Question 39: Of the restructuring reasons, which one most often creates legal risks for Employers when they use it as a basis for terminating LCs?

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Terminating LCs due to “restructuring” is a commercial expression which is used in replacement of the legal concept of terminating LCs due to change of structure or technology, or economic reasons. In this book, to make it easy to understand, the legal expression “due to change of structure or technology, or economic reasons” will be replaced by the term “restructuring”.

Pursuant to Article 44 of the Labor Code and Article 13 of Decree 05/2015/NĐ-CP, the legal grounds for restructuring include:

  • Changes of structure or technology falling into 3 cases:
  • Change the organisational structure, re-organise labour force;
  • Change products, or the product structure; and
  • Change the process, technology, machinery, business and production equipment which attaches to the Employer’s business or production field.
  • Due to economic reasons is construed as:
  • Economic crisis or depression; or
  • Implement the State’s policy for restructuring the economy or international treaties.
  • In practice, there are some cases where enterprises are not really in a restructuring process but rely on this reason to terminate LCs. Here are some examples showing the reasons which cannot be considered reasonable:
  • Enterprises restructured as a result of a global vertical restructuring process in a group, leading to a redundancy of labourers in a company in Vietnam;
  • Enterprises established to execute an investment project which is then suspended due to a certain reason, forcing enterprises to downscale the number of labourers;
  • Enterprises restructured as a result of the change of laws, e.g. the import quota of automobiles is reduced, leading to a redundancy of related labourers;
  • Enterprises which reduce the scale of human resources to use labourers provided by outside providers. Currently, the law does not allow Employers to use the labour outsourcing service to replace the Employees whose labour contracts are terminated due to restructuring[1]; or
  • Employers who wish to terminate LCs with the Employees who regularly fail to fulfil their jobs as agreed in LCs or who violate labour disciplines but Employers do not have sufficient legal grounds to terminate their LCs or impose disciplinary actions.

[1]Article 24.3 Decree 55/2013/NĐ-CP dated 22/05/2013