taking commission from the company's suppliers or working concurrently for both the employer and its competitors. In these countries, breaches of such corporate ethics could constitute grounds for termination. However, in Vietnam, in the absence of clearly worded obligations in the contract, the court would not interpret the Labour Code against the employee in this regard.

Dismissal procedures

Even when a company believes that it has a valid cause for dismissal, it is required to comply with the following procedures:

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there must be a disciplinary meeting among all the relevant parties, including a representative of the trade union (if any);
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the company must provide evidence of the employee's violation, and the employee should be given an opportunity to defend himself;
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minutes must be taken in any meeting regarding the matter and all the parties present at the meeting must sign the minutes;
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the company must obtain the trade union's agreement to the dismissal. If the trade union does not agree, the company must report this to the DOLISA, and delay the dismissal for another 30 days; and
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dismissal must be made within a time limit of 3 months (or 6 months in special circumstances) from the date of violation.

All dismissal circumstances must be recorded in the Working Rules of a company and such Working Rules must be registered with the DOLISA. The court often interprets the Labour Code in favour of employees and a court can reverse a dismissal based on procedural violations.

Retrenchment

A company may retrench its employees where there is an organisational restructuring or technological change, including:

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partial or complete changes of machinery or equipment or replacement by advanced technological process in order to achieve increased capacity;
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changes of product lines or structure of products leading to a reduction in the number of employees required; or
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merger or dissolution of a number of departments within the company.

Where one of the above circumstances arises, which results in the redundancy of an employee who has worked for the company for 12 months or more, the Labour Code requires the company to retrain the affected employee and to assign him/her to a new job that may be available at the company. If no new job is available, the company may terminate the employment of the redundant employee. It is unclear under the current Labour Code whether training is compulsorily required, even where the company is aware that no new job is available even after training.

The retrenchment must strictly follow procedural requirements, otherwise it would be deemed unlawful.

Result of unlawful termination of labour contract by employer

If an employer unlawfully terminates a labour contract, the employer is obliged to offer to reinstate the terminated employee into their old job in accordance with their old contract and compensate him/her for an amount equivalent to his/her salary and salary allowances (if any) for the days he/she was prohibited from working due to the termination plus at least two months salary and salary allowances (if any).

If the employee does not want to return to work for the employer, he/she will be entitled to receive severance pay equivalent to a half month salary for each year of his/her service in addition to the foregoing compensation.

If the employer does not want the employee to return to work, the employer will be obliged to pay the employee severance pay and compensation (as set out above) and an additional amount to compensate the employee for agreeing to terminate their labour contract. In practice, the employee could make use of this provision to ask for a high compensation amount in return of his/her agreement to terminate their labour contract.

4. Wages, Overtime Payments, and Statutory Minimums

The Labour Code allows foreign invested projects to denominate and pay wages to Vietnamese employees in Dong. Salaries for foreigners may be denominated and paid in foreign currencies.

The Government decides and publishes a minimum wage which varies, depending on geographical regions and types of work. In particular, FICs must not pay salaries to their employees lower than the statutory minimum wage levels applicable to untrained labourers. The current minimum wage is VND870,000 per month (approx. US$55) for employees within the urban districts of Hanoi and Ho Chi Minh City and VND790,000 per month (approx. US$50) for employees within the urban districts of Hai Phong, Bien Hoa, Vung Tau, Thu Dau Mot town and suburban districts of Thuan An, Di An, Ben Cat and Tan Uyen in Binh Duong Province. For the rest of the country, the minimum wage is VND710,000 (approx. US$45). With respect to employees who have obtained vocational training (including vocational training conducted by the relevant FIC itself), FICs are required to pay a salary at least seven per cent above the statutory minimum wage.

Overtime on a normal working day (six days of the week and non-public holidays) must be at least one and half times the normal hourly rate. On non-working days (1 day a week) overtime pay is at least twice the normal hourly pay, while overtime on public holidays and paid annual leave is three times the normal pay rate. Overtime may not exceed 4 hours a day or 16 hours a week, up to 200 hours in a year or 300 hours a year in special circumstances, for which the approval of the provincial People's Committee may be required.

A normal working week is 48 hours, comprising six 8-hour working days, but this may be extended by mutual agreement. Employees working in dangerous, noxious, or especially toxic jobs (as defined by MOLISA) will have their work day shortened to 6 or 7 hours.

An employee working for at least 12 months is entitled to annual leave of 12 days in addition to public holidays. Especially certain hazardous and toxic jobs are entitled to either 14 or 16 days annual leave as determined by the Government. An employer may set the schedule of annual leave after consulting with the Executive Committee of the local trade union and notifying his employees. Employees will be compensated for their untaken leave prior to departure from work.

