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How should the agreement to terminate labor contract be understood?


23-11-2021

[1]. With the development of the economy, the rise of the technology and modernization since “Doi Moi” (Renovation), the construction of Vietnamese labor laws also began early and laid down the regulations for the establishment, maintenance and termination of labor relationships. A long standing and convincing view point is that labor laws were created to protect the workers due to the notion that workers are vulnerable and the “weaker party” in a labor relationship. As such, legal regulations throughout different eras all put forward specific and concrete regulations regarding the establishment and termination of labor contracts in order to limit employers “oppressing” the employees by taking advantage of fact they are paying the employees. We can observe this clearly in regulations on the unilateral termination of labor contracts whereas the employers could only terminate the contract when there is sufficient legal ground specifically stipulated by laws and employers must also ensure a minimum notice period. Sometimes, even violations regarding the notice period could lead to severe legal and financial consequences, especially when in respect to employees with high benefits. It appears that the Labor Code, throughout different eras, has gain a great deal of “confidence” in the clarity and comprehensiveness of regulations on the termination of labor contracts that labor contracts no longer require parties to clarify which situations would lead to contract termination (Article 21, Labor Code 2019).

 

[2]. However, in nature, labor contract forms a contract relationship and the general principle of contracts is still mutual agreement. As such, according to the 1994, 2012 and the latest 2019 Labor Code (effective as of 1 January 2021), the limitations/requirements when terminating labor contracts with employees are excluded when parties both agree to terminate the contract. This seemingly clear and simple notion proves to not always be simple, in fact, it is sometimes a source of “headache” for employers.

 

[3]. From the agreement standpoint, parties are entitled to create an agreement (i) in the labor contract, or (ii) when the labor contract is being performed and one party wishes to prematurely terminate the contract then a proposal could be made toward the other party in order to reach an agreement on the termination of the labor relationship.  Case (ii) is relatively popular in reality and raises little discussion due to it being the result of the wills of both party being “aligned” with one party desires (based on real life circumstances) and the other party agrees. Whereas, case (i) is what I would like to discuss in this writing due to the many opposing opinions on this matter. For that reason, lets us look at each case in a more detailed manner.

 

[3.1] The Labor Code and guiding documents offer no guidance regarding this case because agreements are made freely by parties and do not need any guidance. Based on the demand for human resources, employers decide the number of employees to hire, for what purpose, and for how long in order to build an appropriate human resources strategy. As such, there are numerous basic methods to control human resources such as: (i) governing the time limit of the labor contract, (ii) governing the specific works performed during the term of the labor contract that will terminate the contract upon completion or (iii) agreeing on the situations that would terminate the contract.

 

(a) The first method brings with it a considerable number of limitations due to the fact that the Labor Code only allows the signing of two (02) definite term contracts and prohibits using the addendum to change the contract term. The third (03) contract signed must be an indefinite term contract meaning a contract with no limited-term (usually understood as lasting until retirement age).

(b) The second method also encounters many restrictions, such as in cases where the works could last for a long time without any clear sign of an endpoint (for example: office worker, manager, etc.,).

(c) The third method is considered the most appropriate where the agreement of parties in the contract allows the employer to always be active and ensures the effectiveness in human resources management and utilization. According to which, in reality, there are certain cases that we found to be popular among the contracts that we reviewed such as:

The employer no longer exists: dissolution, bankruptcy, terminating operation (for organizations); dead, missing, loss of civil capacity (for individuals), etc. This case seems appropriate, however, it falls under the scope of termination as a matter of course (Article 34.7 Civil Code 2019) so basically, there is no need for an agreement.

Due to objective/subjective reasons: restructuring, economic crisis, merger, consolidation; changing the processes, technology, etc., This case cannot be stipulated in the agreement because when one of these events happen, the employer must conduct a series of specific procedures stipulated in laws from plan formation, gathering opinions from representative of the labor collective, enacting the plan, reporting to the provincial state agencies, etc., only after taking those actions could the employees be laid off (Article 42, 43 Labor Code 2019).

There is no longer a demand for labor: This case is quite popular and the typical provision would be: “when there is no longer a demand for labor then this labor contract shall be terminated via advance notice to the employee” or “at any time, this contract could be terminated via a [..] day(s) advance notice from the employer”. From the perspective of the employer, such provision would ensure that the employer is always in the active position, another reason is that labor contracts are always drafted by the employers so contracts having conditions favoring the employers is understandable. Furthermore, companies with foreign investment capital have the tendency to pay more attention to this matter and are more likely to request this matter to be included in labor contracts when compared to domestic enterprises.

