The New Labor Code 2019 (‘Labor Code 2019’) comes into effect on 1 January 2021 and entirely replaces the previous labor regime (‘Labor Code 2012’). To implement the new Labor Code 2019, the Vietnamese Government released two Decrees – Decree 145/2020/ND-CP dealing with most elements of the law (‘Decree 145’), and Decree 152/2020/ND-CP covering foreign employment matters on the law (inbound and outbound) (‘Decree 152’).
This Guidance is to summarize the fundamental amendments under Labor Code 2019, Decree 145 and Decree 152 that should be taken into account with a view to best protecting an employers’ legitimate rights and entitlements under Vietnamese labor law.
- NEW LABOR CODE 2019 – 16 CHANGES SINCE JANUARY 2021 THAT EMPLOYERS SHOULD BE AWARE!
- The definition of ‘employment relationship’ has been broadened
Pursuant to the Labor Code 2019, a legally valid employment relationship is deemed to exist even where two parties agree to a document by a different name rather than ‘a labor contract’, as long as the document includes a description of the job, salary, management, and supervision conditions. In other words, a contractual document with a different name is still considered to be a labor contract assuming the above general terms are included.
The new Labor Code 2019 creates the possibility that where a contract with an “independent contractor”, “service provider”, “freelancer”, or other informal agreement between two or more parties contains employment-like terms may specifically be recognized as a formal Vietnam-law labor contract.
From a practical perspective, this serves to prevent employers from misusing service contracts as an alternative mechanism for hiring individuals (as opposed to traditional labor contracts). The use of service contracts typically enables employers to more easily undertake termination without statutory restrictions, as well as avoid mandatory social insurance contributions, as would otherwise ordinarily be required under a formal employment contract.
It is thus necessary for an employer who genuinely wishes to engage an individual contractor for a specific service to prepare a specific service contract in order to avoid the potential risk that the relationship be characterized as one of employment and not of service.
- E-contracts are formally recognized
Labor contracts made by electronic means in data message form are now formally accepted and recognized under the Labor Code 2019. Specifically, labor contracts concluded via electronic devices in data message form have the same validity as those concluded in written form.
Additionally, a verbal labor contract can be concluded if the contractual term is for less than one (1) month.
- Seasonal labor contracts have been removed
From 1 January 2021, labor contracts can take either one of the following forms: (i) indefinite-term labor contracts, and (ii) definite-term labor contracts of maximum 36 months.
That is to say, compared to the current regulations of the Labor Code 2012, seasonal or work-specific labor contracts will no longer exist.
- Labor contract extension is no longer allowable
Under the Labor Code 2012, an annex to a labor contract serves to elaborate on specific provisions or to amend or supplement the primary labor contract. Specifically, the duration of a labor contract shall be amended only once by annex and type of the signed contract shall not be changed as the result.
Under current law, in practice, the employer is entitled to conduct one extension for each definite-term labor contract via an annex as an integral part of such labor contract. On this basis, by way of two definite-term labor contracts plus two extensions, an employer is potentially eligible to extend three times before the labor contract term is deemed indefinite by law.
Conversely, the employer can no longer do that under the Labor Code 2019. The reason is that, an annex to a labor contract fundamentally serves to elaborate, amend or supplement specific provisions of the labor contract, but must not change the duration of the labor contract.
- Multiple definite-term labor contracts are now allowed in certain cases
In principle, in case the two parties enter into a new labor contract with a definite-term, only one additional definite-term labor contract may be executed. After that, if the employee continues working, an indefinite-term contract shall be constituted.
Nevertheless, the Labor Code 2019 has addressed exceptions for this aforesaid principle whereby parties may sign multiple definite-term labor contracts under special circumstances, comprising: (i) elderly employees (i.e. employee working after reaching his/her retirement age); (ii) expat employees; (iii) members of executive boards of organizations representing the labor collective (including trade unions); and (iv) directors of state-owned enterprises.
- New regime for probationary periods
Probationary periods can last up to 180 days for managerial positions under Law on Enterprises or Law on management and use of state investment in enterprises, which greatly favor an employer from a recruitment perspective, effectively enabling for an extended trial period.
