Termination, severance and redundancy: the employer's grounds and notice periods, resignation, mutual agreement, disciplinary dismissal, redundancy for restructuring or economic reasons, severance and job-loss allowances, and unlawful termination

The routes by which employment ends

Vietnamese law does not allow termination at will. Article 34 of Labour Code No. 45/2019/QH14 lists the only ways a labour contract ends: expiry of a definite term; completion of the agreed work; mutual agreement; the employee's imprisonment, deportation (for a foreign employee) or death; the death of an individual employer or the cessation of operations of an organisational employer; dismissal as a disciplinary penalty; unilateral termination by the employee under Article 35 or by the employer under Article 36; termination for restructuring, technological change, economic reasons, merger, division or transfer of ownership under Articles 42 and 43; expiry of a foreign employee's work permit; and failure or cancellation of probation. Any termination outside these routes, or without their procedure, is unlawful.

In practice most terminations of employees who are not at fault are achieved by mutual agreement under Article 34(3), documented in a termination agreement that records the termination date, the payments and a release. The employer's statutory grounds are narrow, the procedures are formal and the remedies for getting them wrong are heavy, so a negotiated exit with a package above the statutory minimum is usually quicker and cheaper. The agreement must be voluntary; one obtained by pressure can be set aside.

The employer's unilateral grounds and notice

Article 36(1) allows the employer to terminate unilaterally in seven situations only: (a) the employee frequently fails to perform the work as assessed against criteria in the employer's own performance regulations, which must have been issued after consulting the employee representative organisation; (b) the employee has been ill or injured and has not recovered after 12 consecutive months of treatment under an indefinite contract, six months under a contract of 12 to 36 months, or more than half the term of a shorter contract; (c) natural disaster, fire, dangerous epidemic, enemy action or relocation or downsizing at the request of the authorities force the employer to reduce jobs after it has tried every means to avoid it; (d) the employee fails to return to work after the end of a period of suspension of the contract; (e) the employee reaches retirement age, unless otherwise agreed; (f) the employee abandons work without good reason for five or more consecutive working days; and (g) the employee gave false information when entering the contract that affected the recruitment.

Under Article 36(2) the employer must give at least 45 days' notice for an indefinite-term contract, at least 30 days for a definite-term contract of 12 to 36 months, and at least 3 working days for a contract of under 12 months and in the illness case. For the occupations listed in Article 7 of Decree No. 145/2020/ND-CP, which include aircraft crew, ship crew and managers of enterprises under the Law on Enterprises, the notice is at least 120 days for an indefinite contract or a contract of 12 months or more, and at least a quarter of the term for a shorter one. No notice is required for grounds (d) and (f). Article 37 prohibits unilateral termination while the employee is being treated for illness or injury on medical advice (except under ground (b)), is on annual or other authorised leave, or is pregnant, on maternity leave or raising a child under 12 months, save where the employer ceases operations.

Ground (a) is the one employers most often lose on: it requires written criteria issued before the assessment, a documented assessment and repeated failure.

Resignation by the employee

Article 35 gives the employee a right to resign without stating a reason, on 45 days' notice under an indefinite contract, 30 days under a contract of 12 to 36 months and 3 working days under a shorter contract, or 120 days for the occupations in Decree No. 145/2020/ND-CP. The employee may leave without notice if not assigned the agreed work or workplace, not paid in full or on time, maltreated, sexually harassed or subjected to forced labour, if pregnant and advised to stop work, on reaching retirement age, or if the employer gave false information that affected the contract. Severance is due for uncovered service after 12 months.

An employee who leaves without the required notice and without a ground terminates unlawfully: under Article 40 he or she loses severance, must pay half a month's salary in compensation and salary for the days of notice not given, and must reimburse training costs where a training agreement so provides.

Dismissal as a disciplinary penalty

Dismissal (sa thải) is the heaviest of the four disciplinary penalties in Article 124, alongside reprimand, extension of the period for a salary increase by up to six months, and demotion. Under Article 125 it is available only where the employee: commits theft, embezzlement, gambling, intentional injury or drug use at the workplace; discloses business or technology secrets or infringes the employer's intellectual property; causes or threatens serious damage to the employer's property or interests; commits sexual harassment at the workplace as defined in the internal labour rules; repeats a disciplinary offence while a previous penalty of extended salary-increase period or demotion is still running; or is absent without good reason for a total of five days in 30 days, or 20 days in 365 days.

