Vietnam: New Guidelines on Labour Contracts

Written by Dao Nguyen (Partner) and John Hickin (Solicitor)

Summary

On 22 September 2003, the Ministry of Labour, Invalid and Social Affairs ("MOLISA") issued Circular 21/2003/TT-BLDTBXH guiding The Implementation Of Decree 44/2003/ND-CP dated 9 May 2003 of the Government on Labour Contracts ("Circular 21"). Circular 21 took effect on 11 October 2003. From the effective date of Circular 21, employers can officially prepare their own labour contracts instead of purchasing the green standard form labour contracts previously issued by MOLISA.

The following summarises the main provisions of Circular 21.

All labour contracts except those with a term of less than 3 months or seasonal contracts must be made in A4 size, affixed with employers’ seals overlapping each page and must comply with the standard form provided for by MOLISA in this Circular. Labour contracts can be typed or hand written but may not be prepared in red ink.

If a party to a labour contract is a foreigner, the parties can agree to sign the contract in English and Vietnamese, but the Vietnamese version shall prevail.

Circular 21 also stresses that the restrictions on automatic conversion of a definite term contract into an indefinite term contract do not apply to retirees who continue to work. Accordingly, the employer and the retiree may sign unlimited seasonal contracts or contracts with the term of less than 12 months.  

The head of an enterprise or organisation has the right to enter into the labour contract with its employee.

For labour contracts signed with retirees who enjoy monthly social insurance or employees having labour contracts of less than 3 months, apart from the wages, employees shall also be paid directly by the employers (based on wages) the following amounts:

(i) Social insurance = 15%;

(ii) Health insurance = 2%;

(iii) Annual leave = 4%; and

(iv) Travel fares for annual leave to be agreed by the two parties but not lower than 9%.

The Labour Code of Vietnam (the "Code") provides that employees who have labour contracts with a term of more than 3 months must contribute to the compulsory social and health insurance schemes in amounts equal to 20% and 3% of their wages, respectively in which, their employers have obligation to contribute 15% and 2%, respectively, to the schemers. This obligation does not apply to retirees and employees having labour contracts of less than 3 months ("seasonal employees"). Thus, above amounts to be paid by employers to seasonal employees are considered as assistance to such employees to enable them to purchase insurance or use these amounts at their discretion. 

With regard to annual leave, the Code also states that employees working for enterprises with a term of no less than 1 years may enjoy 12 days as an annual leave. If such term is less than 1 year, employees are entitled to have an annual leave calculated in proportion to the period of employment or equivalent payment in lieu of the annual leave. This means that annual leave of 4% can only be made by the employers if employers cannot arrange the annual leave to their employees.

Circular 21 clarifies that if one party to a labour contract wishes to change such contract (the "proposing party", it must give notice to the other (the "proposed party") in writing and within 3 days from the date of receiving such notice, the proposed party must have a meeting with the proposing party to agree the changes to the labour contract. If the two parties reach agreement on these changes, an appendix to such labour contract will be signed in the standard form provided by Circular 21. However, in the event that agreement cannot be amended, the two parties must continue to perform the old contract or terminate such contract.

Termination of a labour contract must be made in writing and must comply with provisions of the Code with regard to notification. It should also be noted that the stated notice period for advance notification is calculated by reference to the working days only which exclude Saturday, Sunday and public holidays. Obligations regarding advanced notification do not apply to employees dismissed for disciplinary grounds.

Circular 21 reconfirms that severance allowance is payable to employees upon termination of labour contracts, and also clarifies the circumstances in which the severance allowances is not payable.

Severance allowance = the total working time at the enterprise x basic salary x 1/2

In which: the total working time at the enterprise is the total number of years of service, and basic salary is the average salary of 6 consecutive months before the termination of the labour contract including position and territorial allowances (if any).

Employees who are trained onshore or offshore at their employers’ expense must work for their employers as agreed upon completion of such training. Except in certain cases, employees who complete the training but do not work for the employer thereafter and unilaterally terminate the contract must compensate their employer for such training expenses.

The agreement on training must be in writing and signed by both parties. 

Definite term contracts signed before 1 January 2003 and remaining valid at that time shall be regarded as the first labour contracts for the purpose of applying the provisions on automatic conversion of a definite term contract into an indefinite term contract.