1.The basis for terminating the LC due to changes in the enterprise structure
As prescribed by the Labour Code, the Employer may unilaterally terminate the LC with the Employee due to changes in the enterprise structure regardless of which type of the LC signed with the Employee. However, the termination of the LC, in this case, must fulfil the following conditions:
1.1 Condition 1 – there is an actual change in the structure
As prescribed by the above regulation, the reason for “changes in structure” under the labour law include the following cases:
- Change of organisational structure, reorganise the labour-force;
- Change the process, technology, machinery, and equipment for production and business aligned with the business lines of the enterprise; and
- Change product or product structure.
The Labour Code and its guiding documents do not have specific guidelines on how to interpret the case of “changes in structure”, but normally the case of changing products or the product structure will be applied to the enterprise in the field of production rather than services. Regarding the case of changing the organisational structure or re-organising labour force, Article 11 Decree 39/2003/NĐ-CP dated 18/4/2003 previously prescribed that “changing the organisational structure” would include the merger or dissolution of some departments in the enterprise – today local labour management State agencies and competent Courts still apply what is interpreted by Decree 39/2003/NĐ-CP. However, the law does not provide any legal interpretation of the term “department” being merged or dissolved. In reality, the term “department” is interpreted and applied in many different ways. The first point of view contends that a “department” is a group of Employees with the same function or who are working towards the same goal. The second point of view defines the term “department” in a broader sense; accordingly, a “department” may include only one Employee with a separate function and independence in the enterprise (such as IT Employees, in-house counsels, etc.).
Therefore, although there is a precedent to refer to the regulations of Decree 39/2003/ND-CP, it should be noted that the Employer must present reasonable explanations based on the features of its enterprise to convince the Court in case a labour dispute may occur.
The Employer may fin case of planning to terminate the LC with 01 specific Employee due to the reason of “changes in structure” rather than all the Employees in the same department that Employee works for. Accordingly, that Employee can initiate a lawsuit against the Employer since the reason “changes in structure” provided by the Employer to terminate LC is not in line with the Labour Code. In practice, the Courts often give arguments that are more beneficial to the Employee to protect their interests when the current labour law does not have specific and transparent explanations about the concept above, it is very likely the Court will issue a judgment that the termination of the LC with the Employee is against the spirit of the Labour Law. The Employer must then accept the Employee back to work and pay him or her salary, SI, HI, retrenchment insurance premiums for the days they are not allowed to work plus at least 2 months’ contract salary.
1.2 Condition 2 – comply with the procedure for terminating the LC due to changes in the structure.
In case the Employer has grounds to determine that the termination of the LC is due to changes in structure, and this affectsthe employment of many Employees, the Employer must strictly comply with the procedure for terminating the LC as follows:
- The Employer must build and implement options to use the labour force (if there are two or more affected Employees); if there are new positions, the Employer should prioritise re-training the Employee in order to prolong the employment. In case the Employer cannot find new jobs for the Employee, the Employer can terminate the LC with the Employee. Formulating the labour usage plan requires the Employer to consult the organisation representing employees at the grassroots level in the case that such an organisation is available at the workplace. The labour usage plan must be publicly notified to the Employee within 15 days after the date on which it is passed;
- If the Employer cannot find any new job or has prioritised re-training the Employee but the Employee cannot meet the requirements of the new vacancy, or the Employee does not agree to work part time, which gives the Employer no choice but to terminate the LC with the Employee (02 or more Employees), then the Employer must consult organisation representing employees at the grassroots level in the case of such an organisation is available at the workplace;
- In addition, the Employer is also obliged to give a 30-day prior notice to inform the provincial labour management State agency of this decision before terminating the employment; andUpon the expiration of 30 days, if the provincial labour management State agency does not have any opinions about the notice, the Employer may issue the decision to terminate the LC with the Employee and discharge its obligations to the Employee as prescribed by the Labour Code.
With the 02 conditions above, it is risky for the Employer to rely on the reason of “changes in structure” to terminate the LC with the Employee in accordance with the Labour Code. Accordingly, if the Employer’s arguments are not strong enough to justify the reason “changes in structure” or the Employer does not fully comply with the procedure for terminating the LC, the lay-off due to changes in the enterprise’s structure may be considered illegal. Even if the Employer has fulfilled the 02 conditions above, there is an opportunity that the Employer will be sued by the Employee due to his or her different interpretation of “changes in structure” while the current Labour Code does not have a clear explanation about this term. In practice, the Employer therefore prefers negotiating the termination with the Employeeto terminating the LC for the reason of “changes in structure” since negotiating the termination with the Employee is the best and safest option to help prevent any lawsuit filed by the Employee in the future. Accordingly, when the Employer negotiates the termination with the Employee and gets his or her acceptance, the parties shall reach an agreement on termination and the Employer will pay the following amounts to the Employee within 14 working days from the termination date:
- The unpaid salary upon the date of termination of the LC;
- The salary for the annual leave days that the Employee has not taken;
- Severance allowance (the Employee is entitled to half a month’s salaryfor eachyear of service, referring to the average contract salary of the 6 preceding consecutive months prior to termination). If the Employee has worked for full 12 months or above; in which, the working time as a basis to calculate severance allowance will be the total time the Employee has spent working for the Employer, minus the time of the Employee’s participation in UI as regulated by the SI Law and the working time for which the Employer has paid severance allowance if any; and
- Upon the budget of the Employer, a supportive amount to help the Employee find another job elsewhere as agreed by the Employer and the Employee.
2. The Employer’s responsibilities to the Employees upon the termination of the LC due to changes in the structure
In case the Employer believes that they can fulfil the 2 conditions to terminate the LC with the Employee due to changes in structure as analysed above, the Employer is obliged to pay the Employees the outstanding amounts within the maximum time limit of 30 days from the date of termination, including:
- The unpaid salary upon the date of termination of the LC;
- The salary for the annual leave days that the Employee has not taken; and
- Retrenchment allowance, for every year of service the Employee is entitled to one month’s salary but no less than 02 months’ salary, referring to the average contract salary of the 06 preceding consecutive months prior to termination; in which, the working time as a basis to calculate retrenchment allowance will be the total time the Employee has spent working for the Employer, minus the time of his or her participation in UI as regulated by the SI Law and the working time for which the Employer has paid severance allowance if any.
Articles 34.11 and 42.3 of the Labour Code
Article 42.1 of the Labour Code
Article 41.1 of the Labour Code
Article 42 of the Labour Code
Article 44.1 of the Labour Code
Article 42.3 of the Labour Code
Article 44.2 of the Labour Code
Article 42.6 of the Labour Code
Article 34.3 of the Labour Code
Article 46 of the Labour Code
Article 47 of the Labour Code