Practice Area Articles
January 16, 2023
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KEY DEVELOPMENTS FOR 2023
Decree on employee representative organizations and collective bargaining
Vietnam recently acceded to the EU-Vietnam Free Trade Agreement and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (“CPTPP”), both of which include labor and sustainability obligations requiring Vietnam to ratify all the core International Labor Organization (“ILO”) conventions. Vietnam has not yet ratified the ILO Convention on Freedom of Association and Collective Bargaining, but this is expected to take place in 2023.
In anticipation of this ratification, Vietnam has recognized trade unions independent of the Vietnam General Confederation of Labor (“VGCL”), which had previously been the only recognized trade union system in Vietnam (in the latest version of the Labor Code which came into effect in 2021). However, the new Labor Code does not provide key details on the formation of these independent trade unions or how they will collectively bargain together with VGCL trade unions within an enterprise. A decree setting out these details was expected to be issued in early 2022, but it has not been issued yet; however, it is anticipated to be released in 2023.
Once this decree is issued, it will be possible for independent trade unions to form, and there may be multiple trade unions within one enterprise. Employers may then be required to consult with multiple trade unions on key management steps and collectively bargain with more than one union. These changes are likely to significantly add to the administrative burden of managing the workforce in Vietnam.
We recommend that employers keep up-to-date on the latest legal developments, and ensure that their HR personnel understand the new regulations once they are issued. Companies should also ensure that clear lines of communication are open with employees, so that if employees form multiple trade unions, they can maintain positive and productive relationships with them.
Decree on personal data privacy
Vietnam has issued a draft decree on personal data privacy which would impose significant obligations on data processors, of which the definition includes employers. Under the draft decree, employers would be required to obtain a special permit to process “sensitive personal information,” which would include things such as an individual’s financial, health information and criminal record, which are types of information routinely collected by employers in the recruitment and onboarding process. A special permit would also be required for a cross-border transfer of personal information. Additional security measures would also have to be implemented by employers to protect employees’ personal data.
If this decree is passed in its current form, employers will face significant administrative burdens in managing their employees’ personal data. We recommend that employers set aside a budget to cover the costs and additional personnel necessary to implement the obligations under the new decree.
Challenges in obtaining work permits and visas for foreign employees
The provincial Departments of Labor, Invalids and Social Affairs and Immigration bureaus have introduced internal policies changing application procedures for work permits and work visas which have caused significant delays in obtaining these documents for foreign employees. These changes are not largely dictated by legislation, but have instead been decided upon internally by these organizations.
Previously, the entire application process to obtain a work permit took approximately two to three months, but now the process takes four to five months on average. It is now very onerous to apply for a work or business visa. The authorities now require an employee of the applicant organization to physically lodge a visa application, whereas in the past, the applicant organization could engage an agent to assist with this task. Waiting in line takes several hours and is especially challenging for companies based far from HCMC, Hanoi or for new enterprises with no or few personnel. Visas on arrival have also now been cancelled, and it is necessary to apply to the Vietnamese embassy or consulate in the foreign worker’s home countries. Unfortunately, these embassies and consulates are often very difficult to deal with and are extremely inefficient. Visa processing times have also doubled.
These issues result in uncertain timelines for projects, difficulties retaining existing foreign employees and delays in introducing new foreign workers to Vietnam. This could delay business and result in missed deliverable deadlines.
Enterprises planning on engaging any foreign workers should begin the work permit application process well in advance, considering the average processing time has doubled. They should also prepare contingency plans for the case where they are unable to obtain a work permit or work/business visa for a foreign worker.
KEY DEVELOPMENTS FOR 2022
Independent trade unions now recognised in Vietnam
Vietnam has recently acceded to the EU-Vietnam Free Trade Agreement (“EVFTA”) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (“CPTPP”). Under both of these free trade agreements, Vietnam must ratify the ILO Convention on Freedom of Association and the Right to Collectively Bargain. This convention requires Vietnam to recognize independent trade unions, while all trade unions have traditionally been under the Vietnam General Confederation of Labor (“VGCL”), an arm of the Communist Party. The recently enacted Labor Code recognizes independent trade unions (referred to as “employee representative organizations”); although details of how these organizations will be registered and participate in collective bargaining is not yet clear as a decree on these issues is yet to be issued by the Government.
Employers may have to collectively bargain and consult with multiple trade unions within their organizations, as VGCL trade unions will continue to exist alongside the new, independent trade unions. This will be administratively costly and difficult.
Employers should monitor the status of the upcoming decree. Once a draft decree has been issued and open for consultation, employers can give their comments through the Vietnam Chamber of Commerce and Industry or foreign business organizations, such as the American Chamber of Commerce. Once the final version of the decree is issued, employers should update their HR policies to reflect new consultation obligations with the independent trade unions, train their HR staff and senior executives on the new law, and prepare for administratively burdensome HR processes.
