Vietnam has become a popular destination for Chinese investors due to its proximity to China, abundant labor resources, huge market potential and other advantages. Employment and labor law may be the first legal area involved in investing to set up companies and recruit employees overseas. As the proverb goes, it takes a good blacksmith to make steel, to understand the framework and application of Vietnam's labor law is of great interests for enterprises’ overseas business expansion.
1.Country Profile of Vietnam
In 968 AD, Vietnam became an independent feudal state. However, in the late 19th century, Vietnam was constantly in turmoil, which was first colonized by France and then involved in the Vietnam War launched by the United States in the 1960s. It was not until 1976 that Vietnam realized national unity and established the Socialist Republic of Vietnam. In 1986, Vietnam implemented the reform and opening policy and achieved rapid economic development.
Political stability, huge infrastructure requirements, open foreign policy, low human resource costs and advantageous geographical location have helped Vietnam attract a lot of foreign investments, including many Chinese companies. According to statistics, Vietnam's working population above the age of 15 was about 50.6 million in 2022. Pursuant to the Doing Business Report 2020 released by the World Bank, Vietnam ranks 70th out of 190 economies in the world, [i]and 75th in the 2022 Global Competitiveness Report released by the World Economic Forum in Davos. [ii]
2.Vietnam's Labor Law Framework
Relying on Marxism-Leninism, Vietnam has established its own socialist legal system on the basis of the civil law system. The National Assembly is the highest organ of power in Vietnam, enjoying legislative power, decision-making power on major state issues and supreme supervision power. Currently, Vietnam's labor and employment regulations are dominated by the LABOUR CODE, which was amended by the National Assembly in 2019 and came into effect on 1 January 2021. This law covers: Labor standards (such as rights of association and collective bargaining, prohibition of forced labor and employment discrimination, workers' wages, working hours and working conditions), rights and obligations of employers and employees in labor relations and other relations directly related to labor relations, internal representative organizations of employees, representative organizations of employers, state management of labor and so on. In addition, the Regulations on Administrative Penalties for Violation of Regulations on Labor, Social Security, and Dispatching Vietnamese Workers to Work Overseas issued by the government in 2020 (28/2020/NĐ-CP), and the Regulations on the Administration of Foreigners Working in Vietnam(152/2020/NĐ-CP) promulgated by the government in 2021 (providing guidelines for foreigners working in Vietnam with work permit approval department, the term of labor permit, Labor permit approval process, work permit exemptions for various matters) are also an important part regulating Labor relations of Vietnam.
3.Characteristics of Vietnam's Labor Laws and Regulations
Under the same socialist legal system, Vietnam's labor laws and regulations share many similarities with China's, but the differences are also quite obvious.
（3.1） Employer and Employing Unit
Different from regulating the relations between employees and employing unit of Chinese laws, Labor Code of Vietnam has jurisdiction over subjects in a larger scope, “Workers without labor relations” are also included in the applicable subjects, like trainees, apprentices.
“Employer” in the Labor Code of Vietnam is not only referred to employing unit, but also includes employment relations between individuals, for example, family employing nannies to do housework is also subject to jurisdiction of Labor Code. In contrast, employing unit under China’s labor law covers enterprises, individual economic organizations, state organs, institutions and social organizations, exclusive of individuals.
Minimum working age of Vietnam is 15, and it is also allowed to employ employees aged 13 to under 15 to engage in some light works on the list promulgated by the Minister of Labor. However, legal representatives’ written consent must be obtained in order to employ employees under 18.
（3.2） Labor Contract and Probation
a. About Labor Contract:
An employee may enter into employment contracts with more than one employer pursuant to the Labor Code of Vietnam. Employment contracts are generally made in written form, but employers and employees may conclude an oral contract if the term of the contract is no more than one month.
There are two types of labor contracts in Vietnam:
a） Infinite contract:
An employee may unilaterally terminate such contract by notifying the Employer 45 days in advance.
b） Fixed-term Contract:
Maximum term of fixed-term contract is three years. If the term of the labor contract is more than one year but less than three years, the employee may unilaterally terminate the labor contract by giving 30 days' notice to the employer; For contract with a term less than one year, employee may terminate it by notifying the Employer 3 days in advance. The employee may continue working for the Employer after expiry of labor contract, and Vietnamese labor law bestows 30 days for both parties to negotiate contents of the labor contract. In case the Employer and Employee can not agree upon renewal of a new contract, the labor contract will automatically transform into an infinite contract.
b. About Probation
Both Vietnamese and Chinese laws stipulate that an employer and the same worker can only agree on a probation period once. However, there are great differences in the provisions of the probation period between the two countries, where probation in Vietnam is not fixed by the term of labor contract, but by work positions and job content.
a） 180 days of probationary period for the position of enterprise executive prescribed by the Law on Enterprises, the Law on Management and Use of State Investment in Enterprises;
b） 60 days of probationary period for positions that require a junior college degree or above;
c）30 days of probationary period for positions that require a secondary vocational certificate, professional secondary school; positions of or for technicians, and skilled employees;
d） 6 days of probationary period for other jobs.
During the probationary period, either party has the right to terminate the concluded probation contract or employment contract without prior notice and compensation obligation.
（3.3） Statutory Minimum Wages
Wages of workers shall be no lower than the statutory minimum ones, which can be paid by cash or bank transfer. Minimum wages standard is promulgated by National Salary Council, and are specified by four regions respectively according to regional economic development.
（3.4）Overtime and Nightshift Pay
Overtime pay in Vietnam is generally the same as that in China. But Vietnam's Labor law additionally stipulates that if an employer assigns an employee to work the night shift (10pm to 6am), it shall pay no less than 130 per cent of the normal wages.
