Vietnam: Legal Alert On Employment Issues (August 2016)

Last Updated: 2 September 2016
Article by Oliver Massmann

This Legal Alert is prepared based on recent official and unofficial discussions with the Ministry of Labor, Invalids and Social Affairs of Vietnam (MOLISA) and its in-charge persons in various meetings/seminars on labor laws of Vietnam.

We highlight below key employment-related issues discussed for your information and specific actions, where necessary.

  1. Proposed Amendments of the Labor Code

The MOLISA is working on a draft that amends a number of articles of the Labor Code to reflect TPP and other international treaties and correct shortcomings of the current Labor Code.  New issues including setting up independent trade unions, calculation of minimum salaries, working time. It is anticipated that the new Labor Code will be issued in late 2017.

Recommendations/Notes:  We will keep you updated of proposed changes to the Labor Code.
  1. Minimum Salaries

According to the MOLISA, there will be an increased range from VND180,000 to VND250,000 (equivalent to approximately US$8-12) of minimum salaries in 2017.

Recommendations/Notes:  Please prepare for this inevitable situation, especially with respect to your business plan for the year of 2017.
  1. Work Permits (WP) for Foreign Employees

Under the Labor Code, only experts; managers, executive directors and technical employees are permitted to work in Vietnam.

One of key considerations is that the concept of managers who are permitted to work in Vietnam are now limited to the narrowly defined 'managerial positions' under the Enterprise Law of Vietnam (EL).  As such, only few people qualify for managerial positions (e.g. – members of the Members' Council, general directors or other individuals  have authority to enter into transactions on behalf of the relevant enterprises) pursuant to these enterprises' charter (or the articles of association in other jurisdictions).

According to the MOLISA, a new circular guiding WPs will be issued soon.

Recommendations/Notes:  In order to recruit a foreign manager who unfortunately disqualifies the managerial position criteria, the employers often expand managerial position definition in its charter or persuade the DOLISA, the issuing body of WPs, to accept them as 'expert' who in turn need only to satisfy general conditions (e.g. – acknowledged by the head quarter as expert; having obtained bachelor degree or equivalent; and having had at least 3 years of experience in relevant industry).
  1. Overtime

In response to request for additional overtime hours, the MOLISA confirms that the amended Labor Code will deal with this issue. The specific overtime hours vary by industry and subject to agreements between employees and employers.

  1. Social Insurance

As of 1 January 2018, all employees having labor contract term from 1 month or more including foreigners working in Vietnam must pay compulsory social insurances. However, according to the MOLISA, Vietnam is negotiating with some countries to relax the above rule given more financial burden to be shouldered by foreign invested enterprises.  For example, Vietnam and Germany have basically reached in-principle agreements on possible exceptions to the above rule.

Recommendations/Notes:  From a financial perspective, the payment of social insurance of expatriates may increase more burdens for enterprises.  Please take into account this type of payment when calculating benefits payable to foreign employees and building up your business plan for the year of 2017.
  1. Payments of Compensations under Training Contracts

As a matter of practice, a number of foreign invested enterprises send their local staff abroad for training. In exchange, the relevant employee agrees to enter into a training contract which requires him/her to work for the employer for a fixed period of time following his/her completion of the training courses.

In this regard, the Labor Code makes it pretty clear that any employees who terminate labor contracts illegally (either not having termination grounds or failing to send termination notice on time). Nevertheless, the law is silent on whether an employee who has terminated his/her labor contract in accordance with the laws will still be subject to reimbursement of training fees.

According to the MOLISA, employees are still required to reimburse training costs under training contracts regardless of whether they terminate labor contracts legally or not.

Recommendations/Notes:  It is of utmost importance that the employer must have a well-drafted and detailed training contract at the outset.  Actual [and reasonable] costs that the employer may incur for the benefits of the employee during the training period should also be clearly stated in the training contract.  If not, the employee will stick to the fixed amount as agreed in the training contract to limit its reimbursement only.
  1. Employment of Local Staff by Offshore Entity

As a matter of practice, many offshore entities including parent companies of FIEs in Vietnam seek to employ local staff to work on either a seasonal or long-term basis.  The Labor Code is silent on whether a labor contract governed by Vietnamese law can be entered into between parties.  In such absence, a provision of Circular 30 guiding the Labor Code on labor contracts dated 25 October 2013 makes a list of persons who can act on behalf of the employers. Unfortunately, there is no reference to a person who can act on behalf of the offshore entities. According to a senior expert of the MOLISA, such absence would mean a No for a direct labor contract between offshore employers and local employees.

Recommendations/Notes: A number of offshore entities seek to circumvent the above restrictions by entering into:

(i).        an individual service/consultancy contract with the local employees;

(ii).       a professional service contract with a local partner under which the local employees will work for the offshore entity; or

(iii).    a labor outsourcing contract with a labor outsourcing company.

Each of the above options presents its pros and cons and care should be taken in adopting specific plan.  For example, direct involvement of local employee may result in a permanent establishment status under tax laws.

  1. Change of Types of Labor Contract

Vietnamese law prohibits employers to enter into more than two fixed term labor contracts with each not exceeding 36 months from the signing date.  The third labor contracts in such case must be a non-fixed term.

A number of employers seek to avoid this restriction (i.e. – entering into non-fixed term labor contracts with employees) by first terminating fixed term labor contracts upon their expiry, giving a temporary suspension of works for employees and then signing a new fixed term labor contracts.

In this respect, the MOLISA and the Supreme Court of Vietnam opine that such an arrangement can be challenged because a real termination must result in completion of all related works including return of social insurance books, employees' books and settlement of all benefits, etc.

Please do not hesitate to contact Oliver Massmann under omassmann@duanemorris.com if you have any questions on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

THANK YOU VERY MUCH!

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.

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