Statistics from the Ministry of Justice show that labor contract disputes have increased by 35% over the past three years, with 72% of cases arising from unlawful termination procedures. This is precisely why enterprises, particularly FDI enterprises, need to fully grasp the latest regulations in order to conduct termination processes in compliance with the law and minimize potential damages.
For a comprehensive explanation and step-by-step guidance on legally standard termination procedures, follow the detailed article below by KMC.
Understanding the Concept of “Termination of Employment Contract”
According to Convention No. 158 of the International Labour Organization (ILO), termination of an employment contract is the ending of the employment relationship based on clear legal grounds.
In Vietnam, Article 34 of the 2019 Labour Code stipulates that every decision to terminate an employment contract must be supported by legitimate reasons and must strictly comply with legal procedures. Even minor mistakes may expose enterprises to complaints, compensation liabilities ranging from 2 to 12 months of salary, and reputational damage.
Five Circumstances Permitting Termination of Employment Contracts
FDI enterprises may unilaterally terminate an employment contract only under the following circumstances (Article 36 of the 2019 Labour Code):
- The employee consistently fails to perform the work as agreed in the contract (with prior written warning).
- The employee suffers from illness or an accident and, after 12 consecutive months of treatment, has not recovered.
- Due to natural disaster, fire, or other force majeure reasons.
- The employee voluntarily abandons work for 5 consecutive days.
- The employee provided fraudulent information at the time of signing the contract.
Guidelines on Termination Procedures for FDI Enterprises
FDI enterprises need to pay close attention not only to the recruitment process but also to the termination of employment contracts when hiring any employee. Regarding the termination process, enterprises must ensure compliance with the following steps:
Step 1: Verify the legal grounds
To protect employees’ rights, Vietnamese law provides strict regulations on the termination of employment contracts.
When there is a need to reduce personnel or in special cases requiring termination, enterprises must compare the actual situation with the 14 termination cases listed under Articles 34 and 36 of the 2019 Labour Code.
Note: Workforce reduction for economic reasons requires at least 45 days’ prior notice.
Step 2: Prepare a written notice
Draft a written notice clearly stating the reason and the effective date of termination.
See also: Responsibilities for contract termination in the case of enterprise dissolution.
Step 3: Deliver the notice in accordance with regulations
Send the notice to the employee, ensuring the minimum notice period as follows:
- 45 days for an indefinite-term contract
- 30 days for a fixed-term contract
- 3 days in cases of serious disciplinary violations
Step 4: Settle all payments in full
During the termination process, the enterprise must fully settle all payments owed to the employee, including salary for days worked, insurance, severance allowance (if applicable), and other contractual benefits.
Step 5: Prepare a handover record
Document the return of company assets and materials.
Step 6: Confirm completion of procedures
Sign the confirmation of contract termination and return the employee’s social insurance book within 7 working days.
Legal Risks of Non-Compliance with Termination Procedures
FDI enterprises that violate termination procedures face the following risks:
- Compensation of 2–12 months’ salary (Article 40 of the Labour Code)
- Reinstatement of the employment contract plus back pay for the period of suspension
- Administrative fines of up to VND 75 million (Decree No. 28/2020/NĐ-CP)
- Prolonged disputes lasting 6–24 months in court
Termination of Employment Contracts: Comprehensive Solutions from KMC Experts
It is evident that the termination procedure is one of the critical aspects enterprises must thoroughly understand and strictly comply with under the latest legal regulations. Therefore, if you are a new enterprise without personnel specialized in employment contracts, or if you are a manager of an FDI enterprise in need of an experienced team of experts to provide comprehensive and precise HR and contract termination solutions, do not hesitate to contact KMC.
With over 15 years of experience supporting FDI enterprises in Vietnam, KMC provides professional legal consulting services, including contract dispute resolution, with outstanding advantages:
- Multilingual consulting: Direct support in English, Japanese, and Vietnamese.
- A team of lawyers and experts knowledgeable in Vietnamese law & international practices: Especially familiar with Japanese enterprise standards, ensuring accurate execution of termination procedures.
- 24/7 emergency support: Dedicated assistance to promptly handle arising issues via hotline or in person.
- 90% reduction of legal risks: Through a multi-layered review system and strict supervision by experts.
The above provides KMC’s in-depth guidance on termination procedures as well as professional and comprehensive legal consulting services in tax, accounting, finance, and HR matters for enterprises.
If you need quick and in-depth consulting support on employment contract termination, please contact our hotline at 081 489 4789, and KMC experts will provide professional, dedicated, and lawful assistance.
