Drafting an effective labor contract is the crucial first step for both employers and employees.
A well-constructed contract ensures that all parties understand their rights and obligations, and it can help prevent misunderstandings and disputes.
In Vietnam, the labor contract must comply with the provisions of the Labor Code and other related regulations.
To ensure accuracy and legality, this guide will outline the key elements that must be included in any employment contract according to Circular 10/2020/TT-BLĐTBXH, which details the current legal framework.
What is a Labor Contract?
A labor contract is an agreement between an employer and an employee that outlines the rights, duties, and conditions of the job. It serves as a legal document to ensure both parties understand and agree on what is expected.
Vietnamese labor law provides for two types of labor contracts, each with different implications:
- Indefinite-term contracts: These contracts do not specify an end date. They are the most secure for employees, providing long-term stability.
- Definite-term contracts: These are contracts with a duration of up to 36 months. After two consecutive definite-term contracts, the third contract must be indefinite-term.
Each type of contract must be chosen based on the nature of the job and the expected duration of employment. Using the wrong type of contract could result in penalties, so it’s important to get this step right from the start.
Details in Drafting an Effective Labor Contract
In Vietnam, labor contracts must comply with current legal regulations as stated in various laws, such as the Labor Code 2019 and Circular 10/2020/TT/BLĐTBXH.
These laws provide specific guidelines on the essential components that must be included in a labor contract:
1. Employer Information
The first section of any labor contract must include the details of the employer. This information identifies who the employer is and where they are located. According to Article 3 of Circular 10/2020/TT/BLĐTBXH, this information should include:
- Employer’s Name: This depends on the type of employer:
- For businesses, organizations, cooperatives, and unions of cooperatives, use the name registered in their business registration certificate or investment certificate.
- For household businesses or individuals, use the name of the individual representative as it appears in their Citizen Identification Card, National ID Card, or passport.
- Employer’s Address: Use the address registered in the business registration certificate or other official documents.
- Employer Representative: Include the name and job title of the person signing the contract on behalf of the employer. This should follow Article 18(3) of the Labor Code 2019, which explains who has the authority to sign contracts for the employer.
2. Employee Information
Similarly, information about the employee must be clearly stated to ensure that the contract is personalized and legally binding for the individual concerned. As per Article 18(4) of the Labor Code 2019, the following details are required:
- Full name, date of birth, and gender of the employee.
- Residential address and contact information, such as a phone number and email address if available.
- Identification details such as the employee’s Citizen Identification Card, National ID Card, or passport number. If the employee is a foreign worker, additional documentation such as a work permit or an official letter confirming that a work permit is not required must be included.
- For employees under 15 years old, the name and contact details of their legal guardian must also be specified.
3. Job Description and Work Location
The contract must include a clear description of the employee’s job and the location(s) where the job will be performed. It is essential to provide specific details regarding the job role to avoid ambiguity.
- Job Description: This should cover the tasks, duties, and responsibilities that the employee is expected to perform. It is important to clearly define what the role entails to set proper expectations.
- Work Location: According to the regulations, if the employee is expected to work in multiple locations, all locations should be listed in the contract. This ensures transparency and avoids misunderstandings about travel or relocation expectations.
4. Contract Duration
The duration of the contract must be explicitly stated, indicating whether the contract is for a fixed term or indefinite.
- Fixed-Term Contracts: Specify the start and end dates of the contract.
- Indefinite-Term Contracts: Only the start date needs to be included.
This section ensures that both the employer and employee have a clear understanding of the time frame of their working relationship, which is important for planning and performance evaluations.
5. Salary and Payment Terms
Arguably one of the most crucial elements of a labor contract is the salary and payment details. This section should cover the following:
- Salary Amount: The contract must specify the monthly or daily wage, as defined by the employer’s salary scales or grading systems according to Article 93 of the Labor Code 2019. For employees paid by products or contracts, the wage must still be linked to a standard time frame (monthly or daily) for consistency in calculating product prices or contract terms.
- Allowances: If applicable, salary allowances must be clearly stated. These allowances are often tied to:
- Work conditions (e.g., hazardous environments).
- Complexity of the job.
- Living conditions or other factors that are not fully covered by the base salary.
- Bonuses and Other Benefits: Article 104 of the Labor Code 2019 allows for performance bonuses, initiative bonuses, and other financial benefits such as meal allowances, transportation or housing subsidies, birthday gifts, and emergency aid in case of a worker’s family crisis. Bonus is not a mandatory payment and it is subject to employer’s policies.
- Payment Method: State whether the salary will be paid in cash or by bank transfer.
- Payment Schedule: This section must specify when and how often the employee will be paid. According to Article 97 of the Labor Code 2019, the payment schedule must be agreed upon and honored by both parties, with the default being once a month.
6. Working Hours and Rest Periods
The labor contract should detail the working hours and rest periods to ensure compliance with labor laws and prevent employee burnout.
