An epidemic respiratory infection caused by a new strain of the Corona virus (“Covid-19”) is causing widespread damage to the global economy. In Vietnam, enterprises are facing numerous difficulties that are directly attributable to Covid-19.

According to data from the General Statistics Office of Vietnam for the first quater of 2020, there were 18,600 enterprises which temporarily suspended their business for a specific term, up 26% in comparison with the same period last year1 . In addition, there are many other enterprises that have not formally announced suspension of business but, in practice, have stopped their production and business and allowed their employees to cease or temporarily leave work.

Settlement of liabilty with the employee

The 2012 Labor Code2 provides enterprises with some less costly options that do not involve unilateral termination of the labor contract. Some examples include granting non-paid leave (if the employee is absent with permission without salary), reaching mutual agreements with the employees on the temporary postponement of contract performance, or a mutual agreement to voluntary terminate the labor contract. However, if employees rely on their salary to pay living costs, it may be difficult to reach a mutual agreement.

To lessen the financial impact of the epidemic, enterprises may also choose other solutions for saving costs and extending the period for payment such as: (i) paying the employee salaries for ceasing work (in an amount lower than the salaries stated in the labor contract) – the level of salaries for ceasing work depends on a mutual agreement between the company and the employees, but it may not be lower than the regional minimum salary as stipulated by the Government3 , or (ii) extending the salary payment period4 – a late salary payment must not be made over 01 month in the special circumstances of “force majeure”5 which occurs where the employer, despite having taken all necessary measures to remedy the problem, is unable to pay the salary on time according to the mutual agreement of the labor contract.

However, what if an enterprise still has no money for salary payments and no mutual agreement with the employee? What is the solution?

Unilaterally terminate the labor contract – shall not?

  • According to Article 38.1.(c), the 2012 Labor Code, an employer has the right to unilaterally terminate a labor contract in the following circumstances: “Whereas a result of a natural disaster, fire or other force majeure event as prescribed by law, the employer, despite having taken all necessary measures to remedy the problem, still has to reduce production (or) cut jobs. ”
  • According to Article 12.2.(a), Decree No.05/2015/ND-CP dated January 12, 2015 issued by the Government, the Covid-19 epidemic is deemed as a “force majeure” event.

Therefore, an enterprise is entitled to unilaterally terminate the labor contract due to the Covid-19 epidemic if conditions are met as follows: “despite having taken all necessary measures to remedy the problem, reducing production or cutting jobs are still necessary”.

Practical problem

Almost labor disputes in Court arise due to issues surrounding “unilaterally terminating a labor contract” by the employer, which directly affects the employee’s rights and legitimate interests. If enterprises unilaterally terminate a labor contract due to the (Covid-19) epidemic, as a result, the enterprise shall have the burden to prove that “despite having taken all necessary measures to remedy the problem, (it) still has to reduce production (or) cut jobs.”

How does a company prove that they “have taken all necessary measures to remedy the problem” and “still have to reduce production (or) cut jobs”? This provision is “qualitative” and ambiguous and must be resolved by a ruling from the Court.

Therefore, in order to have a solid basis to argue the necessity of unilateral termination, enterprises should carefully preserve documentation and other evidence showing the process of adjusting and finding employment solutions for employees, the need for reducing production and, ultimately, cutting jobs. Evidence may include:

  • Emails or documents showing that an enterprise contacted its partners to search for replacement materials (due to a shortage or lack of materials);
  • Emails or documents demonstrating that an enterprise requested from its partners an extension of time to perform its duties under the contract due to the occurrence of a force majeure event (should the contract be terminated due to failure to perform the contract within the contractual period);
  • Documents issued by the Prime Minister and competent authorities requesting suspension of business to prevent and fight the epidemic; 
  • Financial reports, tax reports, and summaries to prove reduced production and decreasing turnover; and
  • Documentation reflecting company decisions to suspend a part of the enterprise’s production line, a division of the factory, etc.