Thanks to its strategic location, low labor costs, and growing economy, Vietnam is an attractive destination for foreign investors. However, doing business in Vietnam also requires companies to comply with the country’s Labor Code, which outlines the rights and obligations of both employers and employees. The Labor Code covers various aspects of employment, such as working hours, labor agreements, social insurance, overtime, strikes, and termination of employment contracts.
In January 2021, Vietnam updated its Labor Code, bringing several changes to the employment landscape. This article will explore the critical aspects of the Labor Code and highlight the recent changes that companies must be aware of when doing business in Vietnam.
The Two Types of Labor Contracts in Vietnam
One of the significant changes in Vietnam’s Labor Code is the introduction of two types of labor contracts: indefinite term and definite term. These two contracts differ in words of their duration and renewal process.
Indefinite Term Contract
An indefinite-term contract is one in which the two parties do not determine the term and the time for its termination. In other words, this type of contract does not have an end date and can continue until the employee decides to resign or the employer terminates the contract.
Definite Term Contract
A definite term contract is a contract in which the two parties determine the term as a period not exceeding 36 months and the time for its termination. This type of contract has a fixed end date and can only be renewed once.
If an employee continues working after their definite term labor contract expires, the contract must be renewed within 30 days after the expiry date. If the contract is not renewed, it will become an indefinite-term labor contract.
Mandatory Details in an Employment Contract
An employment contract in Vietnam must contain specific details which both parties must agree upon. The following are the mandatory details that must be included in the contract:
The employer’s name, address, full name, and position of the person who concludes the contract on the employer’s side must be mentioned in the contract.
The full name, date of birth, gender, residence, identity card number, or passport number of the person who concludes the contract on the employee’s side must be mentioned.
Job and Salary Details
The job and workplace, duration of the employment contract, job- or position-based salary, a form of salary payment, the due date for payment of wages, allowances, and other additional costs, regimes for promotion, and pay rise must be included in the contract.
Insurance and Training Details
Details regarding social insurance, health insurance, unemployment insurance, basic training, advanced training, and occupational skill development must be included in the contract.
Details regarding the termination of the contract must be included in the contract. Both the employer and the employee can unilaterally terminate a contract. However, a 45-day notice is required for indefinite term contracts, a 30-day notice for definite term contracts with a duration of 12 – 36 months, and a 3-working day notice for actual term contracts with a time of under 12 months. Sometimes, the employer must discuss the termination with the trade union’s executive committee.
- What is the Labor Code in Vietnam? The Labor Code in Vietnam is a set of laws describing the rights and responsibilities of employers and employees. It covers a wide range of employment-related topics, including working hours, labor contracts, social insurance, overtime, strikes, and termination of employment.
- What are the critical changes in the updated Labor Code in Vietnam? The revised Labor Code in Vietnam has made significant changes, including reducing the types of labor contracts to just two: indefinite and definite. There are also new working hours, wages, and employee rights provisions.
- What are the two types of labor contracts in Vietnam? There are two types of labor contracts in Vietnam: indefinite and definite. An indefinite-term agreement does not have a specified end date, while a definite-term contract has a specific period, usually not exceeding 36 months.
- What information must be included in an employment contract in Vietnam? An employment contract in Vietnam must contain specific details, such as the employer’s name, address, and the full name and position of the person who represents the employer. It must also include the full name, date of birth, gender, and identification information of the employee. Other details that must be included are job and workplace, salary, payment terms, promotion and pay rise policies, working hours, rest periods, social insurance, health insurance, and other benefits.
- How can employers terminate an employment contract in Vietnam? The employer and the employee can terminate an agreement unilaterally in Vietnam, but the notice periods depend on the type of contract. An indefinite-term contract requires a 45-day notice, while a definite-term contract with a 12-36 months duration requires a 30-day notice. For actual-term contracts with a time of under 12 months, a 3-working day notice is required. Sometimes, the employer must discuss the termination with the trade union’s executive committee.
Doing business in Vietnam requires companies to comply with the country’s Labor Code. The recent updates to the Labor Code, which came into effect in January 2021, have brought significant changes to the employment landscape. Companies must ensure that they follow the provisions of the Labor Code, including the mandatory details that must be included in the employment contract.
Overall, companies need to follow the provisions of the Labor Code and ensure that all necessary details are included in the employment contract. This will help to ensure compliance with the law and foster positive relationships between employers and employees in Vietnam.