An employee is entitled to paid leave for the following personal reasons: marriage (3 days' leave); marriage of son or daughter (1 day's leave); and death of parents, spouse's parents, spouse, son or daughter (3 days' leave). Female employees are entitled to maternity leave of at least 4 months, with an allowance equal to 100% of the salary to be paid by the Social Insurance Fund. At least 2 months of the maternity leave must be taken post-birth.

5. Work Permits

Expatriates working in Vietnam for 3 months or more must obtain a work permit. A work permit’s term should correspond with the length of the labour contract, which is capped at 36 months but allows extensions at an employer's request.

Before signing a labour contract with an expatriate, an FIC must apply to MOLISA or its authorised agency to obtain a work permit for that expatriate. MOLISA or its authorised agency is obliged to give its decision within 15 days of its receipt of such application. Clear reasons must be provided if the application is refused. In addition, a work permit can be withdrawn in certain circumstances, including for a breach of the laws of Vietnam by the expatriate.

Five groups of foreign employees are exempt from necessary work permits: (i) foreign employees entering Vietnam to work for less than 3 months and to resolve emergency situations for which no Vietnamese or foreigners in Vietnam is qualified; (ii) board members; (iii) heads of representative or branch offices in Vietnam; (iv) foreign lawyers certified to practise in Vietnam; and (v) foreign employees who are seconded to Vietnam to perform a contract (other than labour contracts) entered into between a foreign company or organisation and a company or organisation in Vietnam.

Seven days prior to the date of commencement of work, foreigners who are exempted from work permit requirements must be registered at the DOLISA where the employer's head office is located. The registration must state the name, age, nationality and passport number of the employee, the dates of commencement and termination of employment, and a description of the work to be done.

6. Collective Labour Agreement

An FIC must negotiate a collective labour agreement if requested by the trade union at the company. Such an agreement may only be signed if more than 50% of the employees agree to the provisions of the agreement.

The collective labour agreement covers matters such as wages for different categories of employees and working conditions. A copy of the collective labour agreement must be filed with the DOLISA within 10 days of the signing of the agreement and will come into effect from the date agreed by the parties and stated in the agreement, or from the signing date where no such date is specified. The term of the collective labour agreement can be of 1 to 3 years subject to renewals thereafter.

7. Working Rules

A company is required to issue Working Rules if it has 10 or more employees. The company's employees must be publicly notified of the Working Rules. The Working Rules are expected to form the basis on which the company disciplines employees. Grounds for termination prescribed by the Labour Code are rather restrictive, but include "conduct seriously detrimental to the assets or well being of the enterprise." A set of written and posted Working Rules serves as a good benchmark for such "detrimental conduct". The Working Rules should contain provisions relating to the following:

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hours of work and rest;
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organisational hierarchy within the company;
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occupational safety and hygiene;
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the protection of the property and technological and business secrets of the company; and
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acts and conduct in respect of labour discipline, disciplinary measures and measures concerning material liability.

Within 6 months of the date of operation, a company is required to register its Working Rules (which are only effective from the date of such registration) with the DOLISA. In the absence of registered Working Rules, a company would find it very difficult to dismiss employees.

8. Trade Unions

Within 6 months of the commencement of a company's operations, a provincial federation of trade union must set up a provisional trade union organisation at the company, representing and protecting the rights and interests of employees and the workforce.

An employer must recognise a trade union's status once it is validly organised. There are strict rules protecting the trade union and its members from any coercion or discrimination from employers regarding activity within the trade union. The employer is responsible for ensuring an environment conducive to the activities of the trade union.

9. Employment Funds

Social Insurance Fund

Contribution to the State Social Insurance Fund is a statutory obligation of both the employer and employee in all contractual employment relationships longer than three months. The Social Insurance Fund provides benefits such as pensions, salaries during sick days, salaries and treatment for labour-related accidents and occupational illnesses, maternity benefits, and death benefits.

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Employer pays 15% of the monthly salary pool to the Social Insurance Fund.
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Employee pays 5% of his/her monthly salary to the Social Insurance Fund.

Health Insurance Fund

The Health Insurance Fund covers 100% of medical expenses, except for cases where high value treatments are involved. In such cases, the Health Insurance Fund covers 100% of medical expenses incurred by working employees provided that they are less than VND 7 million and 60% of such expenses if above VND 7 million (but not more than VND 20 million in any event).

An employer is obliged to pay 2% of the monthly salary pool to the Health Insurance Fund. Each employee must also contribute by paying 1% of his or her monthly salary to the Health Insurance Fund.

Provision Fund for Retrenchment Allowances

A company is required to place 1-3% of the total wages into a Retrenchment Allowance Fund. When an employee loses his or her job due to restructuring or technological advances affecting a company, the employer has the responsibility to retrain the employee. If a new job cannot be created, the employee is entitled to severance pay of one month's salary for each year employment, with at least two months guaranteed.