It is also worth noting that probation is not allowed if the employee works under a labor contract with a duration of less than one (1) month.
- Unilateral termination by employer
Since 1 Jan 2021, an employer shall have additional legal grounds to unilaterally terminate a labor contract, once:
(i) An employee has reached his/her retirement age, noting that under the Labor Code 2012 an employer CANNOT unilaterally terminate an employee who has not yet contributed to the social insurance regime in full for the purposes of pension entitlement, even though he/she has reached his/her retirement age;
(ii) An employee is absent from work without a legitimate reason for five (5) consecutive working days or more; or
(iii) The employee has provided false information that affects the recruitment of the employee.
Additionally, the Labor Code 2019 has granted extra protection for an employer to unilaterally terminate a labor contract without prior notice once:
(i) An employee fails to return to work after 15 days from the expiry of the suspension period of a labor contract; or
(ii) An employee is absent from work without a legitimate reason for five (5) consecutive working days or more.
- Unilateral termination by employee
From an employee perspective, under the Labor Code 2019, an employee has the right to unilaterally terminate a labor contract without any reason as long as they provide proper notice in advance (i.e. at least 45 days in case of indefinite-term labor contract; at least 30 days in case of definite-term labor contract of 12 to 36 months or at least 3 working days in case of definite-term labor contract of less than 12 months).
In addition to the above, an employee also has the right to unilaterally terminate the labor contract without prior notice should he/she:
- be not assigned to the contractual position or workplace;
- be not provided with the agreed working conditions;
- be not paid, in full or on time, the salary due as agreed in the labor contract;
- be mistreated or humiliated by the employer;
- be sexually harassed in the workplace;
- be pregnant and the continued employment would adversely affect the fetus;
- reach retirement age; or
- be provided with false information by the employer that affects the performance of the labor contract.
- New regulations on salary payment
Employers are now no longer required to register a salary table, salary scale, or salary norms with the labor authorities.
In case of salary paid via bank transfer, employers shall pay the cost of account opening and money transfer. An employer may also pay the salary to the employee’s authorized person.
Once taking annual leave, an employee may request the employer to pay advance payments equal to the salary for the entitled days of leave of such month. Should it be the case, the employer shall accordingly deduct these advance payments at the time of salary payment for the employee in question.
- Changes applicable to expat employees
The maximum term of a work permit for a foreign employee is two (2) years and may only be extended once for an additional maximum term of two (2) years. That is to say, new application in full for a new work permit should be prepared every four (4) years for those working in Vietnam for a long way. Under the current law, the maximum duration of a work permit is also two (2) years and can be renewed on an unlimited basis. Please see our further analysis in this regard under the section of Decree 152 herein below.
Employers and foreign employees may enter into multiple definite-term labor contracts. This regulation is to guarantee that the term of the expat employee’s labor contract shall be consistent with that of his/her obtained work permit.
In addition, expats married to Vietnamese citizens and living in Vietnam shall be exempt from the obtainment of work permit nor work permit exemption certificate. Please see our further analysis in this regard under the section of Decree 152 herein below.
- Labor discipline
The internal labor regulations may be registered at the district-level labor authority. We are of the presumption and view that the provincial labor authority may authorize a district-level labor authority to process an application for the registration of internal labor regulations.
Importantly, employers may impose disciplinary measures for violations stipulated not only in the internal labor regulations but also in the labor contract or labor laws. This is the case for an employer with less than 10 employees where internal labor regulation preparation and registration is not mandatory.
As a separate note, similar to current law, the procedure to impose labor discipline would strictly require the involvement of a representative organization of employees at grass-root level. However, it is also worth noting that, under new Labor Code 2019, representative organization of employees could be other internal employee organizations within the employer, in addition to the current regime of internal trade union which is purely under the sole management of Vietnam Labor Federation.
- Retirement ages have been increased
The age of retirement for employees working in normal conditions will follow a roadmap until the age of 62 years for men and 60 years for women. Specifically, the retirement age will be gradually increased to 62 years by 2028 for men, and 60 years by 2035 for women.
From 2021, the retirement ages of employees in normal working conditions shall be 60 years and 3 months for men, and 55 years and 4 months for women, and shall increase by 3 months for men and 4 months for women for each consecutive year.
