The new Labour Code includes substantial changes to recognise the evolution of labour relationships under the impact of the Industrial Revolution 4.0. Important is also that the draft for the first time contains a definition of sexual harassment, which is already prohibited under the current Labour Code.
The Labour Code Amendment was passed by Vietnam’s National Assembly on 20 November 2019 after multiple consultations to the public and discussions at the NA meetings since its first draft introduced in late 2016. The Amendment will enter into force on 1 January 2021 (2021 Labour Code).
In this update, we will present the most remarkable changes of the 2021 Labour Code in comparison with the current Labour Code.
1. Extended Definition of “Labour Contract”
The 2021 Labour Code offers revised definitions of “employer”, “employee” and “labour contract” to recognise the evolution of labour relationships under the impact of the Industrial Revolution 4.0. According to the revised definitions which were built upon the principle of “substance trumps formality”, any agreement containing 3 elements being to-do tasks, compensation/salary, and supervision and direction from the paying party, will be classified as a labour agreement regardless of the agreement’s name or label. This change, on the one hand, will guide law enforcement bodies to better characterise the relationships between part-time or seasonal workers and technology companies such as those between drivers and ride-hailing companies like Grab or Go-Viet. On the other hand, the change will help to prevent certain companies from using a service contract or an independent contractor agreement to disguise a labour contract with an aim to avoid the payment of income taxes or mandatory social insurances to the State.
2. Employee’s Right to Terminate Labour Contract without Prior Notice
Currently, under the Labour Code, an employee has the right to terminate the labour contract for cause but must provide a prior notice to the employer. Violating this procedural rule will result in an illegal termination of the labour contract where the employer can claim compensation from the employee. The Latest Draft grants further rights to employees in this respect by allowing an employee to terminate the labour contract immediately without a prior notice in the following circumstances:
- The employee is not assigned to the correct position or work location or is not ensured the working conditions as previously agreed in the labour contract;
- The employee is not paid in full or on time the wages due as agreed in the labour contract, unless the late payment or insufficient payment is permitted by the labour code or otherwise agreed by the employee and the employer;
- The employee is maltreated, sexually harassed, or is subject to forced labour; and
- The employee reaches retirement age.
3. Prohibition on Repayment of Debt by Labour
The 2021 Labour Code bans an employer from explicitly forcing an employee to perform obligations under a labour contract to repay debts owed to the employer. Such prohibition does not exist in the current Labour Code.
4. Amendment of Labour Contract Term
Currently, Article 5 of Decree 05/2015/ND-CP allows both parties to a labour contract to amend the contract term by an annex. Many companies have used this provision to prolong the period an employee working under definite-term contracts before signing an indefinite-term contract. For example, in practice, some companies have asked employees to sign a definite-term contract and then an annex to extend this contract term and after that another similar contract circle. To remove this loophole, the 2021 Labour Code clearly prohibits the use of an annex to amend the labour contract term.
Under the current Labour Code, the probationary period shall not exceed 60 days regardless of the probation positions. However, for candidates working in high-level managerial positions it often takes more time to evaluate the qualifications and suitability of the candidates. Therefore, a new provision is added into the 2021 Labour Code allowing a longer probationary period for managerial positions with maximum term of 180 days.
6. Apprenticeship and On-the-Job Training
To make the Labour Code consistent with the 2014 Law on Vocational Education, lawmakers have proposed certain changes on apprenticeship and on-the-job training as set out in the current Labour Code. Accordingly, the 2021 Labour Code clearly sets out the requirements for an employer who wishes to recruit an apprentice or trainee:
- Term for on-the-job training is maximum 3 months;
- An apprentice or trainee must be at least 14 years old at the time of the training commencement; and
- An employer and apprentice or trainee must enter into a vocational training contract when the training is funded by the employer or the employer’s partner(s).
7. Sexual Harrassment
Even though according to the current Labour Code sexual harassment is prohibited, there is no clear definition thereof. The 2021 Labour Code now defines sexual harassment for the first time. The 2021 Labour Code also sets out remedies in case an employee has committed an act of sexual harassment towards another employee at the workplace. The victim has the right to unilaterally terminate the labour contract with immediate effect without a prior notice; and the employer has the right to dismiss the employee in violation.
