Key Developments under Vietnam’s New Labor Code
Michael K. Lee, Partner
February 21, 2020
The new Labor Code No. 45/2019/QH14, which became law on in November of 2019 (“New Code"), will become effective on January 1, 2021, superseding the existing Labor Code No. 10/2012/QH13 (“Old Code”). In this legal alert, we examine key developments under the New Code that are of particular relevance to foreign-invested entities operating in Vietnam. These include the abolition of indefinite term contracts for foreign employees, 180-day probation periods for corporate executives, the recognition of employee organizations as an alternative to labor unions, and new grounds for termination of employees.
Foreign Employees
Under the Old Code, employers could only sign two “definite-term” labor contracts (defined as labor contracts for a term of one to three years) with employees, and the third contract became an "indefinite-term” contract by the operation of law.[1] The New Code creates exceptions to this rule for certain types of employees, including foreign employees.[2] Furthermore, the duration of a foreign employee's labor contract cannot exceed the term of the employee's work permit.[3] Since the maximum term of a work permit is two years[4], this will limit the duration of a foreign employee's labor contract accordingly. If an employer wants to continue to employ the foreign employee after his/her initial term, the employer may enter into another definite-term contract.[5] There is no limitation on the number of definite-term contracts foreign employees can sign.
The abolition of indefinite term contracts for foreign employees can be seen as a positive development for employers. Vietnam does not have at-will employment. Termination of a labor contract before the end of its term can only occur on legally recognized grounds. Due to a variety of factors, it is often difficult to terminate a labor contract before the end of its term, even with proper legal grounds. With definite-term contracts, employers will have the option of not renewing labor contracts at the end of contract terms, and it will lessen the damages foreign employees could claim against their employers in wrongful termination cases. Foreign employees who have entered into indefinite-term contracts before January 1, 2021, would be able to maintain the indefinite-term nature of their contracts unless they agree otherwise.[6]
On a related note, under the Old Code, foreign employees are allowed two-year work permits, which are extendable for an additional term of up to two years without limit to the number of extensions. Under the New Code, only one work permit extension of up to two years is allowed.[7] Thereafter, the foreign employee would need to apply for a new work permit.
Probation
Under the Old Code, the parties entered into a separate probation contract before a labor contract.[8] The New Code provides the parties with a clear option of having either a separate agreement or combining the two contracts into one.[9]
Moreover, the Old Code limits the probation period to:
- 60 days for positions requiring college level or higher specialized expertise or technical expertise;
- 30 days for positions requiring vocational or professional intermediate level specialized or technical expertise or for technical workers and professional staff; and,
- 06 working days for other positions.[10]
- 180 days for executive positions in enterprises as prescribed by the Law on Enterprises;
- 60 days for positions that require a junior college degree or above;
- 30 days for positions that require a secondary vocational certificate, professional secondary school; positions of or for technicians, and skilled employees; and,
- 06 working days for other positions.[11]
- For limited liability companies:
- Chairman of the Members’ Council;
- A Member of the Members’ Council;
- Chairman of the Company;
- The Director/General Director; and,
- Other persons holding a managerial position who is authorized to enter into contracts or transactions on behalf of the company under the company's charter.
- For joint-stock companies (otherwise knowns as shareholding companies):
- The Chairperson of the Board of Management;
- A member of the Board of Management;
- The Director/General Director; and,
- Other persons holding a managerial position who is authorized to enter into contracts or transactions on behalf of the company under the company's charter.[12]