Vietnam’s new Labor Code – key changes

Vietnam July 6 2020

A new Labor Code will take effect on January 1, 2021[1].  There are some key changes that will affect both employers and employees.  Some employee protections have been extended and some changes are more aligned with the International Labor Organization and with international best practices. Employers will find that several requirements have been removed or become less restrictive.  This article will discuss key changes.

Application scope. The New Labor Code has expanded the definition of “Employee”.  An Employee is now a person who: (i) works under an agreement with an employer, (ii) works under the supervision of the employer, and (iii) receives a salary.  If a person has a contract which is not clearly a “labor contract” (eg, individual service contract), but the contents of the contract satisfy (ii) and (iii) above, then the contract is indeed a labor contract.

Furthermore, the scope of the New Labor Code has been broadened to include a “worker without a labor relationship” ie, a person who does not work under a labor contract (eg, freelancer).  That is, a person who does not meet the three conditions in the paragraph above.  The number of freelancers working in Vietnam has increased and they are a significant portion of the labor force.  It is necessary to protect their rights under the New Labor Code.  However, it is unclear which regulations under the New Labor Code will apply to a “worker without a labor relationship”. The Government will provide guidance in regulations which will implement the New Labor Code.

Work time and Rest time.  The New Labor Code increases the monthly overtime cap from 30 to 40 hours per employee, and in certain cases an employee may work up to 300 hours of overtime per year.  This change is intended to allow manufacturing companies to optimize production targets, reduce manufacturing cost, and be better equipped to deal with time constraints.

Break-time is included within an employee’s working time only if the employee is a shift worker.

Employees now have two days of holiday for National Independence Day in September. That means that in addition to one day-off on 2 September, employees will have an additional day-off.  It will be on 1 or 3 September as decided annually by the Prime Minister.

Retirement Age. The New Labor Code increases the retirement age for both males and females.

  • For male employees: The current retirement age for males is 60 years.  From 1 January 2021, the age of retirement will be 60 years and 3 months. Every following year the age increases by 3 months, until the retirement age for all male employees reaches 62 in 2028.
  • For female employees: A female’s current retirement age is 55 years.  From 1 January 2021, the age of retirement will be 55 years and 4 months. Every succeeding year the age increases by 4 months, until the retirement age for all female employees reaches 60 in 2035.

The New Labor Code allows an employee who does (extremely) heavy, hazardous or dangerous work to retire at a younger age, but not more than 5 years earlier than the normal gender retirement age.

Probation. The parties to a labor contract have the option to sign a separate probationary agreement, or to include a clause on probation in the labor contract. Either party can terminate a probationary agreement without reason, without giving prior notice, and without compensation. The maximum probationary period for a person in a managerial position has been increased from 60 days to up to 180 days.   A managerial position is defined according to the Law on Enterprises.  This is a large increase and a benefit for employers who have long asserted that the current 60-days probationary period is insufficient to assess the capacity of someone in a managerial position.

Labor contracts.  There are now only two types of labor contract: a definite-term labor contract with a term of 36 months or less, and an indefinite-term labor contract. A definite-term labor contract can no longer be extended by using an appendix. After two definite-term labor contracts, the labor contract automatically becomes an indefinite-term contract. However, a definite-term labor contract can be signed multiple times without automatic extension to an indefinite-term in the following cases: (i) foreign employees; (ii) employees who have reached retirement age; (iii) members of executive boards of employee representative organizations, and (iv) directors of enterprises which have state capital.

It is the first time that the validity of a labor e-contract is recognized if executed in accordance with the Law on e-transactions.  Some requirements are that the labor e-contract is accessible (and usable for reference when necessary) and remains unchanged after it is executed.  This change certainly encourages the application of technology and facilitates the execution of labor contracts.  This is especially true for large employers with hundreds or thousands of employees or if there are large distances between employer and employee.

Termination of labor contract. The New Labor Code provides two new bases for automatic termination of employment of a foreign employee: (i) the foreign employee is expelled from Vietnam by a court decision or by a competent authority; and (ii) his/her work permit expires.  Either the employer or an employee can unilaterally terminate a labor contract upon the employee reaching retirement age.

An employer can terminate a labor contract unilaterally if the employee: (i) provides false information when recruited, or (ii) is absent from work for five consecutive working days without permission or legitimate reason. Such unilateral termination is immediate.

An employee, regardless of the term of the labor contract, can unilaterally terminate his/her employment without a reason, but is required to give a prior notice.  The term of notice is at least three working days (for a labor contract of less than 12 months), 30 working days (for a labor contract of from 12 to 36 months) and 60 working days (for an indefinite-term labor contract).  Prior notice is not required in certain circumstances, for example, his/her salary has not been paid on time or has not been fully paid.

Labor discipline.  Currently, employers are required to have internal labor rules (“ILRs”) in order to be able to deal lawfully and more smoothly with an employee’s wrongful act.  The ILRs are required to be registered with the labor authorities if the employer employs 10 employees or more.  Stated differently, without (registered) ILRs, an employer under the existing Labor Code cannot impose labor discipline.  The New Labor Code now provides that an employee is subject to labor discipline if s/he commits any wrongful act as specified in his/her labor contract, or the labor law, or, of course, the ILRs.  This change allows an employer to impose labor discipline even if no ILRs are in place.

Under the New Labor Code, the ILRs must cover three new areas: (i) sexual harassment in the workplace, (ii) temporary transfer of an employee to a different job as agreed in the labor contract, and (iii) persons authorized to issue decisions on labor discipline

Sexual harassment in the workplace is an additional ground for dismissal if it is specified in the ILRs.

Work permits. A foreigner who works in Vietnam is required to have a work permit or a work permit (“WP”) exemption certificate. A WP or WP exemption certificate is issued by the provincial Department of Labor, War Invalids and Social Affairs (“DOLISA”), and it remains valid for a maximum term of two years.  Under the New Labor Code, a WP or WP exemption certificate may be renewed one time only. For renewal, some documents and procedures are waived.  A new application must be filed when the extended WP or WP exemption certificate expires.

Under the existing Labor Code, holders of a share of a limited liability company or the Chairman or a member of the Board of Directors of a joint stock company are exempt from a WP.  There is no requirement on the value of shares.  However, the New Labor Code requires “a certain share value” for a foreigner to be exempt from a WP.  The Government will issue a decree in which such share values will be specified.

Employee representative organization. In addition to the internal trade union (which is a part of the state trade union), the New Labor Code allows the employees to set up one or more representative organizations inside the company and such an employee representative organization is independent from the state trade union.  If there is no employee representative organization inside the company, the company need not consult with the trade union at district level before the company issues, for example, internal labor regulations, salary schemes, policy to review work performance, etc.

***

The New Labor Code will impact some existing labor relationships.  It will be important to create a checklist in order to review all employment-related documentation, including labor contract, internal labor rules, codes of conduct and other internal policies, to be sure that they are in line with the New Labor Code.  This article can provide a good working checklist.

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