- The number of public holidays has been increased by one day
National Day shall include two (2) days, namely (i) the second day of September; and (ii) the previous or next day.
- Overtime policy
The monthly overtime cap has been increased from 30 hours to 40 hours.
Additionally, the Labor Code 2019 has supplemented the circumstances where organizing overtime work of up to 300 hours in a year is permissible, comprising the manufacturing and processing of textiles, garments, footwear as well as electric and electronic products; and the processing of agricultural, forestry, aquaculture, and salt products.
Except for the special circumstances under Article 108 of the Labor Code 2019, the employer must obtain the employee’s consent on the (a) overtime; (b) place of overtime work; (c) part-time work via a written form No. 01/PLIV in Appendix IV issued together with the Decree 145.
Calculation for working overtime and working at night shift (from 10:00 pm to 6:00 am) shall follow the table below.
| Wage on a normal working day | A |
| Wage on a normal working day at night shift (without overtime) | 130% A |
| Overtime on a normal working day | 150% A |
| Overtime on weekends | 200% A |
| Overtime on public holidays | 300% A |
| Overtime on a normal working day at night shift | 210% A |
| Overtime on weekends at night shift | 270% A |
| Overtime on public holidays at night shift | 390% A |
- Concept of ‘sexual harassment’ has been introduced for the first time
‘Sexual harassment’ at the workplace is expressly introduced in the Labor Code 2019 and Decree 145, which is described as below
- Physical behavior including actions, gestures, sexual contact or physical contact on the body or sexual suggestion
- Verbal sexual harassment includes verbal sexual harassment, whether directly, through the phone or through electronic means with sexual content or sexual implications
- Non-verbal sexual harassment, including body language; display, describe visual material about sexual or related to sexual activity directly or electronically.
Procedures and policies on the prevention and handling of sexual harassment at the workplace must be included in the internal labor regulations, whereby ‘sexual harassment’ is now defined as a legal ground for dismissal. Specifically, ILR is required to include the following key contents regarding Sexual Harassment Prevention. From a practical perspective, to the best of our awareness, it is very likely that an ILR without the reflect of SH contents shall be rejected by the labor authorities upon registration.
- Strictly forbid acts of sexual harassment at the workplace
- Specifically define acts of sexual harassment at the workplace suitable to the nature and characteristics of the job and the workplace
- Responsibilities, time limit, and procedures for internal handling of the act of sexual harassment at the workplace, including complaints and denunciations, settle complaints, denunciations and related regulations.
- The form of labor disciplinary action against the person who commits the act of sexual harassment or the person who makes false accusers corresponding to the nature and severity of the violation
- Compensate for damage to the victim and remedial measures.
- Special policies for female Employees
- During the menstruation, female employees will have additional 30 minutes time-off per day for at least 3 days per month.
- During the time of raising infants, female employees will have 60 minutes additional time-off per day to breastfeed children, collect and store milk, or to take a rest.
- Employees should be fully paid for such time-off according to the labor contracts. Where they have no need to take leave and employer agrees for employee to work, employee will be paid additional salary according to the work that the employee has done during the leave period
- Employers are encouraged to enable female employees raising infants to collect and store breastmilk at the working places, and employers having 1,000 or more female employees must build rooms for collecting and storing breastmilk.
- DECREE 152 – VIETNAM’S KEY ISSUES FOR FOREIGN EMPLOYEES
Decree 152/2020/ND-CP was issued by the Vietnamese Government to cover both inbound and outbound foreign employment matters. Our analysis below is to further focus on the inbound sector, i.e. the key issues and changes arising from Decree 152 in light of expats working in Vietnam.
Generally speaking, the implementation of the foreign employment matters through Decree 152, has really resulted in significant implications and issues for expat employees and their employers in Vietnam. Decree 152 came into effect on 15 February 2021, and since this effective date, a number of employers have had to face difficulties in light of their demand on foreign experts, due to the cumbersome licensing process of work permit obtainment and renewal.