10. Labour Disputes

An individual employee or an entire class of employees may initiate court proceedings in relation to a labour dispute. Where an action is commenced by a class of employees, it is called a “collective action”. There is a one year statute of limitation for "collective actions". Collective actions are treated as disputes between an employer and the class’ representative. The statute of limitation for individual actions depends on the dispute. For disputes over unilateral termination, dismissal, compensation for termination and payment of social insurance the statute of limitation is 1 year. For disputes in labour export operations the statute of limitation is 3 years. For all other disputes, the statute of limitation is 6 months.

Individual labour disputes

The Labour Code does not define “individual labour dispute”. Logically, one may rely on the definition of “collective labourers” to distinguish an individual labour dispute from a collective labour dispute: “Collective labourers are labourers working in the same organisation or a part of the enterprise.” Presumably, any dispute that does not involve “collective labourers” is deemed to be an individual labour dispute.

If an individual labour dispute arises, it must first be referred to, and settled by, the labour reconciliation council at the relevant enterprise (the “Enterprise Reconciliation Council”) or the Labour Conciliator (Article 165a). If this fails, either party may refer the dispute to the relevant court for hearing. Individual labour disputes cannot give a rise to a labour strike under the law.

Collective labour disputes

Collective labour disputes are classified into collective labour disputes over rights (“Disputes over Rights”) and collective labour disputes over interests (“Disputes over Interests”).

Disputes over Rights are defined as those arising out of the implementation of labour laws and regulations, the collective labour agreement, registered internal labour rules or other lawful rules and agreements in an enterprise. Disputes over Rights will first be referred to the Enterprise Reconciliation Council (or the Labour Conciliator). If reconciliation fails, the dispute is referred to the Chairman of the district People’s Committee for settlement. If this second step fails, the dispute can finally be brought to the People’s Court or give rise to a labour strike, subject to the decision of the collective labourers.

By contrast, Disputes over Interests are defined as those arising out of new labour conditions and benefits other than the objects of Disputes over Rights. Disputes over Interests will first be referred to the Enterprise Reconciliation Council (or the Labour Conciliator). If reconciliation fails, the dispute is referred to the provincial Labour Arbitration Council for settlement. Failure in settlement by the Labour Arbitration Council can give a rise to a labour strike by the collective labourers.

Labour strikes

A lawful labour strike must be conducted by the [provisional] Trade Union in the enterprise (or the representative appointed by the collective labourers in the absence of the Trade Union). A labour strike will lawfully be carried out if (i) in an enterprise of less than 300 employees, at least 50% of the total employees agree to the strike; or (ii) in an enterprise of 300 employees or more, at least 75% of the compulsorily consulted persons agree (including the Trade Union’s members, heads and deputy heads of the Trade Union’s divisions and/or production teams). Before and during the labour strike, the employer is entitled to commence legal action before the People’s Court for settlement of the Dispute over Rights or judgment on the lawfulness of the strike. The right to take legal action is vested in both the employer and relevant employees even for 3 months after the strike terminates.

Employees’ liability for unlawful strikes

The policy on salaries payable to employees during a strike has recently been changed. Labourers who take part in a strike will not be paid during that strike. Those who do not strike but have to cease working because of the strike will still be entitled to the work-suspended salary pursuant to Article 62.2 of the Labour Code. The Labour Code attempts to balance the interests of both the employer and employees conducting the strike. From the employees’ perspective, collective labourers are entitled to strike to protect their rights and interests; the employer is not allowed to terminate labour contracts with those employees, or otherwise seek retribution against them. From the employer’s perspective, certain sanctions are imposed on employees who participate in unlawful strikes or abuse strikes, eg labourers who deliberately continue striking after the court opines on the unlawfulness of the strike will have to compensate for any damage that the employer has incurred due to the strike. However, it is difficult to determine the level of compensation under the Labour Code and Civil Code.

Complaints

An employee has the right to lodge complaints directly, or through legal representatives, to a competent administrative body regarding an employer's questionable behaviour rather than institute civil proceedings. Civil proceedings may not be carried out concurrently with a complaint. If not satisfied with the resolution of the complaint by the administrative agency, the employee may then appeal to the DOLISA within thirty days. He still may appeal to the MOLISA if not satisfied with the DOLISA decision.

The statue of limitation for complaints is 90 days from the date on which the employee or his/her representative receives a labour decision from, or is aware of the questionable labour act of, the employer. The employer must notify the complainant in writing about the acceptance of the complaint within ten days. Generally, an initial complaint must be resolved within thirty days of acceptance, with an extra fifteen days permitted for complicated cases.

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