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Labour Contracts in Vietnam: Ultimate Guide 2024

In Vietnam, labour contracts are governed by the Labour Code (Law No. 45/2019/QH14), which establishes the rights and obligations of both employers and employees. Labour contracts must be clearly defined and meet specific legal requirements to ensure the protection of both parties. Here is a detailed overview of the key elements of labour contracts in Vietnam:

1. Types of Labor Contracts

There are three primary types of labour contracts in Vietnam:

Indefinite-term Contract: This contract does not specify a termination date and is valid until one of the parties decides to terminate the contract.

Definite-term Contract: This contract has a fixed term, generally between 12 and 36 months, and automatically terminates upon the expiration of the term unless otherwise extended or renewed.

Seasonal or Work-Specific Contract: For contracts under 12 months, this type is often used for seasonal work or specific tasks that do not require a longer engagement.

2. Mandatory Contents of Labor Contracts

A labour contract must contain specific elements as outlined in Article 21 of the Labour Code, including:

Details of the parties: Names, addresses of the employer, and personal details of the employee (such as ID card, passport number, or residency information).

Job description: The nature of the work, responsibilities, and tasks assigned to the employee.

Workplace: The location where the work will be performed, including information on whether remote work is allowed.

Salary: The agreed-upon salary, including details of any allowances, bonuses, and additional payments.

Working hours: Specific working hours, overtime conditions, and rest periods.

Term of the contract: For definite-term contracts, the start and end dates must be specified.

Social insurance and health insurance: The employer’s responsibility to provide insurance in compliance with Vietnam’s Social Insurance Law.

Occupational safety and hygiene: Provisions for a safe working environment as required by law.

3. Form of the Labor Contract

Labour contracts in Vietnam must be in writing, with two copies signed by both parties (employer and employee), each retaining one copy.

In exceptional cases where a verbal contract is allowed (e.g., contracts for under one month), both parties must still comply with all legal obligations, particularly those concerning wages and social insurance contributions.

4. Probationary Period

Article 25 of the Labour Code allows for a probationary period, which must be explicitly stated in the contract. The probationary period depends on the job role:

  • Up to 60 days for managerial or professional positions.
  • Up to 30 days for intermediate or technical positions.
  • Up to 6 days for other jobs.

During the probationary period, the employee’s salary must be at least 85% of the agreed salary.

5. Amendment and Renewal of Contracts

A definite-term contract can only be renewed once. After the second renewal, it must be converted into an indefinite-term contract if both parties agree to continue.

Any amendments to the contract, including changes to working hours, salary, or job description, must be agreed upon by both parties and confirmed in writing.

6. Termination of Labor Contracts

Voluntary termination: Either party can unilaterally terminate the contract with advance notice:

  • 30 days for definite-term contracts.
  • 45 days for indefinite-term contracts.
  • 3 working days for seasonal or specific-task contracts.

Immediate termination: In cases where the employee seriously violates company rules, engages in theft, fraud, or other misconduct, the employer may terminate the contract without advance notice. Conversely, employees can also terminate contracts without notice if employers fail to meet legal obligations.

In case of force majeure or corporate restructuring, employers must comply with specific procedures to lay off employees, including severance pay as outlined in Article 47 of the Labour Code.

7. Severance and Retrenchment Benefits

Employees who have worked for 12 months or more are entitled to severance pay if their contract is terminated due to reasons such as job redundancy or company closure. The severance pay is calculated at half a month’s salary for each year of service.

If a labour contract is terminated due to economic reasons or restructuring, employees may be entitled to retrenchment pay, calculated similarly to severance pay.

8. Social Insurance and Benefits

Employers are required to enrol employees in social insurance, health insurance, and unemployment insurance. Contributions are shared between the employer and the employee, as stipulated by the Law on Social Insurance.

9. Non-Compete and Confidentiality Clauses

Employers may include non-compete and confidentiality clauses in labor contracts to protect company information and business interests. However, these clauses must comply with the Labor Code and cannot infringe on the employee’s fundamental rights.

10. Dispute Resolution

In case of disputes over the terms of the labour contract, both parties can seek mediation through a labour mediator. If unresolved, disputes can be taken to a labour arbitration council or the Vietnamese labour courts.

11. Additional Provisions

Labour contracts can also include additional provisions like overtime pay, performance-based bonuses, and other benefits as agreed upon by the parties. However, these must comply with the minimum standards set by law.