Scrutiny on sexual harassment
Under the recently enacted Labor Code, employers are required to formulate detailed regulations on sexual harassment. The detailed provisions on sexual harassment must be included within an employer's Internal Labor Regulations (“ILRs”), which are the official working rules of the company and which must be registered with the labor authority if the company has 10 or more employees. These regulations must include a detailed definition of what would be considered as sexual harassment, investigation procedures, potential disciplinary measures, as well as details of remedies available for victims. Sexual harassment is also now listed as a ground for dismissal. Previously, the Labor Code only included a general prohibition on sexual harassment and it was very difficult to dismiss an employee for this offense. During labor inspections, it also appears that the Departments of Labor, Invalids and Social Affairs will check whether the employer has complied with its obligations to put these regulations in place.
Businesses that fail to act appropriately to prevent sexual harassment will face significant risks. Mishandling a sexual harassment complaint may lead to litigation in court or administrative fines or sanctions from the Labor Inspectorate at the local Department of Labor, Invalids and Social Affairs ("DOLISA"). Employers may face liability for acts of sexual harassment carried out by their employees in the workplace, and be required to compensate victims for damages.
Employers should update their ILRs to include provisions on sexual harassment, including the legally mandated contents set out in the Labor Code and its guiding decrees. Amending ILRs requires consultation with the trade union, and the ILRs must be re-registered with the labor authority. We recommend starting this process immediately, as amending ILRs can take several months. Employers are also required to ensure that employees are aware of and understand the regulations on sexual harassment and should conduct regular trainings with their staff on the subject.
Draft decree on personal data protection expected to come into effect in 2022
In February 2021, the Government of Vietnam released a draft decree on personal data protection which will introduce huge changes to the way in which employers deal with employee data. The draft decree differentiates between “basic personal data” and “sensitive personal data” and requires any party collecting, storing or processing “sensitive personal data” to obtain special approval from a Personal Data Protection Committee (“PDPC”) (which is yet to be formed) under the Ministry of Public Security. Special approval from the PDPC will also be required to transfer personal data outside of Vietnam. In addition, data processors will need to put into place special administrative and security measures to protect personal data, and report this to the PDPC. Consent requirements have also been broadened under the draft decree and data subjects may withdraw their consent at any time or provide conditional consent.
Employers will therefore need to consider the type of information they collect from employees (for example, health data or criminal records), as much of it could be considered “sensitive data”. Employers conducting background checks on their employees or requesting them to complete a health check prior to commencing employment will need special approval from the PDPC as this information will be considered to be “sensitive data”.
The draft decree was initially expected to come into effect in December 2021 but this deadline has been delayed due to Vietnam’s prolonged lockdown and the latest COVID-19 outbreak. It is likely that the draft decree will now come into effect at some point in 2022. Employers are recommended to monitor the status of the decree, and to begin to update their policies on handling personal data to reflect the draft decree. In budgeting from 2022 onwards, employers should also allocate an amount to deal with implementing the administrative, technical, and physical measures to protect personal data. They will also need to create a special department to deal with personal data and issue regulations on this issue.
KEY DEVELOPMENTS FOR 2021
New Labour Code
The new Labour Code No. 45/2019/QH14, passed by the National Assembly in November 2019, finally came into effect on 1 January 2021, replacing the Labour Code of 2012. Some of the changes include an additional national holiday; an increase in the retirement age (to be phased in gradually) to 60 for women and 62 for men; a clearer definition of "sexual harassment"; the removal of the seasonal/specific-job category of labour contracts (folded into the definite-term category); confirmation of de facto employment; recognition of e-contracts for employment; and an increase in permitted overtime hours.
While employers have had more than one year to ensure that their labour contracts, internal labour regulations, and employment-related policies are in line with the new law, certain provisions of the new Labour Code remain unclear, or lack sufficient detail. A wide range of subordinate legislation is expected to be issued to guide the implementation of the new code, with 14 decrees, one decision, and eight circulars currently in the legislative queue.
No increase in minimum wage for 2021
The region-based minimum wages for non-state employees will be unchanged for 2021, due to difficulties caused by the COVID‑19 pandemic. Typically, the minimum wages would see an increase at the beginning of the year. The monthly minimum wages range from VND 3,070,000 (USD 131) in rural provinces to VND 4,420,000 (USD 191) in Hanoi and Ho Chi Minh City.
Impact of COVID‑19 on employment
In addition to its considerable impact on public health and the economy, the COVID‑19 pandemic has had legal implications for employment.
Under the labour laws of Vietnam, a pandemic constitutes a force majeure event entitling an employer, after having exhausted all possible and necessary measures to remedy the situation, to scale down production and apply the following actions to its employees:
- Work suspension;
- Assignment to another job;
- Termination of labour contract;
- Temporary suspension of employment performance (subject to the parties' negotiation).
On 1 April 2020, the Prime Minister of Vietnam declared COVID-19 a nationwide epidemic with a starting date of 23 January 2020 (the date of the first confirmed case in Vietnam). Legally speaking, until the Prime Minister declares that the epidemic has ended, disruptions to a company's business activities, profitability, or financial situation caused by COVID-19 can be used as a force majeure basis for decisions relating to employment, including unilateral termination.
