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Asia Briefing

Layoff Violations Under Vietnam’s Updated Criminal Code

Companies must clarify any questions concerning the cohesion of their current HR practices with Vietnamese law.

Vietnam recently implemented an updated version of its criminal code that raises penalties for illegal termination of employees. Code No. 100/2015/QH13, which became effective on July 1, 2016, lays out punishments, including serious fines and even jail time, for those found to be terminating or coercing the termination of employees illegally.

In order to reduce exposure to noncompliance, companies should be aware of how the updates differ from previous legislation, how noncompliance can be triggered, and the penalties and liability established and maintained under the updated guidance.

1477295279_91908Avoiding Violations

Legal action under Code No. 100/2015/QH13 is triggered under more specific circumstances than the legislation it superseded. Instead of referring to “forcing workers to leave their positions” in an “unlawful” manner, violations under the new code are tied to three specific situations:

  1. Forcing workers to quit their jobs through coercion
  2. Issuing decisions to terminate workers based on grounds currently prohibited
  3. Carrying out the dismissal process in a manner found to be incompliant with current laws

If the aforementioned violations have been carried out against people meeting certain qualifications, or result in the outcome listed below, those carrying out the dismissal will be liable for more severe penalties:

  • Violations related to pregnant employees
  • Violations related to a mother who has given birth in the last 12 months
  • Violations related to two or more employees
  • Violations that can be connected to the suicide of the employee in question

Note: While the previous criminal code alluded to hardship as a means of determining the severity of violations, the use of a two-tier system is new to the updates introduced in 2016.

Understanding Penalties

Under the previous criminal code from 1999, dismissal violations often resulted in a warning and had a maximum penalty of one year in jail. In addition to lacking clarity on when certain punishments were to be utilized, fines were also excluded from available recourse.

Under 2016’s update, violators of the labor code will be faced with one of the following punishments:

  • Fines between VND 10 million (US $500) and VND 100 million (US $5,000)
  • Community service up to one year
  • Imprisonment for a duration between three months and one year

For dismissals that have met the criteria for more serious punishment, any of the following punishments may be implemented:

  • Fines between VND 100 million (US $5,000) and 200 million (US $10,000)
  • Jail time from one to three years

Note: As part of the punishment for either of the tiers of violation listed above, the people in question may be barred from holding their professional positions in Vietnam for a period of up to five years.

Preparing for Liability

As with the previous criminal code, liability is tied to the legal representative of a company. This is the person with the power of attorney to sign contracts and is generally a person of great importance for the company. With jail time and revocation of the ability to represent the company on the line, it is of utmost importance to ensure that operational exposure to HR noncompliance is brought as close to zero as possible.

Ensuring Compliance

Despite the risks, laying off employees is an unfortunate but necessary component of corporate HR strategy. Whether it be to cut costs, close operations, or simply to remove workers unable to fulfill daily tasks, letting employees go can be a powerful tool to ensure the continuity of operations.

Under Vietnamese law, the proper procedures for terminating employees can be clarified by referring to Vietnam’s 2012 labor code and should be reviewed closely in conjunction with newly established penalties set forth within the updated criminal code. Given the personal exposure of the legal representative to criminal liability, it is also of utmost importance that companies clarify any questions concerning the cohesion of their current HR practices with Vietnamese law.

Since its establishment in 1992, Dezan Shira & Associates has been guiding American investors through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll, and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India, and emerging ASEAN, including liaison offices in Boston and Waltham specifically established to support our American clients, we are your reliable partner for business expansion in Asia and beyond. For inquiries, please email us at [email protected]. For further information about our firm and how we can support American investors in Asia, please visit our North American Desk.