Vietnam’s NEW Labor Code – 15 notable changes coming your way effective January 2021

The New Labor Code 2019 will soon come into effect on 1 January 2021 and entirely replace the current labor regime (‘Labor Code 2012’). The below fundamental amendments should be taken into account with a view to best protecting an employers’ legitimate rights and entitlements under Vietnamese labor law.

1.         The definition of ‘employment relationship’ has been broadened

Pursuant to the Labor Code 2019, a legally valid employment relationship is deemed to exist even where two parties agree to a document by a different name rather than ‘a labor contract’, as long as the document includes a description of the job, salary, management, and supervision conditions. In other words, a contractual document with a different name is still considered to be a labor contract assuming the above general terms are included.

The new Labor Code 2019 creates the possibility that where a contract with an “independent contractor”, “service provider”, “freelancer”, or other informal agreement between two or more parties contains employment-like terms may specifically be recognized as a formal Vietnam-law labor contract.

From a practical perspective, this serves to prevent employers from misusing service contracts as an alternative mechanism for hiring individuals (as opposed to traditional labor contracts). The use of service contracts typically enables employers to more easily undertake termination without statutory restrictions, as well as avoid mandatory social insurance contributions, as would otherwise ordinarily be required under a formal employment contract.

It is thus necessary for an employer who genuinely wishes to engage an individual contractor for a specific service to prepare a specific service contract in order to avoid the potential risk that the relationship be characterized as one of employment and not of service.

  1. E-contracts are formally recognized

    Labor contracts made by electronic means in data message form are now formally accepted and recognized under the Labor Code 2019. Specifically, labor contracts concluded via electronic devices in data message form have the same validity as those concluded in written form.

Additionally, a verbal labor contract can be concluded if the contractual term is for less than one (1) month.

  1. Seasonal labor contracts have been removed

    From 1 January 2021, labor contracts can take either one of the following forms: (i) indefinite-term labor contracts, and (ii) definite-term labor contracts of maximum 36 months.

    That is to say, compared to the current regulations of the Labor Code 2012, seasonal or work-specific labor contracts will no longer exist.

 

  1. Labor contract extension is no longer allowable

 Under the Labor Code 2012, an annex to a labor contract serves to elaborate on specific provisions or to amend or supplement the primary labor contract. Specifically, the duration of a labor contract shall be amended only once by annex and type of the signed contract shall not be changed as the result.

Under current law, in practice, the employer is entitled to conduct one extension for each definite-term labor contract via an annex as an integral part of such labor contract. On this basis, by way of two definite-term labor contracts plus two extensions, an employer is potentially eligible to extend three times before the labor contract term is deemed indefinite by law.

Conversely, the employer can no longer do that under the Labor Code 2019. The reason is that, an annex to a labor contract fundamentally serves to elaborate, amend or supplement specific provisions of the labor contract, but must not change the duration of the labor contract.

  1. Multiple definite-term labor contracts are now allowed in certain cases

In principle, in case the two parties enter into a new labor contract with a definite-term, only one additional definite-term labor contract may be executed. After that, if the employee continues working, an indefinite-term contract shall be constituted.

Nevertheless, the Labor Code 2019 has addressed exceptions for this aforesaid principle whereby parties may sign multiple definite-term labor contracts under special circumstances, comprising: (i) elderly employees (i.e. employee working after reaching his/her retirement age); (ii) expat employees; (iii) members of executive boards of organizations representing the labor collective (including trade unions); and (iv) directors of state-owned enterprises.

  1. New regime for probationary periods

 Probationary periods can last up to 180 days for managerial positions (as defined under the Law on Enterprises or Law on Management and use of State Investment in Enterprises, which greatly favor an employer from a recruitment perspective, effectively enabling an extended trial period, though only for a narrow list of personnel that meet the managerial positions definition.

It is also worth noting that probation is not allowed if the employee works under a labor contract with a duration of less than one (1) month.

  1. Unilateral termination by employer 

Since 1 Jan 2021, an employer shall have additional legal grounds to unilaterally terminate a labor contract, once:

 (i)         An employee has reached his/her retirement age, noting that under the Labor Code 2012 an employer CANNOT unilaterally terminate an employee who has not yet contributed to the social insurance regime in full for the purposes of pension entitlement, even though he/she has reached his/her retirement age;

(ii)        An employee is absent from work without a legitimate reason for five (5) consecutive working days or more; or

(iii)       The employee has provided false information that affects the recruitment of the employee.

Additionally, the Labor Code 2019 has granted extra protection for an employer to unilaterally terminate a labor contract without prior notice once:

(i)         An employee fails to return to work after 15 days from the expiry of the suspension period of a labor contract; or

(ii)        An employee is absent from work without a legitimate reason for five (5) consecutive working days or more.

