Vietnam’s new Labour Code to come into force 1 January 2021

24 November 2020

On 20 November 2019, the National Assembly of Vietnam adopted the Labour Code 2019, which will come into effect on 1 January 2021, repealing the Labour Code 2012.

The Labour Code 2012 is widely regarded as a “pro-employee” statute, with the rights of employees highly protected as well as favoured in practice. The new Labour Code 2019 has come about due to a variety of factors. In recent years, Vietnam has witnessed the emergence of a new labour force under the Fourth Industrial Revolution. Vietnam also seeks to comply with the International Labour Organization’s Declaration on Fundamental Principles and Rights at Work as required in recent new generation treaties such as the EU-Vietnam Free Trade Agreement. The Labour Code 2019 seeks to implement regulations with both employers and employees in mind, bringing the legal framework in this area of law in line with both market practice and international standards.

This Article discusses some of the key highlights of the Labour Code 2019.

1. Broadening of scope

The Labour Code 2012 governs employment relationships established through labour contracts. The Labour Code 2019 introduces the term “worker without a labour relationship” to refer to a person working without a labour contract. The Labour Code 2019 expands its scope to cover relationships formed by parties via means other than labour contracts, for example consulting service agreements between an individual and a company, and seeks to apply certain regulations to relationships that may affect existing hiring practices where an employer does not wish to establish an employment relationship bound by regulations under the Labour Code 2012.

Decrees and circulars will be issued in relation to the implementation of provisions pertaining to the application of the labour regulations to “non-employment” relationships.

2. Removal of seasonal/specific-job labour contracts

Seasonal or work-specific labour contracts as provided under the Labour Code 2012 no longer exist under the Labour Code 2019. The Labour Code 2019 provides for only two types of labour contracts, namely (i) an indefinite term labour contract, that is, a contract where neither the term nor the time frame of the contract is fixed; and (ii) a definite term labour contract, that is, a contract where both the term and the time frame of the contract, which must not exceed 36 months from the effective date of the contract, has been fixed.

The Labour Code 2019 allows parties to enter into many definite term labour contracts in certain cases (e.g. labour contract with senior workers or foreign employees), which is an improvement on the provisions of the Labour Code 2012 which allows parties to conclude definite term labour contracts only twice.

3. Recognition of the execution of labour contracts through electronic means

The Labour Code 2019 officially confirms that “a labour contract entered into by electronic means in the form of data messages in accordance with the law on electronic transactions has the same value as a written labour contract”. This position was not explicitly set out in the Labour Code 2012 and the validity of a labour contract executed through electronic means was then uncertain.

4. Unilateral termination by employers 

The Labour Code 2019 provides employers with additional legal grounds to unilaterally terminate a labour contract when:

(i) an employee reaches retirement age (see paragraph 9 below); 

(ii) an employee is absent from his/her job without permission for five consecutive working days or more without a plausible reason; and 

(iii) an employee provides the employer with false information before entering into the labour contract, which affects the performance of the labour contract.

Additionally, the Labour Code 2019 allows an employer to unilaterally terminate a labour contract without prior notice where (i) an employee fails to return to work 15 days from expiry of the suspension period of a labour contract, and (ii) an employee is absent from work without a legitimate reason for five consecutive working days or more.

5. Unilateral termination by employees 

Employees shall be allowed to unilaterally terminate their contracts without providing any reason, provided that they meet prior notice period requirements.

6. Longer probation for high-level managerial positions

The Labour Code 2012 stipulates that the probationary period set out in a labour contract shall not exceed 60 days. However, for candidates in high-level managerial positions, there had been feedback that a 60-day probation period may not be sufficient to evaluate the qualifications and suitability of the candidate. The Labour Code 2019 addresses this concern by allowing a longer probationary period, with a maximum term of 180 days, for certain prescribed managerial positions.

7. Flexibility in salary scheme 

Employers are free to establish their own wage scales and salary structures, provided they meet the regional minimum compulsory wages. The schemes will no longer require registration and notification with the labour authorities.

8. Longer overtime allowed

The monthly overtime cap has been increased from 30 hours to 40 hours. In addition, the Labour Code 2019 supplements this by providing that in certain cases and circumstances, employers are permitted to arrange overtime work of up to 300 hours a year.

9. Increase in retirement age 

The retirement age, currently 55 for women and 60 for men, will gradually increase to 60 for women and 62 for men.