Human resource and labour compliance in Vietnam is one of the most troublesome areas for international investors operating in Vietnam. Vietnamese Labour Laws are drafted with the core concept of protecting employees, and therefore the ability to cease employment relationships in Vietnam is not always straightforward (or even permissible) in many cases. 

So how do you navigate the difficult, but sometimes necessary, task of terminating an employee’s contract?

Obligations for Terminating Labour Contracts in Vietnam

To understand the complexity of the labour laws, one must first be familiar with the basic rules summarised below. 

  • When a definite term contract (for a period of one to 36 months) is about to expire, employers or employees must give notice that they will not be renewing the contract. If this is not done, it will be deemed that the old contract rolls over into a new one – either definite or indefinite, based upon the “normal” practice of the employer. 
  • After the second definite term labour contract, the contract automatically becomes an indefinite term labour contract.

Although employees retain the right to unilaterally resign and terminate their contract at any time, provided they give 30 days (for a definite term contract) or 45 days (for an indefinite term contract) notice, the same right does not exist for employers. 

Therefore, the best practice for termination is always through mutual agreement by both parties, thus allowing flexibility with terms and payments. However, this is not always a scenario that is possible and mutual agreement is not always reached.

How Can Labour Contracts Come to an End?

  • A labour contract expires, and either party notifies that they will not be renewing the contract
  • The specific tasks stated in the labour contract have been completed (i.e., the contract is for delivery of a specific project/outcome)
  • Mutual agreement in favour of the termination of the contract
  • The employee is sentenced to a prison term; prevented from working by a court; dies or is declared missing by a court
  • Employer unilateral termination under the provisions of the Labour Law

Employer Instigated Termination

Employers are able to commence the unilateral termination of labour contracts for several reasons: failure to undertake the agreed work; disciplinary reasons; prolonged illness; organisational changes; technological restructuring; mergers; acquisitions or corporate restructuring events; or when the company ceases operations. Immediate termination options may arise for acts of “gross misconduct”. However, caution should be taken with all terminations as specific processes must still be followed, which can take time. 

Employer-instigated unilateral termination generally needs to involve trade unions and local labour authorities, and failure to follow specific (and quite granular) processes within the Labour Law will usually invalidate the termination. 

Termination pay arising for employer termination is generally not less than two months’ salary, plus one month for each additional year worked, based upon the average monthly salary received for the previous six months. Severance allowances can also arise in the case that employees have not contributed to the unemployment insurance scheme. 

Ultimately, should the need to end employment relationships before the expiration of a labour contract occur, maintaining respectful and open relationships with staff and negotiating mutual termination decisions, is in the best interest of employers. Outside of mutual termination, employers are at a distinct disadvantage within the labour laws, and care must be taken, including seeking professional advice.

*This advice is general in nature and is based upon laws and regulations in place at the time of publication. Vietnamese Labour Laws are very specific in application, and employers and employees are encouraged to fully research and understand their specific options and courses of action before making decisions.

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Tim Burrill
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