Update on draft new Labor Code for Vietnam

The Ministry of Labor, War Invalids and Social Affairs (MOLISA) released another draft of the new Labor Code (the Draft Code) on 19 August 2019 with a view to improving the current Vietnamese legal framework by further aligning it with the overall development of the Vietnamese labor market, from both employer and employee’s perspectives.

The below highlights some of the key amendments being proposed in the Draft Code, together with some comments on the same based on long-standing practice in this sector in Vietnam.

PROPOSED CHANGE

 

OUR NOTES
Form of labor contract For the first time the execution of labor contract via electronic methods are formally recognized, e.g. emails.

 

On this basis, please kindly be advised that the agreed negotiations between Employer and Employee including without limitation to the job offer recorded via emails systems might be deemed as a binding contractual agreement, unless otherwise expressly repealed by the formal labor contract.

 

Prohibited acts Employer is prohibited to force the employee to perform a labor contract so that the employee can pay back an amount of debt that he/she borrows from the employer.

 

In other words, a loan that an employer grants to an employee shall constitute a separate civil-law relationship which is independent from the labor-law employment.
Type of labor contract To remove the seasonal labor contract. Namely, according to the Draft Code, there would be two types of labor contract: (i) definite term of up to 36 months; and (ii) indefinite term.

 

We however note that there exist some different schemes for labor contract of less than 12 months and labor contract of 12-36 months, such as prior notice in case of unilaterally termination.
Contents of labor contract To allow parties to agree on the non-disclosure agreement including rights, obligations and compensation in case of breaches.

 

This proposal adds extra protections for employers. Nevertheless, there remains no regulation on non-competition or non-solicitation agreements in the Draft Code as currently drafted.

 

Probationary period To add a special category of ‘enterprise manager’ who may be subject to a probationary period of up to 180 days (instead of the 60 day max under current law).

 

We note that the definition of ‘enterprise manager’ will be in line with Law on Enterprises.
Unilateral termination by employer To add three circumstances in which an employer can unilaterally terminate a labor contract:

 

(i)        if employee reaches his/her statutory retirement age;

(ii)       if employee is absent from work for 5 consecutive working days without a proper reason;

(iii)      if employee provides false info (e.g. qualifications) for the purpose of recruitment.

 

At first glance, this would grant employer with extra lawful grounds for the purpose of unilateral termination. It is however recommended that the employer should await further guidance in detail for the purpose of implementation.
Time frame for payment of termination package According to the Draft Code, employer would have 14 working days from the date of termination for the purpose of termination package payment.

 

The doubles the current requirement of 7 working days.
Salary payment Employers are obliged to provide employees a monthly pay slip to breakdown the differences between net and gross salary amounts at the time of salary payment.

 

 

By this approach, the drafting team is trying to build up the transparent regime of remuneration payment which can help to enable an employee to be aware of the social insurance, health insurance and unemployment insurance contributions, personal income tax and other withholding amounts from his/her gross salary, if any.

 

Form of salary payment To pay salary in cash is formally recognized without any restrictions.

 

This requires further guidance from the Government as it would prima facie conflict with certain mandatory accounting-related requirements.

 

Overtime payment There are two options:

 

(i)        Option 1: to remain same, i.e. 150%, 200%, and 300% for regular day, weekly days off and public holidays respectively; or

 

(ii)       Option 2: to increase the overtime payment, i.e. up to 180%, up to 240%, and up to 360% for regular day, weekly days off and public holidays respectively.

 

At the time of this Draft Code, the drafting team is carefully considering these two options. The latter is undoubtedly more preferable from the employee’s perspective.

 

Putting that aside, the Draft Code is proposing to increase annual overtime cap into 400 hours (from current 300 hours).

Annual leave calculation The principle of pro-rata calculation is formally recognized by the law for those who do not work for 12 months in full. This widely-accepted practice in Vietnam looks set to be formally reflected in the new law.
Labor Discipline If the violation is clearly stated in the labor code or the labor contract, employer can still apply labor discipline [in the absence of the (registered) internal labor regulations (the ILR)].

 

 

This would be a major change.  We currently presume however that it may be intended only to apply to employers with less than 10 employees that are not required by law to have and register ILR.

 

Labor contract term for expat employee The Draft Code is saying that expat can enter into a number of consecutive definite-term labor contracts, term of which must be in line with that of the work permit (the WP).

 

 

That is to say, the indefinite-term labor contract is not applicable to expat employees.

 

WP exemption category To add extra condition for WP exemption subject. Specifically, owner or capital contribution member of a limited company would be exempted from WP requirement only if his/her/their ownership value in the company (employer) reaches VND 1 billion (equivalent to US$42,750).

 

This is likely aimed at a loophole where expat employees are granted ‘super minority’ shareholder status in order to enjoy WP exemption.

 

This amendment is to minimize the aforesaid legal gap. In other words, WP exemption is a statutory entitlement applicable to ‘true’ shareholders/ owners only.

 

WP extension WP can be extended once, for another additional term of maximum 2 years.

 

Under current law, WP re-issuance is required upon expiration with cumbersome paperwork.

 

Subject to further guidance on the extension procedure, it is hoped this will reduce admin burden on employers.

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For more information about labor laws in Vietnam please contact Giles at Gtcooper@duanemorris.com or Nhan Le at Ntle@duanemorris.com