4 Critical Steps to Effectively Terminate The Employment Contracts with Confidence and Compassion

To terminate the employment contracts can be a complex and often sensitive process, especially when driven by economic challenges. Definitely, dealing with people is not an easy experience, from legal, processional and personal aspects. There are concerns of business viability but there are human connection that have been built over the employment time.

However, if there is no business sustainability, there is no money to pay the employee. That is hard truth!

In Vietnam, this process to terminate the employment contracts involves strict legal regulations designed to protect the rights of both employers and employees.

For foreign businesses operating in the country, understanding how to terminate the employment contracts and follow the correct procedures to terminate the employment contracts is essential to avoid disputes and maintain a positive organizational reputation. From the employee’s perspective with limited budget, when being terminated the employment contracts in the wrongful ways, they would seek consultation from employment law solicitors for help with minimum cost.

In the following, we will provide some overviews of the process to terminate the employment contracts in Vietnam due to economic reasons, exploring the legal framework, practical steps, and the importance of expert consultation with employment dispute lawyers in Vietnam to navigate this challenging process effectively.

Understanding How To Terminate The Employment Contracts in Vietnam

In Vietnam, to terminate the employment contracts marks the official end of the working relationship between an employer and an employee. This process must comply with the Vietnamese Labor Code, which outlines specific circumstances under which a labor contract may be legally terminated.

When economic pressures force a business to restructure or downsize, employers must ensure that the termination process is both fair and lawful.

A failure to adhere to these principles may result in labor disputes or legal penalties.

For foreign employers, it is especially important to understand the cultural and legal nuances that shape employment relationships in Vietnam.

Legal Grounds To Terminate The Employment Contracts

The Vietnamese Labor Code provides several legitimate reasons to terminate the employment contracts, such as:

• Expiry of the labor contract.
• Completion of the tasks or projects outlined in the contract.
• Mutual agreement between the employer and employee to end the contract early.
• Structural or technological changes within the business.
• Economic difficulties leading to workforce reductions.
• Organizational restructuring due to mergers or consolidations.

Among these, termination due to economic reasons is particularly sensitive, as it directly impacts employees’ livelihoods.

Employers must navigate these situations with care, balancing business needs with legal compliance and ethical considerations.

Economic Reasons for Workforce Reductions

Economic challenges, such as reduced market demand, financial instability, or global economic shifts, often force businesses to reconsider their workforce needs.

While such decisions may be necessary to ensure the survival of the business, they also require careful planning and adherence to specific legal procedures in Vietnam.

Foreign employers should be prepared to document the economic factors influencing their decisions and communicate these reasons transparently with employees and relevant authorities.

This transparency not only fosters trust but also helps minimize the risk of disputes.

Steps to Lawfully Terminate The Employment Contracts Due to Economic Reasons

To terminate the employment contracts due to economic challenges requires a clear, step-by-step approach to ensure compliance with the law and respect for employee rights.

1.Developing a Labor Utilization Plan

Before carrying the process to terminate the employment contracts, the employers must prepare a labor utilization plan.

This plan outlines how the business will manage its workforce under the new economic circumstances. Key elements of this plan include:

• Identifying employees who will be retained or retrained for other roles.
• Proposing alternatives such as part-time employment or early retirement.
• Clearly stating the positions and individuals whose contracts may be terminated.

This plan should reflect a thoughtful approach to minimizing the impact of layoffs and demonstrate the employer’s commitment to supporting affected employees.

2.Engaging with Employee Representatives

Vietnamese labor regulations require that employers discuss workforce changes with representatives of the employees’ collective.

This step ensures that employees’ voices are heard and provides an opportunity to address concerns and negotiate potential solutions.

3.Notifying Labor Authorities

Employers must inform local labor authorities of their intentions before implementing workforce reductions. This notification serves as a safeguard, ensuring that the process adheres to legal requirements and allows for regulatory oversight.

4.Providing Financial Compensation

When proceeding to terminate the employment contracts for economic reasons, employers are required to compensate affected employees.

This compensation, often referred to as job-loss allowances, is calculated based on the employee’s working history and salary.

Employers must ensure that payments are fair and in line with labor laws.

Calculating Compensation and Allowances

One of the most significant aspects to terminate theemployment contracts due to economic reasons is the calculation of financial compensation for affected employees.

The employers should consider the following factors:

• Length of Service: Compensation is typically calculated based on the employee’s total working period, excluding any periods covered by unemployment insurance or previous severance payments.
• Average Salary: The employee’s recent salary history is used to determine the basis for financial allowances.

Ensuring that compensation is calculated fairly and transparently can help mitigate feelings of injustice and reduce the likelihood of disputes.

Addressing Labor Disputes

Despite an employer’s best efforts, terminating employment contracts can sometimes lead to labor disputes in Vietnam. Employees may challenge the legitimacy of the termination or feel that they were not adequately compensated. Common areas of contention include:

• Disputes over the amount or calculation of job-loss allowances.
• Allegations of unfair treatment or failure to follow legal procedures.
• Miscommunication about the reasons for termination.

In such cases, negotiation, mediation or litigation can provide a structured way to resolve disagreements. Employers should also be prepared to engage legal representation to protect their interests while ensuring that employees’ concerns are addressed respectfully.

The Role of Legal Experts in Employment Termination

Navigating the process to terminate the employment contracts in Vietnam can be particularly challenging for foreign employers unfamiliar with local labor laws and customs.

Consulting with employment dispute law firms in Vietnam can provide invaluable support, helping employers:

• Understand the legal framework governing employment termination.
• Prepare labor utilization plans and other required documentation.
• Calculate financial compensation accurately and transparently.
• Handle disputes effectively through negotiation or legal proceedings.

By seeking expert advice early in the process, employers can avoid costly errors and ensure that their actions align with both legal requirements and ethical standards.

Practical Considerations for Foreign Employers

For foreign businesses operating in Vietnam, cultural awareness and sensitivity are as important as legal compliance. Employers should strive to communicate openly with employees, offering them support and guidance during the transition. Providing access to career counseling, retraining opportunities, or emotional support can go a long way in maintaining goodwill, even in difficult circumstances.

Additionally, businesses should be mindful of the potential impact that workforce reductions can have on their reputation, both within Vietnam and internationally. A fair and transparent approach to terminating employment contracts reflects positively on the organization’s values and long-term vision.

Conclusion

The process to terminate the employment contracts in Vietnam due to economic reasons is a challenging but often necessary step for businesses facing financial difficulties.

By understanding the legal framework, preparing detailed plans, and engaging in transparent communication, employers can navigate this process effectively while minimizing risks and preserving employee trust.

Foreign employers should pay particular attention to the cultural and legal nuances of employment termination in Vietnam.

Consulting with legal experts and adopting a compassionate approach can make a significant difference in ensuring a smooth transition for all parties involved.

While economic challenges may be unavoidable, the way they are addressed speaks volumes about a business’s values and commitment to fairness.

For foreign employers in Vietnam, taking the time to understand and respect these principles can strengthen relationships with employees, labor authorities, and the wider community.

About ANT Lawyers, a law firm in Vietnam

We help clients overcome cultural barriers and achieve their strategic and financial outcomes, while ensuring the best interest rate protection, risk mitigation and regulatory compliance. ANT lawyers has lawyers in Ho Chi Minh city, Hanoi,  and Danang, and will help customers in doing business in Vietnam.