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March 24, 2020

Actions Available to Employers in Vietnam Facing COVID-19 Business Disruption

The COVID-19 pandemic has had an unavoidable impact on the economy of Vietnam. While the country’s infection numbers remain commendably low thanks to timely and strict containment and mitigation efforts, everyday life and business have still been turned upside-down as buildings have been closed and neighborhoods have been quarantined, and consumers have dramatically changed their spending patterns.

Under these epidemic conditions, while some companies have been able to shift employees to a work-from-home model with minimal disruption, others have been forced to temporarily shut down or curtail operations due to government orders or a lack of customers, leading to the uncomfortable question of what to do with idle employees. Even companies which have successfully switched to an online/work-from-home model are facing difficult decisions about certain types of employees who are no longer being utilized, such as drivers and cleaners.

In the unfortunate situation that continuing with full employment becomes unviable, companies in Vietnam have some options: They can let people go under a restructuring (akin to a layoff); they can keep the employees but renegotiate lower salaries for a temporary period; or they can negotiate mutual termination/voluntary resignation.

1. Restructuring

Article 36.10 of the 2012 Labor Code (valid until January 1, 2021, when it will be replaced by the new 2019 Labor Code) allows employers to terminate the labor contracts of employees in the case of layoffs/redundancy due to “restructuring, changes in technology, or economic reasons.” Decree No. 05/2015/ND-CP of the Government dated January 12, 2015, as amended on October 24, 2018, further defines economic reasons to include economic crisis or recession. Thus, it could be argued that if the COVID-19 pandemic has brought about a recession (which currently is true in Vietnam), then terminations via layoffs would be justifiable.

However, under Vietnam’s labor law, if two or more employees are made redundant, the employer must formulate a “labor usage plan” for the restructuring, identifying who will be let go, and send this to the local trade union, or the employer’s own trade union, if it has one. The employer must then wait for the trade union’s consent, which, in practice, may take two months or more. Some local trade unions may not provide a clear opinion on whether they consent to the provided labor usage plan, but will instead simply reply that the company is required to formulate and implement a labor usage plan in accordance with the applicable laws and regulations of Vietnam. If this is the case, the employer may need to work again with the local trade union, which will take additional time. The provincial labor authority must then be notified of the employees’ termination at least 30 days before the terminations occur. Thus, the timeline for such restructuring can be very long.

Each employee let go must receive one month’s salary per year of service (which does not include the time that the employee participated in unemployment insurance)—and a minimum of two months’ salary—as payment due to termination as a result of redundancy.

2. Temporary Salary Reduction

Vietnam has a few special rules relating to epidemics. Specifically, under Article 98.3 of the Labor Code, if an epidemic (or other force majeure event) has been declared and work must be stopped, employers are allowed to renegotiate with their employees to temporarily accept a lower salary during the work stoppage, provided it is not lower than the statutory regional minimum wage.

As the regional minimum wage is relatively low (currently about USD 190 per month for Hanoi and Ho Chi Minh City), salary renegotiation may not be an attractive option for employees, especially those in skilled or white-collar positions.

3. Negotiate Mutual Separation

Because the restructuring process can take a long time, and salary renegotiation may be rejected by the employees, it is always best to meet with the employees, tell them the company is going to conduct a restructuring and thus their positions will be eliminated, but offer them an incentive to agree to a mutual separation. This saves the employer the time of going through the statutory process and saves the employees’ time as well.

Most employees should accept a mutual separation package, which is usually two to three months’ salary, except for those with long service.

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