Question 11: If foreign traders’ representative offices are dissolved, will Employees in these offices be paid severance allowances or unemployment allowances upon termination of LCs?

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The Labour law does not particularly provide for the case where foreign traders’ representative offices (“RO”) terminate LCs with their Employees when ROs cease to operate in Vietnam. However, based on the cases of LC termination listed in the Labor Code[1], there are now two points of view concerning the case of LC termination as aforesaid. Specifically:

  • First point of view: LCs will be terminated as in the case where Employers are not individuals terminating their operations as prescribed in Article 36.7 of the Labor Code. Accordingly, upon termination of LCs, Employers are obliged to pay severance allowances to Employees who have worked for full 12 months or over, with the entitlement of half a month salary for each year of work[2]; and
  • Second point of view: LCs will be terminated as in the case where Employers change their organisational structure as prescribed in Articles 36.10 and 44 of the Labor Code. Accordingly, upon termination of LCs, Employers are obliged to pay unemployment allowances to Employees who have worked for full 12 months or over, with the entitlement higher than severance allowances, equivalent to one month salary for each year of work[3].

In practical legal proceedings of the cases of labour dispute with the same nature, courts often side with the second point of view mentioned above. Accordingly, courts will base their arguments on the regulations governing ROs in particular. Specifically, ROs are dependent units of foreign traders[4]. Before closing ROs, foreign traders are obliged to settle all the legitimate rights and interests for Employees who work for ROs in accordance with law[5]. Therefore, in this case, Employers are actually foreign traders, instead of ROs. If foreign traders do not terminate their operations but only close their ROs in Vietnam, this will be considered a case where Employers change their organisational structure[6]. Employees of ROs who are laid off due to the changes in organisational structure will be paid unemployment allowances in addition to other amounts upon termination of the LCs.

However, please note that to terminate LCs for the reason that the organisational structure has changed, Employers must strictly comply with the procedure prescribed by labour law. Before restructuring their organisation, Employers must build and implement options to use this labour force; if there are new vacancies, Employers should prioritise re-training these Employees for the new positions. If Employers cannot provide new jobs for Employees but have to terminate LCs with them, they must pay unemployment allowances. Employers must consult the grassroots labour collective representing organisations about LC termination and give a 30-day prior notice to the provincial labour management agency. As such, if foreign traders have other ROs or branches in Vietnam where there are still vacancies, foreign traders should prioritise re-training the Employees in the to-be-closed ROs and fill them into the vacancies of the other ROs or branches. In practical cases of labour dispute settlement, upon the dissolution of their ROs in Vietnam, foreign traders must comply with all the steps of a restructuring process to terminate LCs with Employees who are working for the ROs, including payment of unemployment allowances to Employees. If foreign traders fail to comply with the procedure, this may be viewed as a case of unlawful unilateral termination of LCs if Employees lodge a complaint or initiate a lawsuit. Then, foreign traders are obliged to pay compensation to Employees at the amounts prescribed by law. However, in order to avoid the complicated procedures of a restructuring process, foreign traders and their ROs may consider the option to negotiate with the Employees on a termination agreement as prescribed in Article 36.3 of the Labor Code. To make the negotiation successful, Employees should be paid a minimum amount equivalent to the unemployment allowance (1 month salary for each year of work).

[1]Article 36 Labor Code

[2]Article 48.1 Labor Code

[3]Article 49.1 Labor Code

[4]Article 3.6 Commercial Law

[5]Article 38.2 Decree 07/2016/NĐ-CP

[6]Article 44.1 The 2012 Labor Code and Article 13.1 (a) Decree 05/2015/NĐ-CP