The procedure in Article 122 and Decree No. 145/2020/ND-CP is strict. The employer must prove the employee's fault; must hold a disciplinary meeting, notifying the employee and, where he or she is a member, the employee representative organisation in advance; must allow the employee to attend and to defend himself or herself or be represented by a lawyer or the union; and must record the meeting in minutes. The offence must be one described in the internal labour rules (or the contract or the law), which is one reason why registered internal rules matter (Internal labour rules, unions and disputes). Under Article 123 the decision must be issued within six months of the offence, or 12 months for offences concerning finance, assets or the disclosure of business or technology secrets. Discipline may not be imposed while the employee is on sick or authorised leave, in detention, or pregnant, on maternity leave or raising a child under 12 months; Article 127 prohibits fines and salary cuts as penalties. A dismissed employee receives no severance.

Redundancy for restructuring or economic reasons

Article 42 allows an employer to terminate employees whose jobs disappear because of a change of structure or technology, such as reorganising the workforce, changing processes or equipment, or changing products, or for economic reasons, such as a crisis or recession, or the implementation of State policy on economic restructuring or international commitments. Article 43 applies a similar regime to mergers, consolidations, divisions and transfers of ownership or of the right to use assets. The employer must be able to prove the reason and its effect on these jobs.

Where the change affects the jobs of many employees, the employer must prepare a labour use plan under Article 44, stating the employees to be retained, retrained, transferred to part-time work, retired and terminated, and the measures and funding for implementing the plan. It must consult the employee representative organisation (the grassroots union, where one exists) on the plan and on the terminations, and the employees may only be let go after that consultation and after 30 days' notice to the provincial People's Committee, in practice the provincial Department of Home Affairs, and to the employees (Article 42(6)). The plan must be publicised to employees within 15 days of its approval.

Each terminated employee with 12 months' service receives the job-loss allowance under Article 47, not severance. A redundancy that skips the plan, consultation or notices is unlawful even where the economic reason is real. Restructuring on an acquisition or exit is covered in Chapter 8.

Severance, job-loss allowance and the unemployment insurance offset

Under Article 46 an employee who has worked regularly for the employer for 12 months or more and whose contract ends by expiry, completion of work, mutual agreement, the employee's or employer's lawful unilateral termination, and certain other cases receives a severance allowance of half a month's salary for each year of service. Severance is not payable where the employee qualifies for a pension or is dismissed. Under Article 47 an employee with 12 months' service who loses the job under Article 42 or 43 receives a job-loss allowance of one month's salary for each year of service, and at least two months' salary.

Both allowances are calculated on the employee's working time: the total time actually worked for the employer, less the time during which the employee participated in unemployment insurance and any period for which severance or job-loss allowance has already been paid. Because unemployment insurance has applied to Vietnamese employees since 2009, the working time of most Vietnamese employees today consists only of periods not covered, such as a probation period under a separate probation contract. For them, severance is often small or nil, while the job-loss allowance is the two-month minimum. Foreign employees do not participate in unemployment insurance, so their whole period of service counts, and their severance and job-loss allowances can be substantial. Decree No. 145/2020/ND-CP rounds odd months: up to six months counts as half a year and more than six months as a full year. The salary used is the average salary under the labour contract for the six consecutive months before termination.

Under Article 48 the employer must settle all amounts due, including salary, unused annual leave and the allowances, within 14 working days of termination, extendable to 30 days in cases of cessation, restructuring, economic reasons, merger or division and force majeure. It must also confirm the insurance periods and return the employee's original documents.

Unlawful termination and its consequences

A termination that does not comply with Articles 35, 36 or 37, or with the redundancy or disciplinary procedures, is unlawful (Article 39). Under Article 41 the employer must reinstate the employee under the existing contract, pay salary, social insurance, health insurance and unemployment insurance for the days the employee was prevented from working, and pay an additional amount of at least two months' salary under the contract. If notice was not given in full, it must also pay salary for the days of notice missed. If the employee does not want to return, the employer pays severance in addition to these amounts; if the employer does not want to reinstate and the employee agrees, the parties agree additional compensation of at least two months' salary.

The back-pay element makes delay expensive. A termination dispute may be taken directly to court without mediation (Article 188) within one year (Article 190), as explained in Internal labour rules, unions and disputes.