Question 46. Out of reasons for restructuring being used as grounds for the termination of the LC by the Employer, which is the reason whose application may usually create legal risks for the Employer?


1. Termination of the LC due to “restructuring” is a commercial term that is usually used as a replacement for a legal concept on terminating the LC due to change of structure or technology, or economic reasons. In a concise and intelligible way, in this Book, the term being “restructuring” will be used as a replacement for the term being “due to change of structure or technology, or for economic reasons”.

According to Article 42 of the Labour Code, legal grounds for the restructuring include:

  • Changes of structure or technology comprising the follwing 3 cases:
    • Changes of organisational structure, re-organisation of employments;
    • Changes of products, or the product structure; and
    • Changes of the process, technology, machinery, and business and manufacturing equipment associated with the Employer’s business and production trade/field.
  • Due to economic reasons may be construed as:
    •  Economic crisis or recession; or
    • Implementation of the State’s policies and law upon restructuring the economy or implementation of international commitments.

2. In practice, there are some cases where the enterprise does not really fall within restructuring but they rely on this reason to terminate the LC with the Employee. Here are some examples showing reasons which cannot be considered reasonable:

  • The enterprise’ restructuring as a result of a global vertical restructuring process in a group, leading to the redundancy of the Employees in subsidiary companies in Vietnam but there is no redundancy of the Employees in practice;
  • The Enterprise is established to execute investment projects and for some reasons, the aforementioned project must be terminated ahead of its time and such termination does lead to staff Reduction for such projects of the enterprise;
  • The Enterprise undertakes labour restructuring as a result of the change of relevant laws, e.g. the quota of imported automobiles must be reduced under a decision of the Government and this reduction does lead to theunnecessity of selling automobiles of automobile trading Company and redundancies;
  • The enterprise carries out workforce reductions in order to use Employees provided bylabour outsourcing enterprises. Of note, the Labour Code has not allowed the enterprise to use the labour outsourcing service of a third party to replace the Employee whose LC is terminated due to restructuring[1]; or
  • The enterprise wishes to retrench any Employee who regularly fails to fulfil his or her tasks under the LC or any Employee who fails to comply with the ILR of the enterprise but the Employer does not have sufficient legal grounds under the labour law to handle labour discipline in the form of dismissal.

[1]Article 53.3 (c) of the Labour Code