  1. Unilateral termination by employee

 From an employee perspective, under the Labor Code 2019, an employee has the right to unilaterally terminate a labor contract without any reason as long as they provide proper notice in advance (i.e. at least 45 days in case of indefinite-term labor contract; at least 30 days in case of definite-term labor contract of 12 to 36 months or at least 3 working days in case of definite-term labor contract of less than 12 months).

In addition to the above, an employee also has the right to unilaterally terminate the labor contract without prior notice should he/she:

  • be not assigned to the contractual position or workplace;
  • be not provided with the agreed working conditions;
  • be not paid, in full or on time, the salary due as agreed in the labor contract;
  • be mistreated or humiliated by the employer;
  • be sexually harassed in the workplace;
  • be pregnant and the continued employment would adversely affect the fetus;
  • reach retirement age; or
  • be provided with false information by the employer that affects the performance of the labor contract.
  1. New regulations on salary payment

 Employers are now no longer required to register a salary table, salary scale, or salary norms with the labor authorities.

In case of salary paid via bank transfer, employers shall pay the cost of account opening and money transfer. An employer may also pay the salary to the employee’s authorized person.

When taking annual leave, an employee may request the employer to pay advance payments equal to the salary for the entitled days of leave of such month. Should the employer agree, it can deduct the advance payments at the time of salary payment for the employee in question.

  1. Changes applicable to expat employees

 The maximum term of a work permit for a foreign employee is two (2) years and may only be extended once for an additional maximum term of two (2) years. That is to say, new application in full for a new work permit should be prepared every four (4) years for those working in Vietnam for a long way. Under the current law, the maximum duration of a work permit is also two (2) years and can be renewed on an unlimited basis.

Employers and foreign employees may enter into multiple definite-term labor contracts. This regulation is to guarantee that the term of the expat employee’s labor contract shall be consistent with that of his/her obtained work permit and should close a long-standing conflict in the law concerning the mandatory use of indefinite-term contracts after two consecutive definite-term contracts.

In addition, expats married to Vietnamese citizens and living in Vietnam shall be exempt from work permit obligations (noting that work permit exemption certificate is still required though).  This is a major new additional ground for work permit exemption.  It remains to be seen whether there will be any limits to the types or positions that such spouses may hold without work permits.

  1. Labor discipline

 The internal labor regulations may be registered at the district-level labor authority.  We are of the  presumption and view that the provincial labor authority may authorize a district-level labor authority to process an application for the registration of internal labor regulations.

Importantly, employers may impose disciplinary measures for violations stipulated not only in the internal labor regulations but also in the labor contract or labor laws. This is the case for an employer with less than 10 employees where internal labor regulation preparation and registration is not mandatory.

As a separate note, similar to current law, the procedure to impose labor discipline would strictly require the involvement of a representative organization of employees at grass-root level. However, it is also worth noting that, under new Labor Code 2019, representative organization of employees could be other internal employee organizations within the employer, in addition to the current regime of internal trade union which is purely under the sole management of Vietnam Labor Federation.

  1. Retirement ages have been increased

 The age of retirement for employees working in normal conditions will follow a roadmap until the age of 62 years for men and 60 years for women. Specifically, the retirement age will be gradually increased to 62 years by 2028 for men, and 60 years by 2035 for women.

From 2021, the retirement ages of employees in normal working conditions shall be 60 years and 3 months for men, and 55 years and 4 months for women, and shall increase by 3 months for men and 4 months for women for each consecutive year.

  1. The number of public holidays has been increased by one day

National Day public holiday will now consist of two (2) days, namely (i) the second day of September; and (ii) the previous or next day (presumably at employer’s discretion to identify the specific one).

  1. Overtime policy

 The monthly overtime cap has been increased from 30 hours to 40 hours.

Additionally, the Labor Code 2019 has supplemented the circumstances where organizing overtime work of up to 300 hours in a year is permissible, comprising the manufacturing and processing of textiles, garments, footwear as well as electric and electronic products; and the processing of agricultural, forestry, aquaculture, and salt products.

  1. Concept of ‘sexual harassment’ has been introduced for the first time

‘Sexual harassment’ at the work place is expressly defined in the Labor Code 2019.

Procedures and policies on the prevention and handling of sexual harassment at the workplace must be included in the internal labor regulations, whereby ‘sexual harassment’ is now defined as a legal ground for dismissal.

***

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 Chairman of Duane Morris Vietnam LLC and branch director of Duane Morris’ HCMC office.