COVID-19 Guidance for Employers in Vietnam: MOLISA’S Proposals for Handling Distressed Employment Arrangements

Recent guidance from Vietnam’s labor authorities provide some welcome clarity about how employers can act in these unique times and simultaneously underline that normal labor laws still apply. Employers who act in breach of the law are at risk.

The Ministry of Labor, War Invalids and Social Affairs (“MOLISA”) has just released Official Letter No. 1064/LDTBXH-QHLDTL (“OL 1064”) dated 25 March 2020 to provide guidance on employment arrangements for enterprises affected by the impact of the Covid-19 pandemic.  As follow up, the Ho Chi Minh City Department of Labor, War Invalids and Social Affairs (“DOLISA”) issued Official Letter No. 9403/SLDTBXH-LD (“OL 9403”) dated 27 March 2020 to provided further guidance for enterprises located in Ho Chi Minh City.

Primarily, OL 1064 and OL 9403 provide examples of cases where employees formally pause work for a specific period as a direct result of epidemic following negotiation and agreement with their employers on reduction of contractual salary (such amount not to be lower than the applicable regional minimum wage) pursuant to Article 98.3 of the Labor Code 2012, namely:

  • expat employees who are not allowed to enter Vietnam to return to work during the pandemic due to the entry ban;
  • employees who are subject to mandatory quarantine orders; and
  • the enterprise and/or any of its functional departments are unable to operate once situations (i) and/or (ii) above occur.

The examples provided are for illustrative/ reference purposes only and do not create any new law or provide any new legal basis for specific activity. Thus, it remains our view that, from a strictly legal basis at least, employers have discretion to choose whether to temporarily pause their operations. We have written about this in this earlier blog post.

Having said that, the guidance from MOLISA and DOLISA offers a number of lawful options for employers to handle employment arrangements during the Covid-19 epidemic starting from the most employee-friendly option down (see table below). Implicit in this is that the authorities are encouraging employers to prioritize alternatives that will maintain employment to the maximum extent possible.

OPTION DESCRIPTION OUR COMMENTS
Option 1 – temporary job transfer In case the Employer faces difficulties regarding materials supply or markets, causing redundancy, employers may temporarily transfer employees to perform work that is different than that agreed in the labor contract (Article 31 of Labor Code 2012). By this option, the salary should remain same for the first 30 days of the temporary job transfer period. After that, the salary for the new position can be 85% of the contractual salary. Also, we further note that if the temporary job transfer is longer than 60 days per year, employee consent would be required.
Option 2 – work pause The employer and employee discuss about payment of a reduced salary, not to be lower than the applicable regional minimum wage (with no work duties to be performed) for a specific period (Article 98.3 of Labor Code 2012).

 

This enables the employment relationship to be maintained but requires the affected employees’ consent to the reduced salary.

 

As noted in our earlier blog post, employees may be motivated to agree on salary reductions (i.e. – accept employers’ proposals) because, if they do not, the employer would have legal grounds to unilaterally terminate employment as a result of epidemic (subject to the generally-applicable 30 and 45-day advance notice requirement for definite and indefinite-term labor contracts respectively).

 

Option 3 – temporary delay of labor contract implementation

 

In case the work pause period under Option 2 lasts a long time and affects the employer’s ability to pay salaries, the employer and employee may agree to temporarily delay implementation of the labor contract according to Article 32 of Labor Code 2012. For practical purposes, this amounts to an agreement on unpaid leave. The employment relationship is maintained though no work is performed.
Option 4 – employment termination In case the enterprise must scale down its production causing redundancy, the employer may

conduct procedures in the law to:

 

(i) unilaterally terminate employment (Article 38 of Labor Code 2012); or

 

(ii)  Implement formal redundancy/ retrenchment (Article 44 of Labor Code 2012).

 

 

– With respect to the first option here (Article 38), we note that careful attention is required in order to utilize the employer’s right to unilaterally terminate a labor contract as it requires the employer to “take all measures” to overcome the consequences but “fail to maintain the existing operations”, and must follow a prescriptive notice period depending on their contract type (i.e., 30 and 45 days for definite and indefinite term labor contracts respectively). Also important, by going through OL 1064, it seems to us that MOLISA’s guidance is trying to narrow down the employer’s right by law to unilaterally terminate the labor contract. Specifically, OL 1064 mainly focuses on difficulties caused by material supplies and market issues within production industries and does not clearly refer to or consider service enterprises. Therefore, in the perfect world, it is highly recommended that employers under all circumstances, should seek to agree mutual termination agreement (MTA) or a resignation letter (RL) from the employees to effect termination. This is very valuable to avoid claims of wrongful unilateral termination at a later stage (potentially up to 12 months in the future).

 

– With respect to the second option here (Article 44), the employer would need to prepare a so-called labor usage plan, then consult the opinion of the relevant trade union and inform the relevant labor authorities about the same at least 30 days prior to implementing the labor usage plan re retrenchment. Again, though the law does not require employee consent if such procedures are followed, an MTA or an RL may short cut the time and procedural steps and be the preferred approach for both parties.

 

All in all, while the MOLISA and DOLISA guidance is a useful reference point for employers struggling to mitigate the impact of the COVId-19 crisis, and outlines a laudable policy preference in favor of maintaining employment relationships, it does not directly impact employers’ legal rights and options. That is, it is not mandatory to implement the steps in the order proposed by the authorities.

On the other hand, this is clearly not a green light to act contrary to law and the default position of complex procedural steps and notice periods involved in unilateral termination and retrenchment remains intact. When the dust settles, employers who flout the law may find themselves held to account.

For more information, please contact Giles at GTCooper@duanemorris.com or Le Nhan at NTLe@duanemorris.com or any of the lawyers in our office listing. Giles is co-General Director of Duane Morris Vietnam LLC and branch director of Duane Morris’ HCMC office.