At the end of the year, especially during the period leading up to Tet, many enterprises face pressure to restructure, cut costs, and downsize their workforce. In that context, unilateral termination of labor contracts before Tet often gives rise to disputes, as employees may believe that enterprises are “avoiding Tet bonuses” or terminating contracts unlawfully. In practice, Vietnamese labor law does not prohibit enterprises from terminating labor contracts before Tet; however, such termination is only lawful if it fully satisfies the strict conditions prescribed by law.
The article below, prepared by DNP Viet Nam Law Firm, aims to provide focused legal analysis on enterprises’ right to unilaterally terminate labor contracts in the context of workforce reduction before Tet, assisting enterprises in correctly identifying the boundary between labor management rights and potential legal risks.
1. Enterprises’ right to unilaterally terminate labor contracts
Legal basis: Article 36 of the 2019 Labor Code.
Enterprises have the right to unilaterally terminate labor contracts but must comply with conditions prescribed by law. Enterprises may only unilaterally terminate contracts in the following cases:
- Employees regularly fail to perform their work in accordance with the labor contract;
- Employees suffer from prolonged illness or accidents and have not yet recovered their working capacity;
- Termination due to natural disasters, fires, epidemics, or changes in structure, technology, or economic reasons;
- Employees abandon their work without a legitimate reason;
- Employees provide untruthful information when entering into the labor contract.
2. Workforce reduction before Tet considered lawful
2.1. Termination due to changes in structure, technology, or for economic reasons
Legal basis: Article 42 of the 2019 Labor Code.
Enterprises are required to:
- Develop a labor utilization plan;
- Consult with the employees’ representative organization;
- Notify employees and the state authority in charge of labor in accordance with regulations.
2.2. Unilateral termination in respect of specific employees
Legal basis: Article 36 of the 2019 Labor Code.
- Clearly identify the grounds for termination applicable to each employee;
- Provide evidence to substantiate such grounds (performance evaluations, minutes, disciplinary records, etc.).
3. Notice obligations and amounts payable upon termination before Tet
Legal basis: Articles 36 and 45 of the 2019 Labor Code.
- 45 days: For labor contracts of indefinite term;
- 30 days: For labor contracts of definite term from 12 months to 36 months;
- 03 working days: For labor contracts of definite term of less than 12 months and certain other cases as prescribed by law.
Amounts that enterprises must pay include:
- Salary up to the termination date of the labor contract;
- Severance allowance (if the employee satisfies the conditions under Article 46);
- Other benefits in accordance with the labor contract, collective labor agreement, and internal regulations.
4. Legal risks if labor contracts are unlawfully terminated before Tet
Legal basis: Article 41 of the 2019 Labor Code.
If an enterprise unilaterally terminates a labor contract without proper grounds or in violation of procedures, it may be required to:
- Reinstate the employee;
- Pay wages and social insurance contributions for the period during which the employee was not allowed to work;
- Pay compensation of at least 02 months’ salary under the labor contract.
- In cases of violation of notice obligations, the enterprise must additionally pay an amount corresponding to the employee’s salary for the days of insufficient notice.
Notes:
- If the employee does not wish to continue working: In addition to the amounts payable due to unlawful termination, the enterprise must pay severance allowance in accordance with Article 46 of the 2019 Labor Code to terminate the contract.
- If the enterprise does not wish to reinstate the employee and the employee agrees: In addition to the amounts payable under Clause 1 Article 41 and severance allowance, the parties shall agree on an additional compensation amount, but not less than 02 months’ salary under the labor contract.
5. No compensation paid for unlawful workforce reduction, will the enterprise be penalized?
Legal basis: Clause 1 Article 6, Clause 2 Article 12 of Decree No. 12/2022/ND-CP.
- If an enterprise fails to pay or pays insufficiently the amounts required upon unlawful unilateral termination of labor contracts, it shall be subject to administrative penalties, with fines (for organizations) of up to VND 40,000,000, depending on the number of employees affected.
- In addition to monetary fines, the enterprise shall also be subject to remedial measures, including mandatory full payment of employees’ entitlements together with interest calculated at the highest demand deposit interest rate of a state-owned commercial bank at the time of penalty imposition.
“The above content is provided by DNP Viet Nam Law Firm for reference purposes only. For detailed, accurate, and tailored legal advice that meets your specific needs, please contact us using the information provided below.”
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