You are using an outdated browser and your browsing experience will not be optimal. Please update to the latest version of Microsoft Edge, Google Chrome or Mozilla Firefox. Install Microsoft Edge

March 24, 2020

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

Subscribe to Updates

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.

Related Professionals

Practices

Employment

Location

RELATED INSIGHTS​ 

May 10, 2021
Attorneys from Tilleke & Gibbins’ offices in Myanmar, Thailand, and Vietnam have contributed chapters on labor law in these jurisdictions to the Global Employment Law Guide, published by Lex Mundi. The guide provides answers to key employment-related legal questions in 57 jurisdictions around the world, with all entries provided by member firms in the global Lex Mundi legal network. Each chapter contains in-depth information on the jurisdiction’s legal framework governing employment relationships, including coverage of the following topics: Employment categories and contract types Employee rights and protections Employment termination Leave and social benefits Restrictive covenants COVID-19 vaccination mandates and post-pandemic workplace reopening Readers can browse the contributions, generate country-specific reports, and compare attorney-client privilege in multiple jurisdictions. For more information, please visit the Lex Mundi website.
Read More
March 2, 2021
Maintaining positive employee relations is a top concern for virtually all companies. Many companies in Thailand—especially those located in the country’s industrial estates—have labor unions, while others rely on other non-union pathways for attending to the concerns of employees. In all of these cases, the union or collective group of employees also chooses members of the “employee committee” that is charged with fostering good relations and open communications with the employer through regular meetings dedicated to discussion of workplace matters. Companies with a workforce of 50 or more employees need to understand the roles of the employee committee and the specific rights accorded to the committee members, which are different from the rights of the other employees. Besides the obvious benefits that this understanding has for relations with their employees, it is also important if an employer takes disciplinary action against employee committee members, as violation of a committee member’s rights could result in the employer facing criminal penalties. The legal basis for these employee committees is the Labor Relations Act B.E. 2518 (LRA), which stipulates that in any workplace with at least 50 employees, the employees or their labor union of the business establishment is entitled to establish an employee committee. Members are elected (or, in the case of a labor union, appointed) to three-year terms on the committee, with the total number of committee members depending on the size of the workforce, as shown in the table. Membership Requirements Among partially unionized workforces, labor unions are generally given precedence when it comes to control of the committee. If a labor union whose members account for more than 20% of the total employees in a workplace, the union gets to appoint the majority of the employee committee members (e.g., four out of a seven-person committee, five of a
Read More
February 23, 2021
As many are already aware, following the change of government in Myanmar on February 1, 2021, a draft Cyber Security Law was proposed which attracted widespread criticism. However, less attention has been paid to significant amendments to two existing laws, some of which have a similar effect to parts of the draft Cyber Security Law. In other words, while the draft Cyber Security Law has not progressed further and is under public scrutiny, significant elements of it have found their way into law in Myanmar by other routes. Because these amendments are already law, it is very important that individuals and businesses in Myanmar understand their implications. Amendments to the Law Protecting the Privacy and Security of Citizens The Law Protecting the Privacy and Security of Citizens (2017), or the “Privacy Law,” was amended on February 13, 2021, less than two weeks after the military government came into power. These amendments chiefly address the power of the government to conduct searches, seizures, and arrests; to extend detention without judicial oversight; and to carry out broad surveillance and investigation activities that could intrude on individual privacy. The amendments accomplish this by suspending various sections of the Privacy Law for as long as the State Administration Council (the military body now governing Myanmar) is in power. The suspended sections include the following: Section 5: Search, seizure, and arrest without civilian observation The relevant part of Section 5 of the Privacy Law states, “The responsible authorities shall … when acting in accordance with existing law, not enter into a person’s residence or a room used as a residence, or a building, compound or building in a compound, for the purpose of search, seizure, or arrest, unless accompanied by minimum of two witnesses who should comprise Ward or Village Tract Administrators…”. The suspension
Read More