Vietnam is a country filled with opportunities and challenges, characterized by a rapidly growing economy, inexpensive labor, and favorable tax policies. However, it’s also a nation where the legal system is not fully developed, the labor market is immature, and the social security system is incomplete. In such a country, if a company’s HR department wants to conduct layoffs, they need to be very careful to avoid triggering a crisis, often colloquially referred to as a “squid-firing” situation.
Layoffs are an inevitable part of business operations, whether due to economic crises, market competition, business adjustments, or efficiency improvements. However, layoffs are not a straightforward task; they involve legal, ethical, and emotional factors. Mishandling them can lead to numerous troubles and risks for the company.
So, how should HR professionals in Vietnam handle layoffs in this complex and sensitive market? This article provides useful information and suggestions in the following areas:
Understanding Vietnam’s Layoff Regulations
In Vietnam, layoffs are protected and restricted by law. According to Article 38 of the Vietnamese Labor Code, an employer can terminate a labor contract only in the following cases:
The employee violates labor discipline or the employer’s code of conduct.
The employee cannot continue the contract due to illness or accidental injury.
The employer needs to reduce personnel due to economic reasons or technological changes.
The employer stops operating or dissolves, making it impossible to continue fulfilling the labor contract.
The most common reason for layoffs is the need to reduce personnel due to economic reasons or technological changes. In such cases, the employer must:
Report the layoff plan to the local labor management department at least 30 days in advance, explaining the reasons, scope, timing, and resettlement measures.
Notify the employees being laid off at least 60 days in advance of the contract termination and pay the corresponding compensation.
Give priority to retaining employees with higher skills and work efficiency; those with difficult family situations or disabilities; those who have participated in wars or revolutionary activities; and those with longer tenure.
Respect the collective bargaining rights of workers and negotiate with unions or organizations representing the workers to reach a consensus on the layoff plan and resettlement measures.
Failure to comply with these regulations can lead employers to face lawsuits from employees, demanding either reinstatement or additional compensation.
For example, in December 2020, a foreign-invested company in Hanoi, Vietnam, decided to lay off some employees due to technological changes. The company reported its layoff plan to the local labor management department as legally required, notified the employees, and paid compensation. However, the employees filed a lawsuit, claiming the company failed to adequately prove the necessity and impact of the technological changes and did not prioritize retaining skilled workers. The company settled out of court, agreeing to reinstate some workers and provide training and reassignment opportunities for others, thus ending the lawsuit. This case illustrates that in Vietnam, not only must employers comply with legal regulations, but they also need to provide sufficient evidence of the necessity and rationality of layoffs and try to retain skilled employees as much as possible.
Following Vietnam’s Layoff Process
Laying off employees in Vietnam is a complex and lengthy process that involves the following steps:
Developing a layoff plan. Employers need to determine the necessity, rationality, and feasibility of layoffs based on economic or technological changes. They should set goals, scope, timing, standards, and measures for resettling laid-off employees.
Reporting the layoff plan. Employers must report their layoff plans to the local labor management department at least 30 days in advance, providing relevant proof such as financial statements, market analysis, and technical assessments. The labor management department will review the plan and provide feedback within 15 days.
Notifying the laid-off employees. Employers must inform the employees at least 60 days in advance about the termination of their labor contracts, explaining the reasons and basis for the layoffs, and the calculation and payment method of the compensation. Employers also need to sign an agreement with the employees for terminating the labor contract and file it.
Paying compensation. Employers must pay compensation according to legal requirements and the content of the agreement. According to Article 48 of the Vietnamese Labor Code, the amount of compensation is based on the employee’s tenure, as follows:
Tenure Compensation
Less than 12 months 0.5 month’s salary
12 to less than 36 months 1 month’s salary
36 to less than 72 months 1.5 months’ salary
72 months and above 2 months’ salary
Additionally, employers need to pay for unused annual leave, social insurance fees, and other entitled benefits.
Resettling laid-off employees. Employers should provide resettlement measures for laid-off employees, such as reassignment, training, and re-employment. Employers also need to cooperate with local labor management departments to provide employment services and counseling for laid-off employees.
For example, in November 2019, a foreign-invested company in Ho Chi Minh City, Vietnam, decided to lay off some employees due to economic difficulties. The company reported its layoff plan, notified the employees, and paid compensation as legally required. However, the employees thought the compensation was too low to sustain their living, leading to a strike demanding higher compensation or reinstatement. The company negotiated with the union and agreed to increase the compensation by 10% and provide re-employment services and counseling, which quelled the strike. This case shows that in Vietnam, employers must not only comply with legal regulations but also consider the living standards and expectations of workers and effectively negotiate and communicate with unions or organizations representing the workers.
Bearing in Mind the Risks of Layoffs in Vietnam
When conducting layoffs in Vietnam, HR professionals should also be aware of the following points:
Do not terminate labor contracts arbitrarily. In Vietnam, unless it fits the situations prescribed by law, an employer cannot unilaterally terminate a labor contract. Illegal termination can lead to legal liabilities and reputational damage.
Do not discriminate against or retaliate against workers. Employers cannot terminate contracts based on an employee’s race, gender, age, religion, political views, social background, etc. Nor can they terminate contracts because the employee participated in union activities, defended their legal rights, or reported the employer’s illegal actions. Such behavior can be considered discrimination or retaliation, leading to legal sanctions and public condemnation.
Do not ignore the psychological state of workers. Layoffs are a sensitive and emotional issue in Vietnam, causing significant psychological stress and emotional turmoil for workers. Lack of care and support can lead to employee dissatisfaction and resistance, and even violence. Therefore, employers should use a gentle and polite approach, providing ample explanation and communication, as well as appropriate comfort and encouragement.
Remember to protect the interests of the company. Layoffs are high-risk in Vietnam, bringing uncertainty and potential problems. If the employer does not handle the relationship with laid-off employees well, they may face legal lawsuits, reputational damage, and leakage of business secrets. Therefore, employers should avoid disputes and conflicts with laid-off employees and promptly retrieve company property and documents to protect the company’s interests and safety.
