4 October, 2019
A further refined draft of the revised Labor Code ("Draft") has just been released. The Draft will be debated by the National Assembly when it convenes in October.
The Draft amends and supplements several provisions across all chapters of the Labor Code. As the wide scope of proposed adjustments to the revised Labor Code will deeply impact the business environment, we would like to set out some notable changes below.
1. Labor Contract
The Draft provides the below significant changes:
- There are now only two types of labor contracts: definite term labor contract, with a term of 36 months or less; and indefinite term labor contract.
- Definite-term labor contracts can be signed multiple times for elderly employees, foreign employees, and officers of employee representative organizations. Definite term labor contracts can no longer be extended by using appendices.
- Employers and employees can now sign a separate probation agreement or include a probation clause in labor contracts.
- Employees, regardless of the term of contract, can unilaterally terminate a labor contract without providing reasons, provided that they serve the required advance notices.
- The Draft also provides the right to both employers and employees to unilaterally terminate labor contracts upon employees reaching the retirement age. Providing falsified information at recruitment or being absent from work for five consecutive working days without permission or legitimate reasons are now also bases for employers to unilaterally terminate labor contracts.
2. Working Time and Salary
- Normal Working Time
The current Labor Code regulates the maximum working hours for a week to be 48 hours. The Vietnam General Confederation of Labor (VGCL) had previously proposed that normal working hours should be reduced to a maximum of 44 hours per week. However, this proposal has been removed from the latest Draft.
- Overtime Cap and Salary
The Draft continues to regulate the monthly overtime cap, but increases the monthly cap from 30 hours to 40 hours. While the annual overtime cap is still 200 hours in a normal situation, it can be increased by up to 400 hours under special circumstances prescribed by the Government.
With respect to salary for overtime work, while the Draft proposes to keep overtime rates as currently provided, VGCL has previously proposed progressive overtime wages with higher rates, under which the overtime rate would be increased by up to 180% on a normal working day, 240% on weekly days off and 360% on public holidays and paid leave days.
- Additional Public Holidays
VGCL is proposing to add three public holidays, from 3 to 5 September, reasoning that the number of public holidays in Vietnam is currently less than that of other countries in the region.
- Salary Scheme
Employers are still required to set up salary schemes and consult with employee representative organizations. However, the schemes are no longer required to register with / notify the labor authorities.
3. Labor Disciplinary Procedures
The Draft provides that labor disciplinary actions can be applied to breaches that are not specified in the internal labor regulations. Sexual harassment at the workplace will be an additional ground for dismissal, but must be specified in the internal labor regulations.
4. Term of a work permit
The Draft limits the number of work permit extensions. In particular, the term of a work permit is limited to a maximum of two years, with the option for extension also limited to a further two-year term. . If this amendment is approved, the maximum time that a foreigner will be able to work in Vietnam will be four years. Expats who want to continue working in Vietnam after the expiry of the extended work permit will have to return to his/her country before applying for a new work permit.
5. Retirement Ages
The retirement age will be increased to 62 for males and 60 for females in a specific schedule.
6. Employee Representative Organizations
To date, Vietnam's only representative organization of laborers is VGCL. To comply with Vietnam's commitments under the CPTPP and EVFTA, the Draft now recognises the right of employees to set up their own representative organisations. The Draft also provides information on the establishment and operations of these organisations.
Activities related to consultation on the Labor Code revisions
The trend of "increasing wages and reducing working hours" is being encouraged during the process of amending the Labor Code. The approval of proposed changes such as reducing normal working hours and increasing overtime rates, would negatively affect the business environment. Therefore, representative organizations of enterprises including the Vietnam Chamber of Commerce and Industry and six other business associations (including JCCI, VITAS, LEFACO, VEIA, VASEP, and AmCham) have closely worked together to form an alliance. They have held numerous workshops, seminars and conferences for consultation on the revised Labor Code in order to raise the voice of employers in the revision process.
Baker McKenzie Vietnam, under the umbrella of AmCham HR Committee, has been deeply involved in activities related to the Labor Code revision. Representatives from Baker McKenzie have joined the Special Task Force Team of the business association group to develop action plans and provide opinions from the employers' side on important content of the revised Labor Code to the National Assembly's Committee on Social Affairs, and MOLISA. In a September meeting with all business associations, chaired by the Minister Dao Ngoc Dung of MOLISA, our Special Counsel, Trung Pham, on behalf of all the business associations, presented proposals regarding labor contract and work permits. Another seminar on the revised Labor Code has just been held at the Central Institute for Economic Management in September, with the participation of companies and economic and legal experts.
In less than a month, the revised Labor Code will be submitted to the National Assembly for debate and adoption. The associations are therefore enhancing their activities in order to present the views of employers on the proposed changes to the Labor Code. We are actively contributing to these activities and will keep you updated on any further progress.
For further information, please contact:
Thuy Hang Nguyen, Partner, Baker & McKenzie
ThuyHang.Nguyen@bakermckenzie.com