 

[3.2] However, is “no longer having a demand for labor” an agreement made by the parties when they sign the labor contract or is it a case of unilateral termination? This is not an easy question to answer.

(a) The employer would argue that this is not a case of unilateral termination pursuant to the 2019 Labor Code and it has the consent of the employee so it should be considered an agreement to terminate the contract.

(b) On the opposition, the employee could argue that this is an agreement on the unilateral termination of the labor contract that puts the employee at a disadvantage, that is unfair and does not provide the employee with any benefit or equality in the termination that was “designed in advance” in accordance with the will of the employer. Being in a weaker position, in need of money and work, the employee has no choice but to agree. As such, this part of the contract must be considered void (partially invalid). If this article is invoked to terminate the labor contract then it would be considered an unlawful unilateral termination. In some verdicts, we also saw the Court ruling this as a case of unilateral contract termination, and the agreement cannot be applied.

 

[4] Currently, there are many enterprises “afraid” of signing labor contracts, rather, they would opt for external service providers or “bend the laws” by using service, expert, consultant contracts to lessen the financial burdens as well as to be more active when it comes to contract termination and to not have to bear the risk of unlawful unilateral contract termination. In other cases, there is no article in the contract stipulating contract termination cases due to the employer not wanting to be “offside” when being deemed as having unlawfully unilaterally terminated the contract. As such, when terminating the labor contract, the employer would usually have to take advantage of all possibilities and convince the employee in “unsavory” manner so that they would consent to the contract termination.

 

[5] After many years, it would appear that the laws are giving the employee too much power and “tipping the scale” toward the “weaker party” as well as turning them into the party with more privilege in the labor relationship. Putting the employee at the center is appropriate if the employee is always at a disadvantage in the relationship with the employer. However, laying down too many restrictions on employers has accidentally “strangled” them because, in the end, they are the people who provide the works and the income that motivate the social-economic development, without work, there would be no employee. The Covid-19 pandemic which has persisted for the past two (02) years shows the importance of maintaining business, production operation, maintaining the “life” of the enterprises, businessmen and their importance to the life and income of employees. Furthermore, in the current scenario, we are attracting a great deal of foreign investors with enticing investment policies and a pool of young workers. Tightening our policies could greatly reduce Vietnam’s attractiveness. As such, putting both subjects at the center to further harmonize their rights and interests is essential.

 

[6] Returning to the main point, we believe that a unilateral labor contract termination agreement is in accordance with legal regulations and is enforceable due to the following reasons:

(a) Firstly: This is an agreement made before signing the contract

Therefore, it satisfies the most important condition of a contract - agreement. As such, the employee is entitled to negotiate to reject or accept this provision. On the basis of freedom to choose the job, workplace then the employee could reject if he/she doesn’t agree with the proposal of the employer and seek employment elsewhere because no one can force the employee to sign the contract against their will.

(b) Secondly: This is not an illegal agreement and is not void

Agreement to terminate the contract before the end of the term is an agreement agreed upon by both parties, in accordance with the 2015 Civil Code (effective as of 01 January 2017) the right to unilaterally terminate the contract could be invoked based on the violations of one party, legal regulations or agreement between parties on cases where the contract could be terminated unilaterally without fault from any party (Article 428.1 Civil Code 2015).

Article 49 of the 2019 Labor Code stipulates that the contract would be void (in part/whole) if the content of the contract violates legal regulations. Article 123 of the 2015 Civil Code stipulates that “ Civil transactions with purposes and contents that breach legal prohibitions or go against social ethics shall be invalid.  Legal prohibitions are provisions of law that do not permit entities to perform certain acts. Social ethics are common standards for conduct in social life, which are recognized and respected by the community”.

As such, violations that would invalidate a contract are different in the two codes, in which, the Labor Code also includes sub-law documents. This seemingly violates the basic principle stipulated in Article 3.2 of the 2015 Civil Code “[..] All commitments, agreements that do not breach legal prohibitions or go against social ethics are binding on parties and shall be respected by other entities”. Therefore, considering Article 4.2 of the 2015 Civil Code: “Any relevant law that applies to civil relations in specific fields may not go against the basic principle of civil law stipulated in Article 3 of this Code” then only when violating legal prohibitions would the contract be void and Article 49 of the 2019 Labor Code should also be interpreted like this.

Pursuant to Article 8 of the 2019 Labor Code and Article 9 of the 2019 Employment law, this agreement does not violate any legal prohibition.

 

For this reason, we petition dispute resolution agencies when considering the unilateral contract termination to assess in full all relevant elements of the agreement to reach an appropriate, legal verdict based on the principle of respecting the legal mutual agreement between parties.

Post by: IBPro
23-11-2021

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