- Working Hours: Clearly state the number of hours the employee is expected to work per day or per week. Must comply with the regulations on maximum working hours (usually 48 hours per week) and overtime limits as outlined in the Labor Code.
- Rest Periods: Include the number of breaks and days off the employee is entitled to, including public holidays and annual leave.
This section should also mention any shift patterns or specific hours that are relevant to the job, providing clarity for both parties about expectations.
7. Promotion and Salary Raise Policies
The contract should outline the company’s policies on promotions and salary raises. This can either be a specific condition (e.g., after two years of service) or based on the company’s annual performance reviews.
According to labor regulations, both parties must agree on the conditions and timeline for salary raises and promotions. If the company has a collective labor agreement or an internal policy that outlines these policies, it should be referenced in the contract.
8. Occupational Safety and Health
Another important aspect is ensuring that the employee has the right to a safe working environment. The contract should specify any personal protective equipment (PPE) or health and safety training provided by the employer.
- Protective Equipment: If the job requires specific safety gear, such as helmets, gloves, or respirators, it should be stated clearly in the contract who is responsible for providing these items.
- Health and Safety: The contract should reference the employer’s commitment to providing a safe workplace, in line with the relevant laws on occupational safety and hygiene.
9. Social Insurance and Health Insurance
Under Vietnamese law, employers must contribute to social insurance and health insurance for their employees. The contract must include:
- The types of insurance that the employee is entitled to (e.g., social insurance, health insurance, unemployment insurance).
- The percentage of the contribution paid by both the employer and the employee, as per legal requirements.
These insurance contributions are critical in providing security for the employee in cases of illness, maternity, workplace accidents, or retirement.
10. Confidentiality and Non-Disclosure Agreements
If the employee will be handling sensitive information like company secrets or technology, the contract should include a confidentiality agreement or non-disclosure clause. According to Article 4 of Circular 10/2020/TT/BLĐTBXH, employers can protect their trade secrets by including such clauses in the labor contract or regulated in a separate agreement.
This confidentiality and non-disclosure agreement should give:
- A list of protected information.
- The duration of the confidentiality agreement.
- The penalties for violating the agreement.
11. Training and Skills Development
If the employer provides any training programs or skills development opportunities, these should be outlined in the contract. This includes information on:
- How much time the employee will spend in training.
- Whether the employer will cover the costs.
- Any requirements or expectations from the employee.
This not only benefits the employee’s professional growth but also ensures they stay up to date with the latest practices in their field.
12. Termination of the Contract
Finally, the contract should cover how it can be terminated. According to the Labor Code 2019, termination can occur for various reasons, such as:
- Mutual agreement.
- Expiration of the contract.
- Serious misconduct.
- Economic conditions or restructuring.
Make sure to include the notice period required by law and outline any severance pay or other final payments owed to the employee.
Consequences for Drafting Labor Contracts not in Accordance with the Law
Failing to draft labor contracts according to legal regulations in Vietnam can have serious consequences for employers, employees, and even state authorities.
Consequences for Employers
When a company does not properly draft or fails to sign labor contracts, it can face administrative fines.
Under Clause 1, Article 9 of Decree 12/2022/ND-CP, employers are subject to administrative fines based on the number of affected employees:
- VND 4,000,000 to VND 10,000,000 for 1 to 10 employees.
- VND 10,000,000 to VND 20,000,000 for 11 to 50 employees.
- Fines escalate further for larger numbers of employees, up to VND 50,000,000 for violations impacting over 300 employees
In addition, employers may be required to correct the contract by including all necessary content and ensuring it’s compliant with the law. They might also need to sign new contracts with employees who have been affected
Consequences for Employees
When a labor contract is missing or incomplete, employees might not be eligible for critical benefits such as social insurance, health insurance, or unemployment insurance, which is mandatory under Law on Social Insurance 2014.
Additionally, employees without formal contracts may find themselves in vulnerable positions where the employer can terminate their work relationship unilaterally without the protections guaranteed by law.
Russin & Vecchi – Your Trusted Partner in All Things Legal
When it comes to drafting labor contracts, making sure everything complies with Vietnamese labor laws is a must for both employers and employees. In straightforward cases, this can be done easily, but for more complex situations—like contracts for senior roles or specific industries—getting help from legal experts can help avoid future disputes.
For expert assistance in drafting labor contracts, Russin & Vecchi offers years of experience in providing trusted legal services. We can help you with:
- Negotiating terms to maximize the benefits for both parties.
- Drafting accurate and legally sound contracts that align with current regulations.
- Labor law consultations, ensuring you understand your rights and obligations.
- Representing clients in labor-related administrative procedures.
- Reviewing contracts for legal compliance.
- Handling disputes arising from labor relationships.
For more information or to consult with an expert, reach out to Russin & Vecchi for reliable and thorough legal support.
