How is Vietnam's labour law changing?

In brief 6 min read

Upcoming changes to Vietnam's labour law include such significant steps as more flexibility in the renewal and termination of labour contracts; and for the first time, the right of employees to establish and join independent labour unions. Although the Labour Code 2019 will not take effect until 1 January 2021, employers should start looking ahead and consider how the upcoming changes will impact their businesses and management of their workforce.

Key takeaways

• The National Assembly of Vietnam passed the amended Labour Code No. 45/2019/QH14 (the Labour Code 2019) on 20 November 2019, and it will take effect from 1 January 2021, replacing the existing Labour Code No. 10/2012/QH13 (the Labour Code 2012).
• Key changes under the Labour Code 2019 include:
  • expanding the scope of the Labour Code;
  • providing more flexibility in the renewal and termination of labour contracts;
  • setting out, for the first time, the right of employees to establish and join independent labour unions;
  • setting out the requirement for employers with fewer than 10 employees to issue internal labour rules;
  • increasing the cap on overtime hours; and
  • increasing employees' retirement ages.

Scope of the Labour Code 2019

It is clearly provided under the Labour Code 2019 that it captures employers and employees in an employment relationship and also other persons 'working' but not based on a labour contract. In addition, under the Labour Code 2019, a contract, regardless of what it is labelled, will be considered a labour contract if it contemplates an employment relationship in which a party works and receives a salary and is subject to the other party's management and supervision.

These provisions are aimed to curtail a common practice in Vietnam of employers only entering into service agreements/independent contractor arrangements with their employees in order to argue that the relationship between them should not be considered an employment relationship and, therefore, not governed by the stringent requirements of the Labour Code.

Labour contracts

Types and renewal of labour contracts

The Labour Code 2019 removes the concept of 'seasonal labour contracts' having a term of less than 12 months. Accordingly, there will be two types of labour contracts under the Labour Code 2019:

• indefinite term contracts; and
• definite term contracts (ie contracts having a term of 36 months or less).

Similarly to the Labour Code 2012, definite term contracts may generally only be renewed once. After expiry of a renewed definite term contract, in most cases the contract will become an indefinite term contract if the employee continues working for the employer, regardless of what the parties agree. However, the Labour Code 2019 does specify certain cases in which definite term contracts can be renewed multiple times, including contracts with elderly employees, foreign employees¹, officers of labour representative organisations and directors of enterprises with State-owned capital.

Unilateral termination of labour contracts by employees

Under the Labour Code 2012, an employee can unilaterally terminate an indefinite labour contract without cause by giving 45 days advance notice to the employer. For a definite term contract, the employee is required to have a cause as prescribed by law and to serve advance notice before termination.

However, under the Labour Code 2019, an employee will be able to terminate a definite term labour contract without cause after serving an advance notice of:

• 30 days, if the term of their contract is between 12 and 36 months; or
• three days, if the term of their contract is less than 12 months.

In certain special circumstances (eg the employee suffers maltreatment or sexual harassment), such advance notice is not required.

Unilateral termination of labour contracts by employers

The Labour Code 2019 provides additional legal grounds for employers to unilaterally terminate labour contracts with their employees, including:

• the employee reaching their statutory retirement age;
• the employee being absent from work for five consecutive working days without a valid reason; and
• the employee providing false information (eg about their qualifications, health status or residential address) to the employer when entering into their employment contract.

Independent labour unions

In an effort to comply with its commitments under certain free trade agreements to which Vietnam is a party (including the EU-Vietnam Free Trade Agreement and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership), the Labour Code 2019, for the first time, provides for the right of employees in enterprises to set up or join a labour representative organisation that may be independent from the existing trade union system managed by the Vietnam General Confederation of Labour.

All the labour representative organisations that employees establish shall have equal rights and duties in representing and protecting the rights and interests of the employees. A labour representative organisation is required to be registered with the relevant competent authorities in Vietnam to operate lawfully. Detailed procedures for registration, and regulations on the operation of such independent representative organisations, will be subject to further guidance from the Vietnam Government.

Internal labour regulations

Under the Labour Code 2012, only employers having 10 or more employees are required to have written internal labour regulations (ILRs) and such ILRs must be registered with the Department of Labour, War Invalids and Social Affairs (DOLISA) to become effective and enforceable.

The Labour Code 2019 additionally requires employers with fewer than 10 employees to have ILRs. However, such ILRs are not required to be made in writing and can take effect on a date the employer decides without needing to be registered with DOLISA.

Overtime working

The Labour Code 2019 increases the cap on overtime working hours for employees, from 30 hours to 40 hours per month.

While, similarly to the Labour Code 2012, the annual overtime cap remains 200 hours in normal situations (though it can be increased up to 300 hours in certain special circumstances), the Labour Code 2019 expands the circumstances in which the 300-hour cap is permitted, to include:

• manufacturing and processing for export of electrical devices and processing of salt products; and
• work that demands workers with high technical and professional skills the current labour market cannot meet.

Retirement age

The retirement age for men will be gradually increased, from 60 to 62 by 2028; and for women, from 55 to 60 by 2035. In particular, starting from 2021, the retirement age will be 60 years and three months for men, and 55 years and four months for women. After that, the retirement age will each year be increased by three months for men and four months for women until the new target ages are reached.

Employees whose working capability is declining, who work in heavy, hazardous and dangerous sectors, or who work in extremely disadvantaged regions will be allowed to retire earlier than the prescribed age by a maximum of five years. Highly skilled employees and other employees in some special cases can continue working for a maximum of five further years after reaching the otherwise mandatory retirement age.

Actions you can take now

Although the Labour Code 2019 will not take effect until 1 January 2021, employers should start looking ahead and consider how the upcoming changes will impact their businesses and management of their workforce.

For example:

• employers should consider whether they have workers that are currently not employed under labour contracts and not considered by them to be subject to the Labour Code 2012 and, if so, whether such designation will change post-1 January 2021 with the expanded scope of the Labour Code 2019; and
• employers with less than 10 employees may wish to commence preparing their internal labour regulations to manage their workforce which will be required by law after 1 January 2021.