- The four-year duration
As addressed above, Decree 152 introduces a concept that a Work Permit (which is validly effective for up to 24 months), can be renewed once for up to 24 months, and then, after a period of maximum four years, a foreign employee is required to commence the process again to prove they are needed for a specific role in a Vietnam-based employer.
On this basis, as far as our understanding, the implication from the authorities is that four years is the maximum duration that an expat expert is needed in a Vietnamese business.
- Work Permits under the previous Decree are treated as irrelevant under Decree 152
Strictly speaking, it is impossible to renew an expiring Work Permit that was issued under the previous Decree. That is to say, application for new Work Permit (and new supporting documents) shall be required to be submitted.
As the procedure to obtain for a new Work Permit will take time, and foreign documents may not be easy to obtain due to border closures during Covid-19 pandemic, this is creating super headaches for those with expiring paperwork.
- Previous professional experience in Vietnam could be no longer utilized
Previously, relevant professional experience could be evidenced via legalized/notarized paperwork issued by previous employers, or by presenting previously issued Vietnam-law Work Permits.
However, under Decree 152, only documentation provided by offshore entities shall be accepted. That is to say, authorities are no longer accepting previous Vietnamese Work Permits (or other Vietnamese documentation) as evidence of professional experience.
- Experts must have relevant degrees with the potential role
Upfront, this is not a significant change from previous legal framework. Nevertheless, the strict requirement that the expert’s University Degree must be specifically relevant to the role being applied for results in trouble for those professionals who changed careers.
From a practical perspective, it could be an issue for experts issued with existing Work Permits for the role, but due to the demand to re-apply for new Work Permits they no longer satisfy the education requirements under such strict interpretations of Decree 152.
- Labor authority will challenge why a foreign employee is needed for a role in Vietnam
Specifically, an employer would need to prepare an official letter to clarify and explain its demand on foreign expert and submit same to relevant labor authorities. This explanation shall address the reason why the employer does not hire a Vietnamese national for this role.
This is understandable to ensure that foreign individuals do not take jobs that can be filled by Vietnamese nationals, and as a result will make the employment process far more cumbersome to meet the statutory requirements, subject to the wide discretion of labor authority.
- Expat married to a Vietnamese national
For the first time ever, a foreign individual married to a Vietnamese national can easily work for a Vietnam-based employer without the need to obtain the Work Permit nor the Work Permit Exemption Certificate, provided that the Vietnam-based employer could manage to get an in-principle approval that an expat is needed for a specific role in such company.
Putting that aside, given the exemption from the Work Permit and the Work Permit Exemption Certificate, labor contracts for these expats exempt via marriage are not subject to a maximum 24-month contract, which can be a significant benefit to the individual. In other words, in the absence of a fixed-term Work Permit or a fixed-term the Work Permit Exemption Certificate, this could be implied that it is possible for the employer to offer an indefinite-term labor contract under this circumstance. MOLISA may provide further guidance in this regard.
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General facts and Recommendations
In practice, a huge number of expat employees are falling under the interim period when the previous Work Permit has expired but the new one has not been issued yet. Assuming their visas/temporary resident cards are still validly effective and they are legally reside in Vietnam, the question here is how to legally formalize their employment arrangement in Vietnam since employer and expat cannot enter into a new labor contract until the issuance of the new Work Permit.
More seriously, many foreign professional individuals are needing to leave Vietnam, due to expiration of their Work Permits and the inability to obtain sufficient supporting documents for renewing Work Permits before their visas/temporary resident cards expire.
There is significant pressure being applied to the Government from foreign business chambers and organizations, and it is expected that we can see positive changes to Decree 152 or at least further guidance from the authorities with more flexible solutions very soon.
At this stage, we highly recommend that expat employees and Vietnam-based employers should proactively plan and schedule for the recruitment procedure super well and thoroughly in advance with a view to best mitigating all the potential risks, as it may take many months to obtain supporting documents to meet the statutory requirements under Decree 152.
Further, please kindly bear in your mind that the previous long-standing and widely-accepted practices (e.g. Work Permit renewals or previous professional experience in Vietnam) can be no longer applicable for now until further updates and guidance from the Government.
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For more information on the above, please do not hesitate to contact the author Dr. Oliver Massmann under [email protected]. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.
