10 Essential Insights on Employee Severance in Vietnam During M&A

Employee severance in Vietnam is a critical issue for both employers and employees, particularly in the context of mergers and acquisitions (M&A). The following explores the intricacies of severance pay, focusing on what happens when employees continue to work for a new employer who acquires their original company. By understanding the legal framework and practical implications, both expatriate and local employees can better navigate these transitions.

Understanding Employee Severance in Vietnam

The concept of employee severance in Vietnam is governed by the Vietnamese Labor Code, which ensures that employees are fairly compensated when their labor contracts are terminated under specific conditions. This compensation is especially pertinent during corporate changes such as mergers and acquisitions.

1. Legal Framework for Employee Severance in Vietnam

Employee severance in Vietnam is regulated by the Labor Code, which outlines the conditions under which severance pay is due. According to the law, employees are entitled to severance pay if their labor contracts are terminated under various circumstances.

2. Conditions for Severance Pay Eligibility

Severance pay eligibility is triggered by specific termination conditions. These include the expiration of the labor contract, mutual agreement to terminate, legal unilateral termination by either party, and several other conditions.

Detailed Conditions:

Expiration of Contract: When the labor contract term ends.
Mutual Agreement: Both parties agree to terminate the contract.
Legal Unilateral Termination: By either the employer or the employee.
Employer Ceases Operations: The company shuts down.
Other Conditions: Including employee death, imprisonment, or being declared missing.

3. Impact of Mergers and Acquisitions on Employee Severance in Vietnam

During mergers and acquisitions, employee severance in Vietnam becomes particularly relevant. The law ensures that employees’ rights are protected, and their total working time is considered when calculating severance pay, regardless of the corporate changes.

Important Aspects:

Continuity of Employment: Employees’ service time with both the original and the new employer is considered.
Severance Calculation: Includes all periods of employment before and after the corporate change.

4. Calculation of Employee Severance in Vietnam

The severance pay is calculated based on the total actual working time of the employee, including service with both the original and acquiring company. The severance pay is generally half a month’s salary for each year of service.

Example Scenario:

Employee A worked for Company X for three years before it was acquired by Company Y. After the acquisition, Employee A continues to work for another two years. If the contract is terminated, the severance pay is calculated for the total five years of service.

5. Rights and Responsibilities of Employees

Employees need to be aware of their rights to ensure they receive their entitled severance pay. Keeping detailed employment records and understanding the conditions under which severance pay is due is crucial.

Steps for Employees:

Review Contracts: Understand the terms of your labor contract.
Document Employment History: Maintain detailed records of your employment.
Legal Grounds: Familiarize yourself with the specific conditions for severance pay.
Seek Legal Advice: Consult a labor lawyer in Vietnam if needed.

6. Employer Obligations During M&A

Employers must comply with the legal requirements for severance pay during mergers and acquisitions. This includes calculating severance based on the total employment duration and ensuring timely payment to eligible employees.

Employer Actions:

Accurate Record-Keeping: Maintain accurate records of employees’ service time.
Compliance: Ensure compliance with the Labor Code regarding severance pay.
Communication: Inform employees about their rights and the process for claiming severance pay.

7. Common Misconceptions About Employee Severance in Vietnam

There are several misconceptions about employee severance in Vietnam, especially concerning corporate changes like mergers and acquisitions. Clarifying these misconceptions is important for both employers and employees.

Misconceptions:

Severance Only for New Employer: Incorrectly assuming severance is only based on the time with the new employer.
Exclusion of Prior Service: Believing service time with the original employer is not counted.
Severance Non-Eligibility: Misunderstanding eligibility criteria.

8. Legal Assistance and Resources

Employees should consider seeking legal assistance to understand their rights and navigate the complexities of severance pay during mergers and acquisitions. There are several resources available for expatriates and local employees in Vietnam.

Resources:

Labor Lawyers: Specialized in Vietnamese labor law.
Government Agencies: Ministry of Labor, Invalids, and Social Affairs.

9. Practical Tips for Employees Facing M&A

Employees facing mergers and acquisitions should take proactive steps to ensure their rights are protected. Being informed and prepared can help mitigate any negative impacts of employment termination.

Practical Tips:

Stay Informed: Keep up to date with company announcements and legal changes.
Document Everything: Maintain a thorough record of your employment history and communications with the employer.
Consult Professionals: Seek advice from labor lawyers or consultants.
Know Your Rights: Understand your entitlement to severance pay and other benefits.

10. Case Studies and Real-Life Examples

Examining real-life examples and case studies can provide valuable insights into how employee severance in Vietnam is handled during mergers and acquisitions. These examples illustrate the practical application of the law and highlight potential challenges and solutions.

Case Study:

Company Merger: Company A merges with Company B, and Employee X has worked with both companies. Upon termination, Employee X successfully claims severance pay for the total duration of employment with both entities, demonstrating the practical application of the law.

In conclusion, understanding employee severance in Vietnam is crucial for both employees and employers, especially during mergers and acquisitions. By comprehending the legal framework, knowing their rights, and taking proactive steps, employees can ensure they receive their entitled benefits. Employers, on the other hand, must comply with legal obligations to avoid disputes and ensure smooth transitions during corporate changes.

ANT Lawyers, 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.

5 Human Qualities That Define a Prestigious Law Firm in Vietnam