Business shake-up set with Labour Code draft

October 10, 2019 | 15:49
The latest draft text to amend the Labour Code was released in August and includes substantial changes in numerous provisions compared to the current Labour Code and the second draft, which was issued in April. One of the substantial amendments is the recognition of the evolution of labour relationships under the impact of the Fourth Industrial Revolution. Minh Nguyen, senior associate of ACSV Legal, pointed out the remarkable changes of the latest draft, and how it will affect operating enterprises.
business shake up set with labour code draft
Minh Nguyen, senior associate of ACSV Legal

The latest draft offers revised definitions of “employer”, “employee” and “labour contract” to recognise the evolution of labour relationships under the impact of Industry 4.0. According to the revised definitions which were built upon the principle of substance trumping formality, any agreement containing the three elements of to-do tasks, compensation/salary, and supervision and direction from the paying party will be classified as a labour agreement regardless of the agreement’s name or label.

This change, will guide law enforcement bodies to better characterise the relationships between part-time or seasonal workers and technology companies such as those between drivers and ride-hailing companies like Grab or Go-Viet. On the other hand, the change will help to prevent certain companies from using a service contract or an independent contractor agreement to disguise a labour contract with an aim to avoid the payment of income taxes or mandatory social insurances to the state.

Employee termination rights

Currently, under the Labour Code, an employee has the right to terminate the labour contract but must provide prior notice to the employer. Violating this procedural rule will result in an illegal termination of the labour contract where the employer can claim compensation from the employee. The latest draft grants further rights to employees in this respect by allowing an employee to terminate the labour contract immediately without a prior notice in several circumstances.

The first is if the employee is not assigned to the correct position or work location or is not ensured the working conditions as previously agreed in the labour contract. Second is if the employee is not paid in full or on time the wages due as agreed in the labour contract, unless the late payment or insufficient payment is permitted by the labour code or otherwise agreed by the employee and the employer. The third is if the employee is maltreated, sexually harassed, or is subject to forced labour. The final circumstance applies if the employee reaches retirement age.

Illegal termination

An employer can dismiss an employee in the case that the employee is absent from work without a justified reason for five accumulated working days within a period of one month from the first day of absence or 20 accumulated working days within a period of a year from the first day of absence without justified reasons. However, as per the latest draft, this circumstance no longer gives rise to a cause for dismissal.

Instead, the draft adds a clause providing that if an employee is absent from work for six consecutive working days without a prior notification, the employee’s act will constitute an illegal termination of the labour contract. More changes might follow in this regard as not all seems to be clarified yet.

Meanwhile, the latest draft bans an employer from explicitly forcing an employee to perform obligations under a labour contract to repay debts owed to the employer. Such prohibition does not exist in the current Labour Code.

Amendment of contract term

Currently, Article 5 of Decree No.05/2015/ND-CP issued in 2015 on detailing and guiding a number of provisions of the Labour Code allows both parties to a labour contract to amend the contract term by an annex. Many companies have used this provision to prolong the period an employee working under definite-term contracts before signing an indefinite-term contract.

For example, in practice, some companies have asked employees to sign a definite-term contract and then an annex to extend this contract term, and after that another similar contract circle. To remove this loophole, the latest draft clearly prohibits the use of an annex to amend the labour contract term.

Probation duration

Under the Labour Code, the probationary period shall not exceed 60 days regardless of the probation positions. However, for candidates working in high-level managerial positions it often takes more time to evaluate the qualifications and suitability of the candidates. Therefore, a new provision is added into the draft allowing a longer probationary period for managerial positions with a maximum term of 180 days.

Automatic conversion

According to the latest draft, if an employee keeps working for the employer after expiry of the probationary period, the employee is deemed to have passed the probation and the employer must sign a labour contract with the employee. This is a new provision.


To make the Labour Code consistent with the 2014 Law on Vocational Education, lawmakers have proposed certain changes in the Labour Code on apprenticeship and on-the-job training. Accordingly, the latest draft clearly sets out the requirements for an employer who wishes to recruit an apprentice or trainee.

One requirement is that a term for apprenticeship is a maximum of 12 months, and a maximum of three months for on-the-job training. An employer must commit to recruit the apprentice or trainee if he or she is at least 15 years old at the time of the training completion. Also, an employer must enter into a vocational training contract with the apprentice or trainee in accordance with the Law on Vocational Education.

Sexual harassment

Even though according to the current Labour Code sexual harassment is prohibited, there is no clear definition thereof. The latest draft now defines sexual harassment for the first time. It also sets out remedies in case an employee has committed an act of sexual harassment towards another employee at the workplace, which includes the victim having the right to unilaterally terminate the labour contract with immediate effect without a prior notice; and the employer having the right to dismiss the employee in violation.