KEY DEVELOPMENTS FOR 2020
New Labor Code
In November 2019, the National Assembly issued a revised version of the Labor Code, the primary legislation governing labour and employment in Vietnam. The new Labor Code is due to come into force on 1 January 2021 and will replace the current Labor Code of 2012. The changes introduced by the new Labor Code are relatively minor and primarily just clarify unclear provisions and close loopholes found in the current law. However, some of the more noteworthy changes include the introduction of an additional national holiday (bringing the total to 11 days per year); an increase in the retirement age to 60 for women and 62 for men; and the introduction of a clearer definition of 'sexual harassment'.
Increase to Minimum Wage
On 1 January 2020, region-based minimum wages for non-state employees in Vietnam increased by an average of 5.5%. The monthly minimum wages now range from VND 3,070,000 (approximately USD 132) for the least developed areas to VND 4,420,000 (approximately USD 190) for large metropolitan areas like Hanoi and Ho Chi Minh City.
New Decree on administrative penalties
On 4 March 2020, the Government of Vietnam issued a new Decree ("Decree 28") providing penalties for administrative violations in the fields of labor outsourcing, social insurance and overseas manpower supply under contract. Decree 28 came into effect on 15 April 2020 and sets out dozens of actions which could subject an employer to a penalty, including, amongst others, (i) keeping/withholding personal documents of an employee (such as an ID card); (ii) paying outsourced employees less than regular employees who hold the same qualifications and are doing the same (or similar) job; (iii) requiring workers to undergo more than one probation period for one job, or undergo probation longer than permitted; and (iv) sending workers abroad without registering a manpower supply contract. Penalties as high as VND 200 million (approximately USD 8,500) may apply for the most serious violations.
KEY DEVELOPMENTS FOR 2019
Increase in region-based minimum wages
Decree No. 157/2018/ND-CP dated 16 November 2018 came into effect on 1 January 2019. This Decree applies to all private businesses and has increased the average region-based minimum wage by 5.3%. The new monthly region-based minimum wage range from VND 2,920,000 to VND 4,180,000 depending on the locality, with the higher rates generally applying to the bigger economically developed cities.
Compulsory social Insurance for foreign workers
Decree No.143/2018/ND-CP (“Decree 143”) came into effect on 1 December 2018. This Decree expands the Law on Social Insurance and the Law on Occupational Safety and Hygiene in relation to compulsory social insurance for foreign national employees. With effect from 1 January 2022, employers will be obliged to contribute 3% of the employee’s monthly salary to the sickness and maternity funds, 0.5% into the labor accident and occupational disease fund which started in December 2018, and 14% into the retirement and survivors’ benefits fund. The employee’s contribution is set at 8% of their monthly salary to be paid into the retirement and survivors’ benefits fund.
New decree guiding the Labor Code
Decree No.148/2018/ND-CP (“Decree 148”) came into effect on 15 December 2018. In addition to replacing certain provisions of this Decree has amended the Labor Code as follows:
- the probationary period or internship period is no longer included in the total duration of employment for the purpose of calculating severance allowance; and
- the employer only needs to ensure that the notice of invitation for a disciplinary hearing is sent to all participants prior to the hearing, and if any participant is absent without justification, the employer has the right to conduct the disciplinary hearing.
KEY DEVELOPMENTS FOR 2018
Increase in Minimum Regional Wages
As a result of Government Decree No. 141/2017/ND-CP (applicable from January 1, 2018), there will be an average increase in the minimum wage of 6.5%. The new minimum regional wages range from VND 2,760,000 to VND 3,980,000.
Increase in Base Salaries
According to National Assembly Resolution No. 49/2017/QH14, from 1 July 2018, base salary will increase from VND 1,300,000 to VND 1,390,000 The base salary is used as a basis for calculation of the social and health insurance contributions cap for employers and employees.
It is also worth noting that, from January 1, 2018, the monthly salary used for calculating social insurance contributions will include other additional payments (as opposed to just salary and allowances, as was previously the case).
Expansion of Statutory Unemployment Scheme
Pursuant to the 2014 Social Insurance Law, from 1 January 2018, employees with a labor contract of at least 1 month, and expat employees with work permits or practicing licenses issued by government authorities will be subject to statutory social insurance contributions.
Severe Criminal Punishment for Illegal Dismissal of Employees and Failure to Pay Statutory Insurance Contributions
Under the new Penal Code No. 100/2015/QH13, as amended (the “New Penal Code”), which came into force on January 1, 2018, unlawful dismissal of an employee, including constructive dismissal scenarios, can result in criminal liability, including a fine up to VND 200,000,000, non-custodial reform for up to one year, or imprisonment for up to 3 years.
Under the New Penal Code, an employer (individual) who fails to pay social insurance, health insurance, and unemployment insurance, shall, depending on the amount unpaid and the number of employees affected, be subject to a fine of up to VND 1,000,000,000, non-custodial reform for up to 1 year, or imprisonment for a period of up to 7 years. The New Penal Code also provides for corporate legal entities to be held criminally liable and/or fined up to VND 3,000,000,000 where it has failed to pay social insurance contributions, health insurance or unemployment insurance.