Trang Chủ Sharing of expertise Labour Question 161: Will foreign Employees be entitled to severance allowance upon termination...

Question 161: Will foreign Employees be entitled to severance allowance upon termination of LCs?

1.Severance allowance for foreign Employees

The subjects of application of Labor Code 2012 include the following[1]: (i) Vietnamese Employees, Employees in apprenticeship and other Employees as prescribed in Labor Code; (ii) Employers; (iii) Foreign Employees working in Vietnam; and (iv) other agencies, organisations and individuals directly involved in the employment relationship. Therefore, technically, the regulations provided for in Labor Code including those on severance allowance will also be applied to Employees being foreign citizens who work for Employers in Vietnam. Accordingly, foreign Employees working under contracts in Vietnam will, upon termination of LCs in the circumstances prescribed by law (except for cases where Employees are dismissed due to labour discipline violation), be entitled to severance allowances which must be paid by Employers in Vietnam if they have worked for at least full 12 months, and each year of work will entitle them to half a month of salary[2].

The Employment Law stipulates that Employees as Vietnamese citizens who are at least aged 15 or over and have the capacity to work and demand for job, are required to participate in UI when working under LCs[3]. In case of foreign Employees working in Vietnam, they are not subject to compulsory UI. Practically, UI is a regime that compensates part of Employees’ income when they lose their jobs, assists them in finding jobs based on their contribution to the UI fund. Thereby, if Employees paying UI lose their jobs, they will be paid UI. Where Employees are not subject to UI like foreign Employees or work without paying UI, Employees will be paid severance allowances by Employers at the corresponding rate to the period of paying no UI in accordance with the Labor Code.

2. Working time as a basis to calculate severance allowance

Technically, the UI is a regime to compensate part of an Employee’s income when they lose their job, and to support the Employee during the time they are looking for a new job, provided that they have contributed to the UI Fund. Accordingly, if Employees have participated in UI, they will receive allowances paid by the UI Fund, and Employers will not pay severance allowances. Therefore, the working time as a basis to calculate severance allowance will be the total time the Employee has spent working for the Employer less the time of his participation in UI as required by the SI Law and the working time for which the Employer has paid severance allowance. In which, the time of the Employee’s participation in UI is determined as the time for which the Employer has paid UI contributions and the time the Employer has paid the Employee, in addition to his salary, an amount equivalent to the UI contribution rate[4].

Currently, the participation in compulsory UI is only applicable to Employees who are Vietnamese citizens of at least 15 years of age, have working capacity and the need for work[5]. Foreign Employees are not required by law to participate in compulsory UI. Although the obligation to pay UI contributions is exempt, the Employer must still pay the foreign Employee, in addition to his salary, an amount equivalent to the UI contribution rate as required by law[6].

As such, the working time as a basis to calculate severance allowance with respect to foreign Employees will be the total time the Employee has spent working for the Employer less: (i) the working time for which the Employer has paid severance allowance (if any); (ii) the time the Employer has paid the Employee, in addition to his salary, an amount equivalent to the UI contribution rate. As prescribed above, if the foreign Employee has received an amount equivalent to the UI contribution rate during his working time, the working time as a basis to calculate severance allowance with respect to foreign Employees will be determined in the same way with Vietnamese Employees. In reality, the court also applies this point of view when it deals with the cases where foreign Employees claim payment for severance allowances. If during their working time foreign Employees have received amounts equivalent to the UI contributions that must be paid to the insurance agency, they will not be entitled to severance allowance for this working time. On the contrary, if during their working time foreign Employees have not received amounts equivalent to the UI contributions that must be paid to the insurance agency, the working time as a basis to calculate severance allowance will be the time they have spent working for the Employer less the time for which the Employer has paid severance allowance (if any).

Considering the legal analysis above, foreign Employees will receive severance allowances upon termination of LCs if they fully meet the following conditions:

  • terminating LCs not as a result of dismissal due to labour discipline violation;
  • have signed LCs and spent at least 12 consecutive months working for the Employer; and
  • have not received severance allowances and amounts equivalent to the UI contributions during the working time before LC termination.

In practice, for handling disputes over severance allowances demanded by foreign Employees, the Court has ever denied [MRK1] the petition for severance allowances by foreign Employees for the reason that during employment, Employers have paid foreign Employees amounts equal to UI payments made to the insurer. At that time, this period is not considered the period for which foreign Employees enjoy severance allowances. Thus, if foreign Employees satisfy all the conditions for enjoying severance allowances and they were paid sums equal to UI payments in accordance with the Labor Code during their employment, the method of calculating the working time for determining severance allowances in favour of foreign Employees will be applied in the same way as applied to Vietnamese Employees. In contrast, if foreign Employees are eligible for severance allowances and during their employment, Employers have not paid foreign Employees amounts equivalent to UI payments insurance premiums in accordance with the Labor Code, Employers shall pay Employees severance allowances for that period.

In addition, the Vietnamese labour law only governs the case where foreign Employees have signed LCs and worked in Vietnam. Therefore, if Employers hire foreign Employees to works in another country, such Employees will be governed by the labour law of the local country. At that time, although established and operating under the laws of Vietnam, Employers in Vietnam may be still considered as Employers under the laws of the country where foreign Employees work. Depending on the laws of that country, enterprises will be required to comply with and satisfy the legal requirements therein, including payment of allowances (if any) related to the benefit of foreign Employees when terminating LCs.


[1]Article 2 Labor Code

[2]Article 48.1 Labor Code

[3]Article 3.1 and Article 43 Law on employment.

[4]Article 14.3 (b) Decree 05/2015/NĐ-CP dated 12/01/2015

[5]Article 43 and Article 3.1 Law on employment

[6]Article 186.3 Labor Code



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