8. Working and Resting Time
Under the current Labour Code, the maximum overtime working hours in a year in a standard situation is 200, equivalent to an average of 0.5 hour of overtime per day. However, many companies, especially those in the manufacturing and processing industry, have indicated that this ceiling is low, and it prevents them from efficiently meeting the demands from the market. Taking this issue into account, the 2021 Labour Code specifies the circumstances and industries where the amount of overtime hours can be up to 300 hours per year. Similarly, the maximum overtime working hours per month has been increased from 30 to 40.
According to the current Labour Code, an employee who has not (fully) taken annual leave regardless of the reason is entitled to a payment for the untaken leave days. The 2021 Labour Code proposes a change in this regard. Particularly, an employee can get paid for the untaken leave days only in case of employment termination or job loss.
9. Maternity and Work
9.1 Work at Night or Overtime
According to the current Labour Code, an employer must not require a female employee, regardless of her wish, to perform night work, overtime work and go on a long‑distance trip when she is in her 7th month of pregnancy, or, in her 6th month of pregnancy in case she works in mountainous, remote, border and island areas; or in case she is nursing a child under 12 months of age. The 2021 Labour Code removes the prohibition for female employees nursing a child under 12 months of age and leaves the decision in the hands of such female employee.
9.2 Protection during Maternity
Pursuant to the current Labour Code female employees who perform heavy work are entitled to lighter work or have her daily working time reduced by 1 hour upon reaching the 7th month of pregnancy, while still receiving her full wage. With an aim to create more favourable conditions for pregnant women or women raising infants at the workplace, the 2021 Labour Code has expanded the subjects of the said entitlement to female employees who are pregnant or are raising a child under 12 months.
Under the current Labour Code there is a list of jobs for which an employer is not allowed to hire a female employee. The 2021 Labour Code removes this list and just mentions the jobs affecting child-bearing and parenting functions of female employees. Employers can hire female employees for these jobs but must provide her with relevant protective materials.
10. Retirement Age
Currently, the retirement age is 55 for a female and 60 for a male employee. The 2021 Labour Code increases the retirement age to 60 and 62 for a female and male employee respectively under a specific roadmap. As of 1 January 2021, the retirement age shall increase each year by 3 months for a male employee and by 4 months for a female employee until it reaches 62 for males in 2028 and 60 for females in 2035.
11. Work Permit
Under the current Labour Code, a foreigner, who is the owner of an LLC or the member of the Board of Management of a JSC in Vietnam, or who is studying and working at the same time in Vietnam, is not required to obtain a work permit. The 2021 Labour Code proposes the following changes:
- A foreigner, who is the owner of an LLC or the member of the Board of Management of a JSC in Vietnam, is exempted to obtain a work permit only when the foreigner has contributed a minimum amount (as to be set out by a government decree) to such company; and
- A foreigner who is studying and working in Vietnam shall no longer be exempted from obtaining a work permit.
The 2021 Labour Code also adds a new subject for work permit exemption: foreign employees married to a Vietnamese citizen and living in Vietnam.
11.2 Work Permit Renewal
The current Labour Code sets out the procedures of issuance and re-issuance of a work permit, which means that when a work permit is about to expire, it cannot be renewed, but only be re-issued. In contrast, the 2021 Labour Code allows for one renewal.
12. Internal Labour Regulations
The current Labour Code has caused confusion about when a company is obliged to issue internal labour rules (ILRs) and under which form these need to be made. The 2021 Labour Code corrects this shortcoming and all companies must issue ILRs, regardless of the number of employees. As for the companies having at least 10 employees, the ILRs must be registered with the labour authorities. Of note, the ILRs must clearly set out disciplinary procedures to punish sexual harassment behaviour.
13. Dispute Resolution by Arbitration
It is first time ever that arbitration could be used to settle labour disputes. According to the 2021 Labour Code, labour disputes related to individual rights or collective rights must go through mediation before reaching court litigation or arbitration. The award issued by the arbitral tribunal shall be final, binding and enforceable as if it is a commercial arbitration award.