Understanding Redundancy in Vietnam: Legal Framework and Business Preparation

What is Redundancy? Is it Regulated by Vietnam Laws?

Redundancy refers to a situation where an employer terminates one or more employees because their roles are no longer necessary due to changes in the business's operational or structural needs. This can include business restructuring, changes in technology, merger and acquisition activities, or downsizing due to financial challenges. In Vietnam, redundancy is regulated under the 2019 Labor Code, specifically in Article 42 and Article 44, and further guided by Decree 145/2020/ND-CP. These provisions classify redundancy as a lawful ground for unilateral termination by the employer, provided that specific conditions and procedures are strictly followed.

According to Vietnamese law, redundancy is not simply the employer’s discretion to terminate at will. It must be based on objective reasons such as organizational restructuring, technological change, or economic downturn. Importantly, employers must demonstrate the necessity of the redundancy and the inability to reassign the affected employees to other suitable positions within the organization.

What Are the Procedures for Redundancy?

When planning for redundancy, employers must prepare and implement a transparent and legally compliant process to mitigate legal risks and maintain industrial harmony. The process generally involves the following key steps:

1. Consultation and Internal Planning: The employer should assess the need for redundancy and document the business rationale behind it. If a labor union is present, early consultation is required. The selection criteria for redundant positions must be fair and objective, and applied consistently.

2. Preparation of a Labor Utilization Plan: In accordance with Article 42 of the Labor Code, if the redundancy affects two or more employees, the employer is required to develop a labor utilization plan. This plan must outline how employees will be reassigned, retrained, or terminated. The plan must be consulted with the grassroots-level trade union and submitted to the provincial labor authority (Department of Labor, Invalids and Social Affairs - DOLISA).

3. Notice and Registration with Authorities: Employers must notify the provincial labor authority at least 30 days before implementing redundancy involving multiple employees. If the redundancy results from a merger, consolidation, or divestment, the notice period is at least 15 working days.

4. Termination Notice to Employees: Individual employees must be given at least 30 days’ written notice (45 days for indefinite-term contracts) before termination, or payment in lieu of notice if applicable. The notice must clearly state the reason for termination due to redundancy.

5. Severance and Legal Payments: Affected employees are entitled to severance allowance if they have worked for the company for 12 months or more, calculated at half a month’s salary for each year of service. Other payments include remaining salaries, unused annual leave, and additional compensation (if applicable under internal rules or collective labor agreements).

6. Finalization and Documentation: All employment termination procedures must be documented properly to ensure compliance during audits or potential labor disputes.

When Employers Cannot Make Employees Redundant

While redundancy is legally permissible under certain conditions, Vietnam’s labor laws also establish specific protections that prohibit employers from applying redundancy to particular categories of employees. These legal protections ensure fairness and prevent misuse of redundancy as a termination tool. Employers must not proceed with redundancy in the following circumstances:

• Employees undergoing medical treatment or recuperation: This applies to employees who are ill, have experienced an accident, or contracted an occupational disease and are receiving treatment or convalescing as directed by a competent medical facility. However, there's an exception if the employee falls under the provision of long-term treatment of illness with conditions. 

• Employees on authorized leave: This includes employees taking their annual leave, personal leave approved by the employer, or other forms of leave as stipulated by law or agreed upon with the employer.

• Pregnant employees and those caring for young children: This covers female employees who are pregnant, currently on maternity leave, or raising a child under 12 months old.

Termination in any of the above cases may be deemed illegal, exposing the employer to risks such as administrative penalties, compensation orders, and potential reinstatement of the employee by labor authorities or courts. Therefore, careful legal assessment must be conducted before any redundancy decision is finalized.

Key Takeaways for Businesses

Redundancy in Vietnam is a sensitive and tightly regulated matter that requires not only compliance with the labor laws but also careful human resource and legal strategy. Businesses should:

• Assess alternatives before implementing redundancy, such as reassignment, part-time options, or retraining programs.

• Ensure transparency and fairness in selection criteria to avoid allegations of discrimination or wrongful termination.

• Engage with trade unions or employee representatives early, particularly in companies with collective labor agreements or strong union presence.

• Maintain detailed documentation of every step, including the rationale, consultation process, notices, and payments.

• Anticipate possible disputes and prepare a mitigation plan, including legal support and post-termination communication with employees.

Lastly, it is advisable for employerses - pecially foreign-invested enterprises unfamiliar with Vietnam’s labor law enforcement practices - to consult legal professionals when planning and executing a redundancy. Proper handling not only ensures legal compliance but also protects the company's reputation and employee relations.