（3.5）Annual Leave
Compared with China, Vietnam has a longer statutory annual leave. According to the Labor Law of Vietnam, employees who have worked for an employer for 12 months are entitled to the following paid annual leave.
a. 12 working days for employees who work in normal working conditions.
b.14 working days for employees who are minors, the disabled, employees who do laborious, toxic or dangerous works;
c. 16 working days for employees who do highly laborious, toxic or dangerous works.
d. The annual leave of an employee shall increase by 1 day for every 5 years of employment with the same employer.
e. An employee who has been working for an employer for less than 12 months will have a number of paid leave days proportional to the number of working months.
4.Precautions for Employment of Chinese Enterprises in Vietnam
(4.1)Strict Prohibition of Employment Discrimination in Recruitment
Labor Law of Vietnam puts labor discrimination as the first forbidden action of Employer. Chinese enterprises are specially reminded herein when publishing recruitment advertisement or during interviews that advertisement wording such as this position is for men, or women only, and age limit is from ** to ** are strictly forbidden and will be deemed by law as labor discrimination. According to article 7.2 of the Regulations on Administrative Penalties for Violations of Labor, Social Security, and Sending Vietnamese Workers Abroad (28/2020/ NĐ-CP), "If a worker is discriminated against because of sex, age, race, color, social class, marital status, faith, religion, AIDS, or disability, The employer will be fined between 5 million and 10 million dong ".
In addition, Vietnamese labor law allows an employee to enter into employment contracts with more than one employer, provided that he/she fully performs all terms and conditions contained in the concluded contracts. In the process of recruiting employees, it is advised that employers confirm with the employee whether they permit multiple employment relations, and if permitted, how to arrange social insurance etc.
（4.2）Statutory Requirements for Employing Foreign Workers
In Vietnam, the procedures for employers to hire foreign employees are basically the same as in China. Foreign workers working in Vietnam generally have to obtain a work permit issued by the competent authorities in Vietnam; after obtaining the permit, workers should also apply for a work visa and a temporary residence permit. Only with these documents can they legally stay and work in Vietnam for a long time. According to Articles 151 to 157 of Vietnam's Labor Code, employers can only hire foreigners over the age of 18 for positions that Vietnamese workers cannot fulfill, such as managers, executive directors, specialists and skilled workers, otherwise application for work permits will be rejected.
In addition, companies need to be aware that the duration of a foreign employee's labor contract must not exceed that of the work permit. If the administrative department finds that the work permit of the foreign employee of the enterprise has expired, or the foreign employee is working in Vietnam with a business visa or a tourist visa, the administrative department can fine the employer and the employee according to the serious circumstances, and the foreign employee who works illegally will be deported by the government.
（4.3）Compensation for Termination of Employment in Vietnam
a. Severance Allowance and Payment Standard
When the employment contract rescinds and under the circumstance that employers and employees terminate contracts through negotiation, employers shall pay employees Severance Allowance who have worked for a period of at least 12 months, which is similar to the Economic Compensation in China. In this case, circumstances for the termination of a labor contract include the expiration of the contract, the physical death of the employee or the legal declaration of death, and the disappearance of the employer's subject qualification. In addition, if the employee terminates the labor relationship according to the number of days stipulated in the law or there is a situation similar to Article 38 of China's Labor Contract Law (such as the employer cannot provide labor conditions in accordance with the labor contract and fails to pay as agreed, employees are treated badly, harassed, or humiliated to the extent that their health, dignity, and honor are damaged, they are forced to work against their will, they are sexually harassed in the workplace, and they are forced to stop working due to pregnancy.), employees are entitled to severance allowance.
*Each year of work will be worth half a month’s salary. The period for calculating severance allowance shall be the total period during which the employee has actually worked for the employer minus the period during which the employee has participated in unemployment insurance under the Unemployment Insurance Law and the period during which the employer has paid severance allowance or redundancy benefits.
* Base of severance payment is the average salary of the last 06 months under the employment contract before the termination
* Total severance payment = N/2 × average monthly salary (N is an integer, and is the period for calculating severance pay.)
b. Redundancy Allowance and Payment Standard
Similar to the layoffs caused by "significant changes in objective circumstances" in Article 40(3) of China’s Labor Contract Law and economic layoffs in Article 41 of China’s Labor Contract Law, the employer may lay off employees after discussing with employee representative organizations and forming a labor utilization plan when the following circumstances occur in Vietnam.
a) Changes due to organizational changes, personnel adjustments, changes in processes, technologies, equipment related to the employer's business lines, changes in products or product mix.
b) Changes due to economic reasons, including economic indiscipline or recession, economic restructuring or changes in laws and national policies in the fulfillment of international commitments.
c) Layoffs caused by business mergers and demergers, asset sales, leasing, etc.
If the employee has worked for the employer for at least 12 months, the employer shall pay redundancy allowance for redundancy in the above cases. Each year of work will be worth 01 month’s salary and the total redundancy allowance shall not be smaller than 02 month’s salary. The salary as the basis for the calculation of redundancy allowance shall be the average salary of the last 06 months under the employment contract before the termination.
Although China and Vietnam are both socialist countries, their labor laws, labor contracts and social security systems are different in many aspects. When investing and recruiting employees in Vietnam, enterprises should first understand and comply with the local laws and regulations to avoid unnecessary legal risks.
[i] Doing Business 2020，https://www.worldbank.org/en/programs/business-enabling-environment/doing-business-legacy
[ii] Global Competitiveness Report Special Edition 2020: How Countries are Performing on the Road to Recovery. https://www.weforum.org/reports/the-global-competitiveness-report-2020/in-full
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The content and opinions in this newsletter shall not be regarded as any kind of legal opinion or advice issued by Beijing Dacheng Law Offices, LLP (Shanghai). If you need any legal advice on any specific issue, please consult legal specialists or contact us.
