Vietnam: New Amendments to the Employment Laws of Vietnam

To keep pace with the developments in labor and employment relationships and to address issues of concern to both employers and employees concerning the current Labor Code (passed on June 23, 1994), the National Assembly of Vietnam passed Law No. 35/2002/QH10, "Amendments and Supplements to Some Articles of the Labor Code" ("the Law") on 2 April 2002.

The Law has revised and supplemented 53 articles of the current Labor Code. It addresses several important issues including terms and conditions of employment, invalidation or settlement of individual or collective labor contracts, and termination of employment. However, it has merely codified or clarified many current sub-law stipulations. It is expected that guidelines from the government and labor authorities will be promulgated before the new Law takes effect on 1 January 2003.

Some notable changes in the Law are discussed below.

Recruitment

This is one of the most welcomed provisions of the Law. It gives foreign invested enterprises ("FIEs"), which are established under the Law on Foreign Investment in Vietnam, the right to directly recruit Vietnamese staff and workers.

Under the current Labor Code, FIEs and all other foreign employers must first attempt to hire Vietnamese workers through designated recruiting agencies. If these agencies are unable to provide suitable candidates within a specified period, then FIEs and foreign employers may recruit directly. The Law abolishes this requirement for FIEs but authorizes the government to regulate recruitment by other foreign employers, such as representative offices and branches of foreign organizations and individual foreign employers. It is believed that the requirement to first apply to designated agencies will remain applicable to these other foreign employers.

Under the current Labor Code, an employment contract or a labor contract, as it is called by the Labor Code, can be for either a definite or indefinite term. Should the parties agree to a definite term contract, it must be fixed for a period of 1, 2, or 3 years. A definite term contract is renewable. The new Law gives the parties more flexibility in determining the definite duration of employment (from 12 months to 36 months) but allows a definite term contract to be renewed only twice. If the employer wishes to continue employment of the same employee, an indefinite term contract must be signed with the employee within 30 days after the expiration of the definite term contract. If the employee continues to work for the employer, the employee's contract shall automatically become an indefinite term contract. A worker who has an indefinite term contract enjoys more protection with respect to termination, as provided by law, than a worker under a definite term contract.

The new Law also gives employees more benefits such as overtime payments, compensation for incapacitation, and social insurance benefits.

When an individual works overtime on public holidays or other paid leave days, he/she is entitled to a minimum overtime payment equal to 300% of his/her normal salary. The current rate is 200% of the normal salary.

Under the present Law, a worker whose work capacity is reduced by more than 81% due to employment-related accidents or illnesses is entitled to receive substantial compensation from the employer. Under the new Law, a worker whose work capacity is reduced by more than 5% may be entitled to compensation from the employer. The new Law authorizes the government to issue regulations governing this issue.

Female employees receive more social benefits under the new Law. A female employee who goes on maternity leave will be given, in addition to other maternity benefits, a one-month salary allowance from the social insurance fund regardless of the number of children she has. Currently, such allowance is available only for the first two children.

Female employees 55 years or older who have contributed to the social insurance fund for 25 years will receive the same pension payments as male employees 60 years or older who have contributed to the fund for 30 years. Currently, although female employees can retire earlier, they are still required to contribute to the social insurance fund for the same number of years as their male counterparts.

Provision of annual bonuses to staff will no longer be a compulsory obligation of employers. The new Law allows employers to determine bonus payments to employees on the basis of business results, performance of employees, and in consultation with trade unions.

Under the new Law, application of the statutory government salary and wage scales in domestic enterprises or organizations is abolished. Employers may establish their own salary and wage scales in compliance with the principles to be set forth by the government and in consultation with trade unions. These scales must be registered with the provincial labor authority. However, the statutory application of minimum wage levels set forth by the government for Vietnamese employees in foreign invested enterprises, representative offices, and branches of foreign organizations in Vietnam and other foreign employers under the current laws still remains in effect.

The new Law reconfirms the maximum allowable overtime work of 200 hours per year. However, it allows the government to approve special cases in which overtime work may be increased to 300 hours a year. These exceptions appear to have been introduced in response to requests by the textile and garment industry to raise the limit to 400 hours per year. This industry is now one of the highest export earners.

The new Law still allows employment of foreigners for technical or managerial positions for which Vietnamese nationals are not available. However, the new Law requires the government to regulate the ratio of expatriates to the total number employees of an organization, duration of employment of foreigners, and obligatory plans for training Vietnamese staff to replace foreign employees. Under the new Law, a foreign worker with an employment term of not more than 3 months will not be required to apply for a work permit in Vietnam.

Under current regulations, when an enterprise is restructured by merger, division, acquisition, or assignment of management, the succeeding employer must continue to honor all existing labor contracts until they expire or are revised or renewed in agreement with the employees. The new Law seems to allow termination of redundant labor provided that a plan for labor utilization is in place and redundancy allowances are paid. The wording of the new Law on this matter is unfortunately not specific, thus it is still not clear what legal grounds can be used by the new employer to terminate redundant labor and how such plan of labor utilization is to be determined and implemented. Guidance from the government should be sought prior to a merger or other acquisition.

In addition, under the new Law an employee who has not recovered from sickness or an accident for (a) 6 consecutive months if he/she has an indefinite term labor contract; (b) 3 consecutive months if he/she has a definite term labor contract of more than 12 months, or (c) 1/4 of the contract term if he/she has a labor contract of less than 12 months, may terminate his/her service by giving not less than 3 days advance notice to the employer.

With regard to wrongful termination of contract, the new Law deals more strictly with both employer and employee. The employer shall be required to reinstate the employee and, in addition to payment of salary and allowances to the employee for the period of wrongful dismissal, the employer must pay a compensation of at least two months’ salary and allowances. Under current regulations, the employer is only required to re-employ the employee and pay salary for the period of wrongful dismissal. The new Law permits the employer to negotiate and come to an agreement with the employee for additional compensation if the employer does not wish to reinstate the employee. If an employee wrongfully terminates his/her service, in addition to the obligation under the current law of refunding all training costs (if any) incurred by the employer for him/her during the employment, the employee must pay the employer an amount equal to one-half of his/her monthly salary and allowances.

The new Law introduces three new measures which give the employer more options for taking disciplinary action against employees who violate labor rules or contracts. These new measures include (a) delaying regular salary increase for up to six months, (b) reassigning the employee to other work with lower pay for up to six months, and (c) transferring the employee from his/her current post. Under the new Law, an employee may be fired lawfully for absence from duty for five days in a period of one month without reasonable grounds. The current limit is seven days.

Under the new Law, unemployment insurance is introduced for the first time in Vietnam. The Law lays the groundwork for establishing an unemployment insurance system. However, it will be quite a while yet before a system is put into operation. Obligations of employers to contribute to the unemployment fund may be considered by the government.

Invalidated Labor Contracts or Collective Labor Agreements

The new Law clarifies one of the most important issues on which the current Labor Code is silent, i.e. the means by which a labor contract or a collective labor agreement may be declared invalid. The Courts are then given the power to rule that an employment contract or a collective labor agreement is partially or totally invalid. In accordance with the provisions of the new Law, the government shall enact stipulations regarding settlement of rights and obligations of the parties upon the invalidation of all or part of a contract or agreement.