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Compensation for early termination of contract in Vietnam

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The current Vietnamese law stipulates that when an employer wants to recruit an employee, he or she must sign a labor contract with the employee. The labor contract will act as a kind of legal document recording the agreement of the employer and the employee, and they must comply with the labor contract. However, there are still some cases of violations when either party fails to properly perform the terms of the labor contract. In this article, LSX legal firm gives you: “Compensation for early termination of contract in Vietnam”

  • Labor Code 2019

The concept of labor contract

Article 13 of the Labor Code defines the labor contract (employment contract) as follows: 

  • An employment contract means an agreement between an employee and an employer on a paid job, salary, working conditions, and the rights and obligations of each party in the labor relations.
  • A document with a different name is also considered an employment contract if it contains the agreement on the paid job, salary, management, and supervision of a party.
  • Before recruiting an employee, the employer shall enter into an employment contract with such employee.

In essence: The labor contract has the general nature of a contract, formed on the basis of the voluntary agreement of the two parties;

Subjects: two parties establish the labor contract (the employee and the employer), who fully meet the subject conditions as prescribed by the Labor Code;

Content: The labor contract records the paid jobs, wages, working conditions, rights, and obligations of each party in the labor relationship. Thus, in terms of content – The law emphasizes that the object of an employment contract is an employment of a specific job and this job must be paid.

Principles for conclusion of an employment contract

Article 15 of the Labor Code 2019 has provisions on the principles of labor contracts as follows:

  • Voluntariness, equality, good faith, cooperation, and honesty.
  • Freedom to enter into an employment contract not contrary to the law, the collective bargaining agreement, and social ethics.

Forms of employment contract

The parties shall conclude an employment contract in writing and make it into two copies. The employee will keep one copy and the employer will keep the another.
An employment contract in the form of electronic data conformable with electronic transaction laws shall have the same value as that of a physical contract.
Both parties may conclude an oral contract with a term of less than 01 month, except for the cases specified in Clause 2 Article 18, Point a Clause 1 Article 145, and Clause 1 Article 162 of the Labor Code 2019.

Compensation for early termination of contract in Vietnam

The Labor Code 2019 has set out the compensation liability for the party who terminates the contract before the time limit as follows:

For employer

According to Article 41 of the Labor Code 2019, the employer, when unilaterally terminating the labor contract illegally, must compensate the employee for material and spiritual losses.

Article 41. Illegal unilateral termination of the employment contract by the employer

  1. The employer that illegally unilaterally terminates an employment contract with an employee shall reinstate the employee in accordance with the original employment contract, and pay the salary, social insurance, health insurance, and unemployment insurance premiums for the period during which the employee was not allowed to work, plus at least 02 months’ salary specified in the employment contract.

After the reinstatement, the employee must return the severance allowance or redundancy allowance (if any) to the employer.

Where there is no longer a vacancy for the position or work as agreed in the employment contract and the employee still wishes to work, the employer shall negotiate revisions to the employment contract.

Where the employer fails to comply with the provisions on notice period in Clause 2 Article 36 of this Labor Code, the employer shall pay compensation that is worth the employee’s salary for the remaining notice period from the termination date.

  1. In case the employee does not wish to return to work, in addition to the compensation prescribed in Clause 1 of this Article, the employer shall pay a severance allowance in accordance with Article 46 of this Code in order to terminate the employment contract.
  2. Where the employer does not wish to reinstate the employee and the employee agrees, in addition to the compensation mentioned in Clause 1 of this Article and the severance allowance mentioned in Article 46 of this Labor Code, both parties shall negotiate an additional compensation which shall be at least 2 months’ salary under the employment contract in order to terminate the employment contract.

For employee

When unilaterally terminating the labor contract illegally, the employee must compensate the employer the following amounts:

  • Half of a month’s salary according to the labor contract;
  • The amount corresponding to the salary according to the labor contract in the days without notice (if the notice period is violated);
  • Training costs (in case workers receive vocational training from the employer’s budget).

In addition to the compensations above, the actual compensation level also depends on the specific provisions in the labor contract and the agreement of the parties.

Cases where the employer can unilaterally terminate the labor contract

An employer shall have the right to unilaterally terminate an employment contract in one of the following circumstances:

  • Firstly, the employee repeatedly fails to perform his/her work according to the criteria for assessment of employees’ fulfillment of duties established by the employer. The criteria for assessment of employees’ fulfillment of duties shall be established by the employer with consideration taken of opinions offered by the representative organization of employees (if any);
  • Secondly, the employee is sick or has an accident and remains unable to work after having received treatment for a period of 12 consecutive months in the case of an indefinite-term employment contract, for 06 consecutive months in the case of an employment contract with a fixed term of 12 – 36 months, or more than half the duration of the contract in case of an employment contract with a fixed term of less than 12 months. Upon recovery, the employer may consider concluding another employment contract with the employee;
  • Thirdly, in the event of a natural disaster, fire, major epidemic, hostility, relocation, or downsizing requested by a competent authority, the employer has to lay off employees after all possibilities exhausted;
  • Fourthly, the employee is not present at the workplace after the time limit specified in Article 31 of the Labor Code;
  • Fifthly, the employee reaches the retirement age specified in Article 169 of the Labor Code, unless otherwise agreed by the parties;
  • The employee quits his/her fails to go to work without acceptable excuses for at least 05 consecutive working days;
  • Lastly, the employee fails to provide truthful information during the conclusion of the employment contract in accordance with Clause 2 Article 16 of the Labor Code in a manner that affects the recruitment.

LSX legal firm provides legal services to clients in various legal areas. To make your case convenient, LSX will perform:

  • Legal advice related to new regulations;
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Contact LSX

Finally, hope this article is useful for you to answer the question about “Compensation for early termination of contract in Vietnam”. If you need any further information, please contact  LSX Law firm+84846175333 or Email: [email protected]

What cases is considered illegal unilateral termination of employment contracts?

If the unilateral termination of an employment contract does not comply with regulations of Article 35, 36 and 37 of the Labor Code, it will be illegal.

Cases where an employer must not unilaterally terminate an employment contract?

The employee is suffering from an illness or work accident, occupational disease and is being treated or nursed under the decision of a competent health institution, except for the cases stipulated in Point b Clause 1 Article 36 of this Labor Code.
The employee is on annual leave, personal leave, or any other types of leave permitted by the employer.
Also, the employee is pregnant, on maternal leave or raising a child under 12 months of age.

When will the labor contract become invalid?

An employment contract shall be completely invalid in the following cases:
– The entire contents of the employment contract are illegal;
– A person concludes the employment contract ultra vires or against the rules for employment contract conclusion specified in Clause 1 Article 15 of the Labor Code;
– The work described in the employment contract is prohibited by law;

Conclusion: So the above is Compensation for early termination of contract in Vietnam. Hopefully with this article can help you in life, please always follow and read our good articles on the website:

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