Work and rest overtime

Under the current Labour Code, the maximum overtime working hours in a year in a standard situation is 200, equivalent to an average of half an hour of overtime per day. However, many companies, especially those in manufacturing and processing, have indicated that this ceiling is low, and it prevents them from efficiently meeting the demands from the market.

Taking this issue into account, the latest draft specifies the circumstances and industries where the amount of overtime hours can reach up to 400 hours per year. Similarly, the maximum overtime working hours per month has been increased from 30 to 40. According to the current Labour Code, an employee who has not fully taken annual leave regardless of the reason is entitled to a payment for the untaken leave days.

The latest draft proposes a change in this regard. Notably, an employee can get paid for the untaken leave days only in case of employment termination or job loss.

Maternity and work

Right now, an employer must not require a female employee, regardless of her wish, to perform night work, overtime work, and go on a long-distance trip when she is in her seventh month of pregnancy, or in her sixth month of pregnancy in the case of working in mountainous, remote, border, and island areas; or in the case of nursing a child under 12 months of age. The latest draft removes this prohibition and leaves the decision in the hands of the female employee.

Female employees who perform heavy work are entitled to lighter work or have her daily working time reduced by an hour upon reaching the seventh month of pregnancy, while still receiving her full wage. With an aim to create more favourable conditions for pregnant women or women raising infants at the workplace, the latest draft has expanded the subjects of said entitlement to female employees who are pregnant or are raising a child under 12 months.

Under the current Labour Code, there is a list of jobs for which an employer is not allowed to hire a female employee. The latest draft removes this list and only mentions the jobs affecting child-bearing and parenting functions of female employees. Employers can hire female employees for these jobs but must provide her with relevant protective materials.

Retirement age

Currently, the retirement age is 55 for a female and 60 for a male employee. The latest draft increases the retirement age to 60 and 62 for a female and male employee respectively under a specific roadmap. As of January 2021, the retirement age shall increase each year by three months for a male employee and by four months for a female employee until it reaches 62 for males in 2028 and 60 for females in 2035.

Work permit exemption

Currently a non-national who is the owner of an limited liability company or a board member of a joint-stock company in Vietnam, or who is studying and working at the same time in Vietnam, is not required to obtain a work permit. The latest draft proposes the following changes: firstly, a foreigner in the aforementioned situation is exempted to obtain a work permit only when he or she has contributed at least VND1 billion (nearly $43,500) to such company; secondly, a foreigner who is studying and working in Vietnam shall no longer be exempted from obtaining a work permit; and the latest draft also adds a new subject for work permit exemption – foreign employees married to a Vietnamese citizen and living in Vietnam.

The Labour Code as it stands sets out the procedures of issuance and re-issuance of a work permit, which means that when a work permit is about to expire, it cannot be renewed, but only be re-issued. In contrast, the latest draft allows for a one-time renewal.

Internal labour regulations

The Labour Code has caused confusion about when a company is obliged to issue internal labour rules (ILRs) and under which form these need to be made. The latest draft corrects this shortcoming and all companies must issue ILRs, regardless of the number of employees. As for companies with at least 10 employees, the ILRs must be registered with the labour authorities. Of note, the ILRs must clearly set out disciplinary procedures to punish sexual harassment behaviour.

Dispute arbitration

For the first time ever, arbitration could be used to settle labour disputes. According to the latest draft, labour disputes related to individual rights or collective rights must go through mediation before reaching court litigation or arbitration. The award issued by the arbitral tribunal shall be final, binding, and enforceable as if it is a commercial arbitration award.

Bipartite co-operation board

The establishment of a bipartite co-operation board in the workplace is introduced in the latest draft. The board aims to enhance mutual understanding between employees and employers and to foster dialogue to discuss solutions for common concerns in the workplace.

This board also functions as an intermediary agent, liaising between the employer and the employees or between the employer and the trade union in finalising certain internal policies and regulations of the company. An employer with at least 200 employees is obliged to establish such a board.

Disciplinary action

Labour leasing services are allowed under the current Labour Code so long as a provider has obtained the required sub-licenses. However, it is currently silent on how a labour-leasing enterprise could handle violations of internal rules and policies of the hiring party which were committed by the leased employees.

The latest draft provides a solution for this issue by clearly setting out that the labour-leasing enterprise could rely on the hiring party’s internal labour rules to apply a similar disciplinary action to the leased employees in violation, even though such a violation is not mentioned in the internal labour rules of the labour leasing enterprise.

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