Question 3: Is a collaboration contract a type of LC? What are the legal risks for Employers upon entering into a collaboration contract?

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Is a collaboration contract a seasonal or specific job-based LC?
  1. Legal grounds for governing a collaboration contract
As a matter of law, a collaboration contract may be considered a type of service contract because of the existence of a relationship between the service provider and the service user. The concept of service contract is currently being governed by the two main sources of law, the Civil Code and the Commercial Law. The issue is in that which legislation, the Civil Code or the Commercial Law will be the governing source of law in this case? Considering the nature of a collaboration contract, it can be seen that this is an activity towards profits (by both the service user as enterprises and the service provider as individuals). Therefore, the governing source of law for the collaboration contract will be the Commercial Law pursuant to the principles of the governing scope of Articles 1.1 and 3.1 of the Commercial Law.
  1. May a collaboration contract be considered a type of LC?
Pursuant to the prevailing labour law, there are three types of LC which Employers may enter into with Employees: indefinite LC, definite LC and seasonal or specific job-based LC with a term of less than 12 months[1]. As a result, the collaboration contract is basically not a type of LC specified in the Labor Code. However, considering the content of an LC, the Labor Code defines an LC as follows: “An LC is an agreement between Employees and Employers on paid jobs, working conditions, rights and obligations of each party in the employment relationship”[2]. Specifically, an LC must contain some provisions related to Employees’ rights, such as LC term (for seasonal LC, the maximum term is under 12 months), salary, salary payment time limit, salary allowances and other additions, salary raise regime, working time, rest breaks, overtime and etc.[3] Therefore, if a collaboration contract includes the same contents as an LC, the collaboration contract may be considered an LC, i.e. the labour relationship rather than the relationship of services supply established between the parties.
  • Legal risks for Employers upon entering into a collaboration contract instead of an LC
Firstly, for contracting entities, Article 2 of the Commercial Law states that commercial activities (including service provision) must be carried out by traders (namely, organisations and individuals that have registered for business registration), except for “individuals conducting commercial activities independently and regularly.”[4] Individuals who conduct independent commercial activities on a regular basis and are not required to register for business are listed in detail in Decree 39/2007/NĐ-CP dated 16/03/2007, mainly performing retail services on a small scale such as shoe polishing, lottery ticket sale, lock repair, vehicle repair, wash and parking lot service, haircut, painting, photo taking and other services with or without any fixed location and these individuals will not be deemed as traders. Considering a relationship between individuals and enterprises (specifically the relationship of a collaboration contract), it is clear that enterprises do not hire individuals to regularly provide the said retail services, instead hire individuals who conduct activities related to some professional qualification and a certain level, and individuals who provide services (other than the said retail services) must register for business in accordance with the law to be eligible to carry out said services. Therefore, the fact that an enterprise signs a collaboration contract with an individual to perform services related to some professional qualification and a certain level may face a lot of potential risks because the service provider as individuals may not be legally recognised as “individuals falling out of the category of business registration in accordance with the Commercial Law” to be eligible to provide services to any trader as enterprises. On the other hand, as above analysed, a collaboration contract is not a type of LC that is regulated and governed by the Labor Code, but by nature the parties have established the labour relationship through collaboration contracts. As a result, there exist many risks for Employers. If a collaborator grasps the labour law and initiates a lawsuit with the court to protect his/her interests, enterprises may face a risk that the court will not recognise the legality of the relevant collaboration contract and enterprises will have to sign an LC with such collaborator to establish the labour relationship between the parties in accordance with the labour law. Then, in addition to having to sign LCs, enterprises might have to fulfil Employers’ obligations to Employees for the period when they have worked for former enterprises under collaboration contracts (including benefits from compulsory insurance payments for Employees, overtime salary and etc.). Moreover, enterprises may be sanctioned with an administrative fine of up to VND 4,000,000 for failing to enter into the right type of LC with Employees[5]. From the said analyses, enterprises should consider signing seasonal LCs with their collaborators (i.e. they must comply with the labour law on seasonal contracts) instead of signing collaboration contracts in order to comply with the current labour law and limit any risk of such dispute. It should be noted that when signing a seasonal LC, enterprises will only be allowed to enter into seasonal LCs with a term of less than 12 months for non-recurring jobs (except for any case of temporary replacement of Employees on military service, maternity leave, due to their sickness, labour accident or other temporary absence. If the job is of a regular nature for 12 months or more, Employers must sign definite LCs with Employees as prescribed by the labour law.
[1] Article 22.1 Labor Code [2] Article 15 Labor Code [3] Article 23.1 Labor Code [4] Article 2 Commercial Law [5] Article 5 Decree 95/2013/NĐ-CP dated 22/08/2013 as amended and supplemented by Decree 88/2015/NĐ-CP dated 07/10/2015