12. Labour Contracts for Foreign Workers in Vietnam

Foreign workers in Vietnam are subject to specific regulations in addition to the general labor laws. These regulations aim to ensure that foreign employees have the necessary legal authorization to work and that their employment complies with both Vietnam’s Labor Code and relevant immigration laws.

Work Permits for Foreign Workers

Foreign workers are generally required to have a valid work permit before entering into a labor contract in Vietnam. There are exceptions for certain cases, such as investors, experts, or managers, but most foreign employees must meet the following conditions to obtain a work permit:

  • They must be at least 18 years old.
  • They must have professional skills, qualifications, and experience suitable for the job they are hired for.
  • They must be in good health, as certified by a medical authority.
  • They must not have a criminal record or be under investigation for any criminal offences.

Work permits are issued for a maximum of two years and can be renewed once. After the work permit expires, the foreign worker must reapply for a new one if they wish to continue working in Vietnam.

Types of Labor Contracts for Foreign Workers

Labour contracts for foreign employees must be aligned with the terms of their work permits, which means the contract can only be for a fixed term, usually matching the duration of the work permit (up to two years). Contracts for foreign workers must be in writing and include the same mandatory details as for Vietnamese employees, such as job description, wages, social insurance contributions, and working conditions.

Probation Period for Foreign Workers

The probationary period for foreign workers follows the same rules as for Vietnamese workers. However, the employer must ensure that the probationary period does not extend beyond the date of the employee’s work permit approval. During probation, foreign workers must receive at least 85% of the agreed salary as per the general regulations of the Labor Code.

Social Insurance for Foreign Workers

Since December 1, 2018, foreign workers are required to participate in social insurance if they meet the following conditions:

  • They have a labour contract with a term of one year or more.
  • They possess a work permit, practising certificate, or practising licence issued by the Vietnamese authorities.

Foreign employees must contribute to the social insurance fund, which covers sickness, maternity, occupational accidents, retirement, and survivorship. However, foreign workers are exempt from unemployment insurance contributions. Both employers and employees must make contributions, with the employer contributing 17.5% and the employee contributing 8% of their monthly salary.

Exemptions from Work Permits

Certain categories of foreign workers are exempt from work permits, including:

  • Managers, executives, and technical experts working for short periods (less than 30 days per visit and no more than 90 days in a year).
  • Foreign nationals who enter Vietnam to offer services as part of international treaties.
  • Employees of foreign NGOs or international organisations in Vietnam.

However, even if exempt from a work permit, the employer must notify the Department of Labor, War Invalids, and Social Affairs (DOLISA) at least 3 days before the worker starts their job, providing documentation proving their exemption.

Termination of Labor Contracts for Foreign Workers

The termination of labour contracts for foreign workers follows the same legal procedures as for Vietnamese employees, with specific attention to the expiration of the work permit. If the work permit expires or is revoked, the labour contract is automatically terminated unless the foreign worker secures a new permit or legal authorization.

When a foreign worker’s contract is terminated, the employer must ensure that all due payments, including severance pay, social insurance, and other benefits, are settled in accordance with the law. The foreign worker may also need to comply with immigration laws to avoid overstaying their visa.

Penalties for Non-Compliance

Employers who hire foreign workers without the proper work permit or fail to follow the legal requirements for employing foreign nationals can face significant penalties. These include fines, suspension of business operations, or revocation of the employer’s licence to hire foreign workers. Foreign employees who work without a valid permit are subject to fines and possible deportation.

What’s next?

A broad understanding of labour contracts in Vietnam is crucial for navigating the legal and operational landscape of employment. It ensures compliance with the Labor Code (2019), helping businesses avoid legal issues and potential penalties related to improper contract terms, termination procedures, and employee rights. Knowledge of labour contracts also aids in designing fair and competitive employment packages, which are essential for attracting and retaining skilled employees in a competitive job market.

Moreover, understanding the specifics of probationary periods, severance pay, and social insurance requirements helps manage employment relationships effectively and mitigate risks associated with disputes and compliance failures. It also enables businesses to adapt to local practices and cultural expectations, fostering positive employee relations and organisational stability. Overall, a comprehensive grasp of labour contracts supports both legal compliance and effective human resource management in Vietnam’s dynamic work environment.

That said, Vietnam’s economy is dynamic and key labour regulations and labour laws are prone to change from time-to-time. With this in mind, foreign firms should make sure to keep up to date with the latest developments by subscribing to the-shiv.

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