Vietnam Employment Guide

Termination Conditions in Vietnam

Lawful Grounds for Dismissal

Employers in Vietnam can only terminate an employment contract unilaterally based on specific legal grounds. Failure to adhere to these constitutes wrongful termination.

1. Serious Employee Misconduct

Dismissal for misconduct requires meeting strict criteria:

• The act must constitute a clear violation of internal labor regulations, such as theft, corruption, disclosure of trade secrets, drug use or drunkenness at work, intentional acts causing major safety incidents, or falsification of employment documents.
• The company's Internal Labour Regulations must clearly define 'serious misconduct' and be developed in consultation with the trade union or employee representatives.
• A lawful disciplinary procedure must be followed, including initiating an investigation within six months of discovering the misconduct and providing the employee with the right to self-defense and a written disciplinary decision.

2. Employee Incompetence

Even without misconduct, an employer may dismiss an employee for incompetence, provided there is a documented performance evaluation, evidence of offered training or reassignment, and adherence to the statutory notice period.

3. Redundancy Due to Economic or Technological Reasons

This includes organizational restructuring, technological changes eliminating positions, or economic downturns requiring downsizing. The process mandates submitting a redundancy plan to local labor authorities and the trade union, prioritizing the retention of certain employees (e.g., highly skilled workers, pregnant employees), and providing at least a 30-day notice for indefinite-term contracts.

4. Employee Health Condition

Termination is permissible if an employee cannot resume work after 12 consecutive months of sickness or work-related accident leave (for indefinite contracts) or half of the contract term (for fixed-term contracts), supported by a valid medical certificate.

Prohibited Grounds for Dismissal

Termination is illegal under specific circumstances, including when an employee is pregnant or on maternity leave, undergoing medical treatment for illness or a work-related accident, or on legally mandated paid leave. Dismissal is also prohibited for employees participating in lawful trade union activities.

Severance Allowance in Vietnam

Legal Framework

Article 48 of the Vietnam Labour Code mandates a one-time severance payment when a contract terminates for reasons not attributable to the employee's fault, such as redundancy, company closure, or prolonged illness.

Payment Conditions

When Severance is Required: Payment is obligatory for terminations due to redundancy, closure, relocation, employee inability to work due to illness/accident (with proof), or non-renewal of a fixed-term contract under specific conditions. The employee must have worked continuously for at least 12 months.

When Severance is Not Required: No payment is due if the employee resigns voluntarily (without employer fault), is dismissed for serious misconduct, or has reached retirement age (60 for men, 55 for women) and is eligible for a social insurance pension.

Payment Timeline and Method

Severance must be paid within seven working days of contract termination, via cash in Vietnamese Dong or bank transfer, with proof of payment retained. Late payments incur interest based on the State Bank of Vietnam's rate.

Special Provisions for Expatriate Employees

Foreign workers are entitled to the same severance rights as Vietnamese nationals. The payment amount cannot fall below the statutory minimum, even if the employment contract states otherwise. Severance pay is exempt from personal income tax under Tax Circular 111/2013.

Notice Periods for Termination

Employer-Initiated Termination

For lawful dismissals (based on serious misconduct, redundancy, or prolonged illness), specific notice periods apply. Dismissal is prohibited for protected employees, such as pregnant women or those on sick leave.

The notice must be in writing, stating the reason and legal basis, and the employee has five working days to appeal. For lawful terminations like redundancy, a job loss allowance is payable. Wrongful termination may require reinstatement or compensation of up to 12 months' salary. Consultation with the trade union is mandatory for disciplinary or redundancy cases.

Voluntary Resignation by Employee

Employees must provide written notice of resignation. The required notice periods mirror those for employer-initiated termination for equivalent contract types.

Notice can be waived if the employer is at fault, such as by delaying wages for over 15 days, providing an unsafe work environment, or engaging in forced labor or sexual harassment.

Consequences of Wrongful Dismissal

Employee Rights and Remedies

Wrongful dismissal occurs when an employer fails to meet legal grounds or procedures. Affected employees can seek reinstatement with back pay or opt for compensation calculated at 1.5 months' salary per year of service, capped at 12 months.

Employer Penalties

Companies face significant fines for illegal practices. For instance, dismissing a protected employee can result in penalties up to 7.5 billion VND. Repeated offenses may lead to higher fines or license revocation. In severe cases, criminal liability, including imprisonment, can apply.

In any dispute, the burden of proof lies with the employer to demonstrate the legality of the dismissal. Employees should first seek mediation, then arbitration, and finally, court action if necessary. Navigating these complexities often benefits from expert guidance, such as that provided by SailGlobal, to ensure full compliance with Vietnamese labor law.