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

September 6, 2018

Investing in Vietnam: Key Points on Vietnamese Employment Law

Subscribe to Updates
Bangkok Post, Human Resources Watch Column

Investment by Thai companies in Vietnam is surging over recent years, especially after several major M&A deals in the last few years in the beverage, retail and other sectors. However, Thai companies, as well as all foreign investors in Vietnam, should be aware of some common pitfalls in regard to Vietnamese employment law.

Termination of Employees

One important point that new investors must be aware of is the very pro-employee labour regulations of Vietnam. If a staff member must be let go, very strict legal processes must be followed (such as in some cases consultation with the local labour authorities or trade union organisation). Failure to abide by the processes can result in the employee being reinstated, and the company being required to pay very high damages, even in the hundreds of thousands of US dollars. Thus, it is always very important to consult with legal counsel in such situations before taking action.

Internal Labour Regulations

It is also important to note that all companies in Vietnam with 10 or more employees must register their internal labour regulations/work rules with the local labour authorities. Failure to do so can lead to grave consequences. For example, one company discovered that there was an embezzlement scheme secretly taking place within its organisation in Vietnam. The company conducted an internal investigation, spending huge amounts of money on data forensics and forensic accounting to prove the embezzlement. However, because the company failed to register its internal labour regulations, the employees could not be terminated, and the company ultimately had to negotiate with the employees to resign, and ironically had to pay an incentive bonus to encourage the embezzling employees to leave the company.

The formation of the internal labour rules requires the involvement of the trade union organisation which is set up within the company, or the trade union federation of the district/industrial zone where the company is located.

Labour Due Diligence

In terms of labour issues in the context of M&A transactions in Vietnam, many companies fail to do proper due diligence on the target company, and this can have very damaging implications. There have been several cases of investors incurring huge liabilities unknowingly. For example, one company purchased a target company but did not realise that the target company had over many years categorised a large part of salary paid to a huge workforce as simply “allowances,” but had not paid personal income taxes and social insurance on the amount. After the target company was purchased, the tax authorities discovered the issue and then imposed fines and back tax amounts in the millions of US dollars on the buyer.

The investor should ensure that the target company does not owe the statutory social insurance, medical insurance and unemployment insurance premiums as well as the trade union fee. Some violations regarding failure by a company to pay social insurance can even lead to criminal liability. By doing careful due diligence before investing in Vietnam, investors can ensure the success of their projects and avoid harmful mistakes.

Labour Contracts

Additionally, companies need to pay close attention to the type of labour contract they sign with regard to the term. Is it a fixed-term or an indefinite-term contract? The rights under these contracts differ greatly. In particular, the rights of indefinite-term employees are very high. Thus, employers should take great care when entering into labour contracts. Notably, a probation period of up to 60 days is acceptable. During the probation period, the parties (employee and employer) may terminate the labour contract/probation contract if the probation work is not satisfactory.

A labour contract must include certain compulsory contents such as the job specification, working time and rest time, salary, place of work, term of the contract, social insurance contributions, etc. Apart from these compulsory contents, the employer can, based on the position of the relevant employee, provide additional items, such as those relating to responsibilities to protect the trade secrets of the employer.

The Labour Code of Vietnam provides for the automatic conversion of a definite term contract or a seasonal contract into an indefinite term contract or a 24-month definite term contract, respectively, if the employee continues to work for employer but the parties fail to sign a new contract within 30 days from the date of the contract’s expiry. Thus, it is very important for companies to keep track of the expiry date of all labour contracts. If a company forgets to conduct the proper termination procedures on time, a low-performing employee on a fixed-term contract can suddenly become a more permanent problem.

It is possible for Thai companies to send management to Vietnam under contracts governed by Thai law, and avoid the contract being governed by Vietnamese law. This is called an intracompany transfer. However, many companies that try to structure the employment relationship in this way ultimately fail due to not following best practices. For example, while maintaining the labour contract with the offshore company, the employee, in some cases, also enters into an employment/labour agreement with the local company for work permit or other purposes. A mix-up in any of these areas can lead to the employment relationship being governed by Vietnamese law.

Working Hours

Generally, working hours must not exceed eight hours a day or 48 hours a week. However, if the employer chooses to have employees working hours figured on a weekly basis, the working hours must not exceed 10 hours a day and/or 48 hours a week. Night working hours run from 10 p.m. to 6 a.m. of the subsequent day. The employee is entitled to a break (including for meal time) of at least 30 minutes each day, and an employee who works at night is entitled to a break of at least 45 minutes each day, which shall be included in the number of working hours.

