Question 14. If the dissolution of a representative office of a foreign trader in Vietnam, will the Employee work for the representative office be paid severance allowance or retrenchment allowance when the LC is terminated?


The Labour Code has only general provisions on the termination of the LC, but there is no specific guidance for the termination of LC for the Employee working for representative offices (“ROs”) of foreign traders in Vietnam South when a RO is dissolved. Nevertheless, based on the LC termination cases listed in the Labour Code[1], there are two different angles on terminating the LC in such cases. Specifically:

  • From the first angle: The LC will be terminated in case that the Employer who is not an individual terminates the operation as prescribed in Article 34.7 of the Labour Code. Accordingly, upon LC termination, the Employer is obliged to pay the severance allowance to the Employee who has regular working duration for the enterprise from full 12 months or more, each working year corresponds to half a month’s salary[2]; and
  • From the second angle: The LC will terminate in case the Employer restructures the organisation as specified in Article 34.11 and Article 42 of the Labour Code. And so, upon LC termination, the Employer is obliged to pay the retrenchment allowance to the Employee who has regular working time for the enterprise from full 12 months or more with the entitlement of 01-month salary for each working year but at least 02 months’ salary, this is higher than the severance allowance as mentioned above[3].

Practice shows that a lot of Courts having jurisdiction on settling labour disputes in similar cases have the same opinion with the second angle. Accordingly, the Courts argue and base on the provisions of the specific regulations on ROs. In particular, ROs are considered as a “dependent” unit of foreign traders[4], so prior to RO closure, foreign traders must be responsible for settling the full legal rights of the Employee who has worked lawfully at the RO[5]. Therefore, the Employer, in this case, is considered as a foreign trader rather than its RO in Vietnam. If the foreign trader does not terminate its business in its native country under its native law and terminates only the operation of its RO in Vietnam, the foreign trader will be considered as structuring its organisation[6]. Therefore, the Employee who works for the RO in Vietnam but are fired due to the change of organisational structure will be paid the retrenchment allowance in addition to other payables upon the termination of the LC according to the applicable laws.

However, it should be noted that the termination of a LC in case organisational restructuring must strictly comply with the process and procedures prescribed by the labour law. Before restructuring, the Employer is responsible for developing and implementing an labour usage plan; If there are new vacancies, retraining affected Employees to continue using them should be prioritised. If it is not possible to create a new job that leads to job loss, the Employer must pay the retrenchment allowance to the Employee. The Employer must discuss the termination of the employment with the representative organisation of employees at the grassroots level of which the affected Employee is members and give in advance a 30-day notice to the Provincial People’s Committee and to the Employee. Thus, if a foreign trader has vacancies in its other ROs or other branches in Vietnam, the Employee who is working for the ROs that intends to close may be given priority for retraining and filling the vacancy at such ROs or branches in Vietnam.

With the above-mentioned practice of settling disputes at the Courts, foreign traders, when dissolving their ROs in Vietnam, must ensure to fully comply with the restructuring process and procedures as mentioned above including terminating the LC with the Employee working at the ROs, and paying retrenchment allowance to the Employes. Failing to comply with the above, foreign traders may be considered as illegally unilaterally terminating the LC if there is a claim or lawsuit initiated by Employees at the labour management State agency or a competent Courts. In this case, the ROs which are concluded as having the obligation to pay and compensate in order to fulfill their obligation with the Employee in accordance with the labour law. However, in order to avoid complicated procedures and processes from terminating the LC under restructuring as mentioned above, foreign traders and ROs can also think of having negotiation to come to a mutual agreement with the Employee on terminating the LC pursuant to Article 34.3 of the Labour Code. In order to have a successful and effective negotiation, the minimum payable to the Employee should be equivalent to the retrenchment allowance (1 month’s salary for each working year).

[1] Article 34 of the Labour Code

[2] Article 46.1 of the Labour Code

[3] Article 47.1 of the Labour Code

[4] Article 3.6 of the Law on Commerce

[5] Article 38.2 of the Decree 07/2016/ND-CP or the Government

[6] Article 44.1 of the Labour Code 2012 and Article 13.1 (a) Decree No. 05/2015/ND-CP of the Government