Tag Archives: labor law Vietnam

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.

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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.

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

Compulsory Social Insurance for expats working in Vietnam – who’s in and who’s out?

Ever since the Law on Social Insurance[1] was issued in late 2014, employees and employers have been on notice that “expat employees working in Vietnam” will be required to participate in the State’s compulsory social insurance (SI) regime “from 2018”.  2018 came however with no further clarity around the details.

In October 2018, the Government issued Decree no. 143/2018/ND-CP[2] guiding the Law on SI and providing that “Employees who are expats working in Vietnam shall be required to participate in the SI program if they obtain work permits, practicing certificates, practicing licenses issued in Vietnam, indefinite-term employment contracts or employment contracts valid for at least one year with employers in Vietnam.” (Article 2.1). Also in the same decree, several exceptions from SI participation are listed, including intra-company transferees and expats reaching retirement age.

According to the statistics of the Ministry of Labor, War Invalids and Social Affairs (“MOLISA”), 64% of applicable expats working in Vietnam joined the SI scheme under Decree 143[3]. Having said that, there remains confusion amongst both employers and expats employees as to the subjects of application of the law.

Finally, on 18 March 2019, MOLISA issued Official Letter no. 1064/LDTBXH-BHXH[4] clarifying the issue of exactly which expats will be required and not required to participate into the Vietnam-law SI scheme.

Specifically, expat employees working in Vietnam must satisfy all of the following criteria in order to be applicable for the SI scheme:

SI ELIGIBILITY CONDITIONS FOR EXPATS

 

NOTES
Nationality Non-Vietnamese nationals working in Vietnam An overseas Vietnamese national entering Vietnam to work via his/her passport of a foreign country would be deemed as a non-Vietnamese national working in Vietnam.

 

Licenses Work permits, practicing certificates, practicing licenses issued by the competent authority in Vietnam

 

As a side note, a work permit issued for
an expat entering Vietnam to supply services to a Vietnam-based entity would not fall under this category. 
Employment Indefinite-term or at least one-year definite-term labor contract with a Vietnam-based employer. We are of the view that a definite-term labor contract (from 12 to 24 months) would suffice in this regard.

 

It is worth noting that term of expat’s labor contract must be in line with term of his/her valid work permit, which is maximum 24 months from a theoretical perspective.

 

Age Men: Under 60 years old

Women: Under 55 years old

Please kindly be advised that these retirement ages are being proposed to increase to 62 for male and 60 for female according to the draft of new labor code.

 

Others NOT falling under the scope of statutory intra-company transferees, i.e. any expat managers, chief executive officers, experts and technicians, who have been employed by the offshore enterprise for at least 12 months and are temporarily re-assigned/ seconded to its Vietnam-based commercial presence (e.g. subsidiary, representative office, or branch). Frankly speaking, an expat deemed an intra-company transferee with his/her work permit exemption certificate would be NOT eligible to attend the SI scheme.

For ease of reference, timeline and ratio for SI contributions applicable to both employer and expat employees under Decree 143 please see the table below.

In short, employers who hire expat employees would have to bear an extra liability to ‘part’ pay SI from 1 December 2018 and to ‘fully’ pay SI from 1 January 2022 while the relevant expat employees will NOT commence contributing to the scheme until 1 January 2022.

Sickness and Maternity Labor Accident and Occupation Disease Pension

and

Death Allowance

Total
Since

1 December 2018

Employer 3% 0.5% 0% 3.5%
Expat Employee 0% 0% 0% 0%
Since

1 January 2022

Employer 3% 0.5% 14% 17.5%
Expat Employee 0% 0% 8% 8%

Importantly, please also note that there is a statutory maximum cap for all SI contribution, as with caps applicable to Vietnamese employees, if the expat employee’s actual gross salary is higher than the maximum cap, the cap becomes the basis of the % calculation. Specifically, in light of SI, the basis for % calculation would be (i) the actual gross salary OR (ii) 20 times of ‘Base Salary[5], whichever is lower. Accordingly, such cap shall apply equally to both the employer % contribution and the employee % contribution.

 

[1] Law on Social Insurance no. 58/2014/QH13 dated 20 November 2014 (“Law on Social Insurance”)

[2] Decree no. 143/2018/ND-CP dated 15 October 2018, elaborating on Law on Social Insurance and Law on Occupational Safety and Hygiene regarding compulsory social insurance for employees who are foreign nationals working in Vietnam (“Decree 143”)

[3] http://thoibaotaichinhvietnam.vn/pages/tien-te-bao-hiem/2019-03-20/hon-64-lao-dong-nuoc-ngoai-da-tham-gia-bhxh-bat-buoc-69060.aspx

[4] Official Letter no. 1064/LDTBXH-BHXH issued by the MOLISA dated 18 March 2019

[5] ‘Base Salary’ is a measure set by the Vietnamese government from time to time. The current Base Salary applicable since 1 Jan 2019 is VND 1,390,000 / month, corresponding to a monthly cap of VND 27,800,000. However, it is worth noting that the Base Salary will change effective 1 July 2019 to VND 1,490,000, corresponding to a monthly cap of VND 29,800,000.

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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