- Severance allowance for the foreign Employee
The subjects of application of the Labour Code 2012 include the following[1]: (i) Vietnamese Employees, Employees in apprenticeship and other Employees as prescribed in Labour Code; (ii) Employers; (iii) Foreign Employees working in Vietnam; and (iv) other agencies, organisations and individuals directly involved in the employment relationship. Therefore, technically, the regulations provided for in Labour Code including those on severance allowance will also be applied to Employees being foreign citizens who work for Employers in Vietnam. Accordingly, a foreign Employee working under a LC in Vietnam will, upon the termination of the LC in any of the circumstances prescribed by law (except for cases where Employees are dismissed due to labour discipline violation), be entitled to severance allowance which must be paid by the Employer in Vietnam if he or she has worked for at least full 12 months, and each year of work will entitle him or her to half a month of salary[2].
The Employment Law stipulates that any Employee as Vietnamese citizen who is at least aged 15 or over and has the capacity to work and demand the job, is required to participate in UI when working under a LC[3]. In the case of a foreign Employee working in Vietnam, he or she is not subject to participation in compulsory UI. Practically, the UI is a regime that compensates part of the Employee’ employment income when he or she loses his or her job, assists him or her in finding a job based on his or her contribution to the UI fund. Thereby, if an Employee paying UI to lose his or her job, he or she will be paid UI. Where the Employee is not subject to UI like foreign Employees or work without UI payment, the Employee will be paid severance allowance by the Employer at the corresponding rate during the period of no UI payment in accordance with the Labour Code.
2. Working time as a basis to calculate the severance allowance
Technically, the UI is a regime to compensate part of the Employee’s income when he or she loses his or her job and to support the Employee during the time he or she is looking for a new job based on his or her contribution to the UI Fund. Accordingly, if the Employee participating in the UI lose his or her job, he or she will receive unemployment allowance paid by the UI Fund, and the Employer will not pay severance allowance to him or her. Therefore, the working time as a basis to calculate the severance allowance will be the total time the Employee has spent actually working for the Employer less the time of his or her participation in the UI as required by the SI Law and the working time for which the Employer has paid the severance allowance. In which, the time of the Employee’s participation in the UI is determined as the time for which the Employer has paid UI contributions and the time the Employer has paid the Employee, in addition to his or her salary, an amount equivalent to the UI contribution rate according to the laws on labour and UI[4].
Currently, the participation in compulsory UI is only applicable to any Employee who is a Vietnamese citizen of at least 15 years of age, have the working capacity and have the need for work[5]. Subjects such as foreign Employees are not required by law to participate in the compulsory UI. Although being exempted from the obligation to pay UI contributions for foreign Employees, the Employer must still pay the foreign Employees, in addition to their salary, an amount equivalent to the UI contribution rate as required by law[6].
As such, the working time as a basis to calculate severance allowance with respect to a foreign Employee will be the total time the foreign Employee has spent working for the Employer less: (i) the working time for which the Employer has paid severance allowance (if any); (ii) the time the Employer has paid the foreign Employee, in addition to his or her salary, an amount equivalent to the UI contribution rate of the Employer for the foreign Employee. As prescribed above, it could be understood that if the foreign Employee has received an amount equivalent to the UI contribution rate during his or her working time, the working time as a basis to calculate the severance allowance with respect to the foreign Employee will be determined in the same way with a Vietnamese Employee. In reality, the court also applies this point of view when it deals with the cases where the foreign Employee claims payment for severance allowance. If during his or her working time the foreign Employee has received amounts equivalent to the UI contributions that must be paid to the insurance agency, such period will not be considered as the time for severance allowance entitlement. On the contrary, if during his or her working time the foreign Employee has not received amounts equivalent to the UI contributions that must be paid to the insurance agency, the working time as a basis to calculate the severance allowance will be the time, he or she has spent working for the Employer less the time for which the Employer has paid the severance allowance (if any).
Considering the legal analysis above, the foreign Employee will receive severance allowances upon the LC termination if he or she fully meets the following conditions:
- Terminating the LC not as a result of dismissal according to ILR of the enterprise or of the case where the Employee arbitrarily leaves his or her job from 05 continuous working days and more without justifiable reason;
- Has signed the LC and spent at least 12 consecutive months working for the Employer; and
- Has not received severance allowance and amounts equivalent to the UI contributions by the Employer during the working time before the LC termination
In practice, for handling disputes over payment of severance allowance requested by the foreign Employee, the competent Court has rejected the petition for severance allowances by the foreign Employee for the reason that during the working time, the Employer has paid the foreign Employee an amount equal to the UI contribution paid to the insurance agency. Besides, under Decree 145/2020/ND-CP of Government, the period in which the Employee not subject to participating in UI contributions as required by law have received an amount equivalent to the UI contribution rate of the Employer for the Employee along with his or her salary in compliance with labour law is considered as the time the Employee participated in UI contributions. At that time, this period is not considered the period for which the foreign Employee enjoys the severance allowance. In contrast, if the foreign Employee is eligible for severance allowance and during his or her employment, the Employer has not paid him or her an amount equivalent to the UI payment in accordance with the Labour Code, the Employer will be responsible for paying the Employee severance allowance for that period.
In addition, the regulations of labour law only govern the case where the foreign Employee has signed the LC and worked in Vietnam. Therefore, if the Employer employs the foreign Employee to work in another country, the foreign Employee will be governed by the labour law of the local country. At that time, although established and operating under the laws of Vietnam, the Employer in Vietnam may be still considered as the Employer under the laws of the country where the foreign Employee works. Depending on the laws of that country, the Employer will be required to comply with and satisfy the legal requirements therein, including payment of allowances (if any) related to the employment benefits of the foreign Employee when his or her LC is terminated.
[1] Article 2 of the Labour Code
[2] Article 46.1 of the Labour Code
[3] Article 3.1 and Article 43 of Employment Law
[4] Article 8.3 of Decree 145/2020/ND-CP of the Government dated 14 December 2020
[5] Article 43 and Article 3.1 of Employment Law
[6] Article 168.3 of the Labour Code
