Terminating an employee is one of the most challenging issues that foreign investors have to deal with in Vietnam. In addition to communicating the performance issues, you have to handle the termination with care and follow Vietnam labor law to prevent any legal repercussions.
Vietnam labor law is more geared towards the benefits of the employees when it comes to termination. Therefore, foreign investors must follow all termination process faithfully according to the enforced regulations.
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The labor law related to termination applies to all workers under employment contracts in Vietnam, regardless of whether they are foreign employees or local employees. In other words, this law does not apply to foreigners working in Vietnam under overseas labor contracts.
Here’s a quick guide from Cekindo to help you plan your termination process. Mitigate the legal risks, even when the termination is inevitable.
Vietnam Labour Law: Factors Causing Contract Termination
Per Vietnam Labour Law, some of the triggers for the termination of a contract in Vietnam are:
- The expiration of the labour contract
- The project indicated in the contract has been completed
- Contract termination agreed by both parties
- The employee has reached his/her legal retirement age
- The death of the employee
- The employee is imprisoned
- The employee is deemed without the capability to act civilly
- Employee layoff due to company acquisition, merger, division, or consolidation caused by structural changes or economic conditions
- Unilateral termination of employee
- Unilateral termination of employer
Unilateral Termination
Employers need to pay attention to unilateral termination more carefully. This is to maximize staffing and protect the company’s operations from employee turnover.
Notice of Termination
Employer or employee must give a notice of termination in the event of termination. The notice’s length of a period is different between the employee and the employer. It depends much on the contract type both parties have agreed and signed.
Termination in Compliance with Vietnam Labour Law
In the event of termination, an employer needs to give the employee a minimum of 30 days for labor contract (definite term) and 45 days labor contract (indefinite term). It starts from the day the employee is officially unemployed. The employer needs to make all payments, including severance and unemployment benefits, in the following 7 days.
Related: Payroll and HR Outsourcing in Vietnam
Severance Payment in Vietnam
An employer may be responsible for the severance payment of the terminated employee. The legibility and the amount of severance payment depend a lot on many factors. These factors include salary, employment time for a current position, and how long they have had the social insurance.
Employee’s Eligibility for Severance Payment
All employees are eligible for severance payment as long as they have been working for at least 12 months. The termination must be caused by one of the above-mentioned factors.
The amount of severance payment is 50% of the employee’s monthly wage times the number of years the employee has served at the company.
Wage Calculation
Calculation of employee wage is based on the payments in the previous six months.
Deductions of Social Insurance
Employers may be able to deduct the social insurance payment from the severance payment to employees.
Consult with Cekindo to Understand Vietnam Labour Law
Employee termination is undoubtedly one of the most daunting tasks for foreign investors in Vietnam. Knowing how to navigate the labor law will help your business move forward more rapidly and at the same time is important for your business reputation.
For more detailed information regarding employee termination, please seek professional consultation at Cekindo. You can rely on Cekindo’s expertise to help you get through those appalling, challenging, and yet inevitable situations.
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