Terminating Employees in Vietnam

Terminating an employee can be challenging for foreign investors in Vietnam. Vietnamese labor law is generally considered employee friendly, and the termination process must be based on statutory grounds, subject to formal requirements and procedures.

Contributing Advisor

Hong Nguyen

Manager, Payroll

The Vietnamese labor law applies to all employers working in Vietnam under labor contracts regardless of whether such employees are Vietnamese or foreign nationals.

However, the law does not apply to foreign national working in Vietnam via an internal company transfer under a foreign labor contract.

To mitigate the risks associated with labor retrenchment and to maximize flexibility in hiring, it is of significant importance for employers in Vietnam to understand the circumstances under which termination of contracts can be achieved as well as the financial obligation that may arise in these situations.

Contract termination triggers

Both employer and employee can unilaterally terminate a contract. Employers must give prior notice of at least 120 days for labor contracts with indefinite term or a fixed-term contract of 12 months or more. For labor contracts less than 12 months, prior notice of at least a quarter of the term of the contract must be given.

Further, employees will be able to immediately terminate a contract for mistreatment, pregnancy and if the employer fails to pay salary on time.

There are a number of events which can trigger, or be used to trigger, the contract’s termination. The following are some of the most widely seen contract termination triggers currently outlined in Vietnam’s labor code:

• The labor contract expires;
• The work stated in the contract has been completed;
• Both parties agree to terminate the labor contract;
• The employee reaches the legal age of retirement;
• The employee is sentenced to prison;
• The employee dies;
• The employee is ruled to have lost the capacity to act in a civil capacity;
• Layoffs related to economic conditions or structural changes to the company including merger, acquisition, consolidation, or division;
• Unilateral termination on the part of the employee; or
• Unilateral termination on the part of the employer.

Grounds for unilateral termination

Of all the categories of termination that are listed above, unilateral termination of contracts should be watched closely. Primarily to protect operations from turnover, but also to maximize staffing opportunities, it is important for employers to understand the circumstances under which unilateral termination of work contracts – both from an employer and employee perspective – may occur.

Notice

Both employers and employees are required to give notice to their counter party if they wish to terminate a labor contract pursuant to one or more reasons listed above. The length of the notice period differs slightly between employers and employees and is dependent on the type of contract that both parties are signatories.

Severance and payment in Vietnam

If a labor contract is terminated, employers may be liable for severance payment to the employee in question. The nature of severance payment is dependent on the salary of a given employee, the amount of time that the employee in question has been working in their current position, and the amount of time the employee has been covered under social insurance.

Termination compliance for employers

When terminating employees, employers will be required to notify the employee in question in accordance with the schedule that is outlined above. As indicated above, at least 15 days’ notice must also be given to workers whose services will no longer be engaged following the expiry of a definite term labor contract.

Following the last day of an employee’s work at the company in question, the employer will have seven days to make any and all payments pursuant to severance or job loss benefits outlined below.

Severance triggers and eligibility

Eligibility for severance payments is open to all employees who have been working for a company for 12 months or longer. Severance payments will be required in instances where:

• The employee who has worked on a regular basis (actual work period) for a period of at least 12 months.
• The employee who had the time did not participate in unemployment insurance.

Severance allowances are paid for all employees who are Vietnamese citizens or foreign citizens, as long as they meet all the above conditions.

Eligibility for severance payments is open to all employees who have been working for a company for 12 months or longer. Severance payments will be required in instances where an employer or employee can prove that one or more general termination triggers or unilateral termination provisions have occurred during employment as mentioned above. 

The way to calculate severance allowances is as below:

For each year worked (the "actual work period"), subtract the time the employee was enrolled in unemployment insurance. The remaining period will be worth half a month’s salary per year worked. Exceptions: This does not apply if the employee qualifies for retirement under social insurance laws or in specific cases outlined by relevant regulations.

Severance Pay=(Years Worked−Years in Unemployment Insurance)×½​×Monthly Salary

• The salary used as the basis for the calculation of the severance allowance shall be the average salary of the last six months under the employment contract before the termination.
• The employment period as the basis for the calculation of severance allowance is the total period over which the employee has worked for the employer in reality (hereinafter referred to as the “actual work period”) minus (-) the period over which the employee participates in unemployment insurance and the period over which the employer pays severance allowance.
• The work period as the basis for the calculation of severance allowance or redundancy allowance shall be expressed as years (full 12 months); if the number of months of an incomplete year is 6 months or less, it will be considered ½ year; if the number of months of an incomplete year is more than 6 months, it will be considered 1 year.