Vietnam: Amendments & Supplements To The Labor Code

The National Assembly passed the draft Law on Amendments and Supplements to a Number of Articles of the Labor Code on 1 April 2002 (the "Amended Law"). The Amended Law was proclaimed by the State President on 19 April 2002 and will come into effect on 1 January 2003.

The Amended Law addresses more than fifty points in the Labor Code that needed elaborating or were considered unclear or out-of-date. The stated aim of the Amended Law is to create social equality, better protect both employee and employer interests and meet the country’s demands for regional and international integration.

Probably the most important changes to the Labor Code include amendments concerning labor contracts, the role of the trade unions, maximum amount of overtime work and dispute resolution procedures.

With regard to the labor contracts, the Amended Law states that fixed-term labor contracts (contracts with terms fixed between 12 and 36 months) may only be signed twice with the same employee. Thereafter, if the employee is to be retained, an indefinite-term contract must be entered into. Employment relationships may be converted to indefinite term relationships automatically after a first one-year contract if an employer does not take the initiative to terminate. In cases of business restructuring, the subsequent employer is responsible for continuous implementation of existing labor contracts. If an employer illegally terminates a labor contract, the employer must compensate the employee by paying at least two months salary and must take the employee back for work and pay him/her due salary for the elapsed period.

The Amended Law no longer requires employers to register collective labor agreements with the local labor authorities. Lack of registration will no longer be a basis for the labor authorities to declare collective labor agreements invalid. However, the employees must be represented by a trade union to sign such a contract; a mere "worker’s representative" will not suffice.

The Amended Law extends the maximum permissible overtime from 200 hours per year to 300, but only in certain to-be-named industries. The new maximum largely fails to meet the expectations of businesses operating in labor-intensive sectors such as footwear production and remains below regional and even ILO standards. By limiting permissible overtime the Government hopes to create more jobs.

With respect to labor-related dispute resolution, the Amended Law gives the People’s Court greater jurisdiction to directly settle individual disputes without first having to go through a reconciliation process at enterprise level. In addition, the People’s Court has been given jurisdiction to rule on the validity of labor contracts and collective labor agreements.

Although The Amended Law does pave the way for an unemployment insurance scheme, it is noteworthy that it does not take the step of replacing the current severance payment regime with a new unemployment insurance scheme. This fact reflects a lack of legislative unanimity on the matter and the fact that details of an unemployment insurance scheme still need to be finalized.