Employees working on shifts are entitled to a break of at least 12 hours before moving to another shift. In every week, an employee is entitled to a break of at least 24 consecutive hours, or at least four days off per month where it is impossible for an employee to have weekly leave due to the work cycle.

The above tips should be helpful to new investors from Thailand in Vietnam, as well as companies already operating in Vietnam.

Download Full Article
Related Professionals

Practices

Employment

Location

RELATED INSIGHTS​ 

February 22, 2021
Following the recent imposition of sanctions on Myanmar individuals and companies by the US, the UK and Canada have now imposed new sanctions. As with the US sanctions, these new measures impact UK and Canadian citizens and companies, and non-UK and non-Canadian companies and citizens with interests in those jurisdictions. The EU has indicated that it is planning to issue similar sanctions in the near future. New UK Sanctions In addition to the 16 individuals already sanctioned by the UK government, on February 18, 2021, the UK government announced that three individuals have been sanctioned for serious human rights violations and are now subject to asset freezes and travel bans. The full list of Myanmar individuals and companies sanctioned by the UK is available on the website of the Office of Financial Sanctions Implementation. Breaches of UK financial sanctions are criminal offences punishable in the UK by up to 7 years imprisonment and heavy fines. New Canadian Sanctions Also on February 18, timed to coincide with the UK sanctions, new Canadian sanctions were imposed on nine individuals. As with the UK, Canada already had a number of individuals in the Myanmar military on its sanctions list, and the new additions bring the total number of individuals sanctioned by Canada to 54. All assets of these individuals in Canada are now frozen, and they are banned from travelling to Canada. Canadian businesses or entities may not do business with any of the 54 individuals. Full details of the impact of the sanctions are available on the Government of Canada’s website, as is a database of the Myanmar individuals and companies subject to them. Breach of Canadian sanctions carries with it up to 5 years’ imprisonment in Canada and/or a large fine. Other Countries The EU is reportedly drawing up sanctions
Read More
January 26, 2021
On January 1, 2021, the government of Vietnam issued Decree No. 152/2020/ND-CP dated December 30, 2020, providing guidance concerning foreigners working in Vietnam (Decree 152). Foreign investors and expatriates should be aware of some notable new points.
Read More
January 12, 2021
Due to the resurgence of the COVID-19 pandemic in Thailand since December, 2020, Thailand’s Ministry of Labor recently published two regulations under the Social Security Act (SSA) in the Government Gazette: The Regulation on Entitlement to Compensatory Benefits in the Event of Unemployment Due to Force Majeure from the Pandemic of Dangerous Communicable Disease Under Relevant Law Relating to Communicable Diseases B.E. 2563 (2020) (the Force Majeure Regulation); and The Regulation on Determination of the Amount of Contributions to the Social Security Funds B.E. 2563 (2020) (the SSF Contribution Regulation). Details of the two regulations are provided below. The Force Majeure Regulation This regulation is similar to a previous regulation from April, 2020, during the first wave of the pandemic, stating that the definition of force majeure under the Social Security Act B.E. 2533 (1990) (the SSA) includes hazards from pandemics of dangerous communicable diseases (including COVID-19). This definition therefore affords protection to insured persons (i.e., employees) in the event that the COVID-19 pandemic results in their being unable to work, or their employers being unable to operate their business normally. This regulation allows the Social Security Office (SSO) to pay compensation to employees who: are insured persons who qualify to receive compensatory benefit in case of unemployment in accordance with the SSA; have to cease working temporarily during the period from December 19, 2020 onwards; and do not receive wages from their employer during the temporary cessation. This applies only if the circumstances above result from the following force majeure events related to hazards from COVID-19 (or other pandemics of dangerous communicable diseases that affect the public under the Communicable Diseases Act B.E. 2558 (2015)): The employee cannot work, or the employer does not allow the employee to work, because of quarantine or to comply with a COVID-19
Read More
November 3, 2020
Many Thai and international companies have expanded rapidly into Myanmar in recent years, in what had seemed to be an unstoppable expansion of cross-border trade resulting from the country’s emergence back onto the global stage. For those companies, the COVID-19 situation in Myanmar has been a cause for much concern and uncertainty—doubly so for those who had hired staff in the jurisdiction, as a lack of clarity regarding their obligations as employers was compounded by a lack of information on the situation on the ground.
Read More