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Navigating Workforce Reductions in Vietnam: A Comprehensive Guide

Navigating the intricacies of layoffs in Vietnam demands a delicate balance between legal compliance, ethical considerations, and cultural sensitivities. As a nation teeming with opportunities and challenges, Vietnam’s evolving economic landscape offers promising prospects for businesses seeking growth. However, the process of downsizing or restructuring staff requires meticulous planning and adherence to stringent regulations to avoid potential pitfalls. In this edition of “The Global Layoff Handbook,” we delve into the complexities of conducting layoffs in Vietnam, shedding light on the regulatory framework, procedural intricacies, and risk mitigation strategies.

Vietnam’s economic dynamism, propelled by its burgeoning manufacturing sector, low-cost labor, and favorable investment climate, presents an attractive destination for businesses aiming to capitalize on the region’s growth potential. However, amid the allure of expansion lie the challenges associated with managing workforce reductions in a legally and culturally nuanced environment. In such a country, if a company’s HR department wants to conduct layoffs, they need to be very careful to avoid triggering a crisis, often colloquially referred to as a “squid-firing” situation.

Layoffs are an inevitable part of business operations, whether due to economic crises, market competition, business adjustments, or efficiency improvements. However, layoffs are not a straightforward task; they involve legal, ethical, and emotional factors. Mishandling them can lead to numerous troubles and risks for the company.

So, how should HR professionals in Vietnam handle layoffs in this complex and sensitive market? This article provides useful information and suggestions in the following areas:

Understanding Vietnam’s Layoff Regulations

In Vietnam, due to the requirements of the Labor Law, the employer must first give the employee a written notice of termination, and then the employee must be given the opportunity to appeal the decision. In the event of maintenance termination, the employee is entitled to severance pay and other benefits as required by law. Notice of termination must be given in writing to the relevant government department.

After the termination of the labor contract, the employee shall enjoy:

Remaining monthly wages

Severance payment

Unused leave (pro rata).

Article 48 of the Labor Law 2019 states that the employer must make the Final Payment within 14 working days from the date of termination of the employment contract. The payment period can be extended by negotiation with the employee, but it must not exceed 30 days.

If requested by the employee, the employer must provide copies of the documents relating to the employee’s work process and pay the cost of copying and sending these documents, together with a notice of termination to the relevant government authority.

The most common reason for layoffs is the need to reduce personnel due to economic reasons or technological changes. In such cases, the employer must:

Report the layoff plan to the local labor management department at least 30 days in advance, explaining the reasons, scope, timing, and resettlement measures.

Notify the employees being laid off at least 60 days in advance of the contract termination and pay the corresponding compensation.

Give priority to retaining employees with higher skills and work efficiency; those with difficult family situations or disabilities; those who have participated in wars or revolutionary activities; and those with longer tenure.

Respect the collective bargaining rights of workers and negotiate with unions or organizations representing the workers to reach a consensus on the layoff plan and resettlement measures.

Failure to comply with these regulations can lead employers to face lawsuits from employees, demanding either reinstatement or additional compensation.

For example, in December 2020, a foreign-invested company in Hanoi, Vietnam, decided to lay off some employees due to technological changes. The company reported its layoff plan to the local labor management department as legally required, notified the employees, and paid compensation. However, the employees filed a lawsuit, claiming the company failed to adequately prove the necessity and impact of the technological changes and did not prioritize retaining skilled workers. The company settled out of court, agreeing to reinstate some workers and provide training and reassignment opportunities for others, thus ending the lawsuit. This case illustrates that in Vietnam, not only must employers comply with legal regulations, but they also need to provide sufficient evidence of the necessity and rationality of layoffs and try to retain skilled employees as much as possible.

Following Vietnam’s Layoff Process

Executing layoffs in Vietnam entails a meticulous and multistep process, encompassing the development of a layoff plan, reporting to local authorities, notifying affected employees, disbursing compensation, and facilitating employee resettlement. Failure to adhere to statutory requirements may expose employers to legal liabilities and reputational risks, as exemplified by past lawsuits stemming from inadequate proof of necessity and substandard compensation practices.

Employers must pay compensation according to legal requirements and the content of the agreement. According to Article 48 of the Vietnamese Labor Code, the amount of compensation is based on the employee’s tenure, as follows:

Additionally, employers need to pay for unused annual leave, social insurance fees, and other entitled benefits.

Resettling laid-off employees. Employers should provide resettlement measures for laid-off employees, such as reassignment, training, and re-employment. Employers also need to cooperate with local labor management departments to provide employment services and counseling for laid-off employees.

For example, in November 2019, a foreign-invested company in Ho Chi Minh City, Vietnam, decided to lay off some employees due to economic difficulties. The company reported its layoff plan, notified the employees, and paid compensation as legally required. However, the employees thought the compensation was too low to sustain their living, leading to a strike demanding higher compensation or reinstatement. The company negotiated with the union and agreed to increase the compensation by 10% and provide re-employment services and counseling, which quelled the strike. This case shows that in Vietnam, employers must not only comply with legal regulations but also consider the living standards and expectations of workers and effectively negotiate and communicate with unions or organizations representing the workers.

Bearing in Mind the Risks of Layoffs in Vietnam

While layoffs are a strategic imperative for businesses navigating economic headwinds or operational challenges, they are fraught with legal and social risks in Vietnam. Arbitrary terminations, discrimination, or retaliation against workers can invite legal sanctions and tarnish a company’s reputation. Moreover, overlooking the psychological well-being of affected employees may exacerbate discontent and resistance, necessitating a compassionate and empathetic approach to communication and support.

Remember to protect the interests of the company. Layoffs are high-risk in Vietnam, bringing uncertainty and potential problems. If the employer does not handle the relationship with laid-off employees well, they may face legal lawsuits, reputational damage, and leakage of business secrets. Therefore, employers should avoid disputes and conflicts with laid-off employees and promptly retrieve company property and documents to protect the company’s interests and safety.

In the dynamic landscape of Vietnam’s business environment, the intricacies of conducting layoffs underscore the imperative of meticulous planning, regulatory compliance, and stakeholder engagement. By navigating the regulatory framework with diligence, prioritizing ethical considerations, and fostering open communication with affected employees, businesses can mitigate risks and navigate the complexities of downsizing operations in Vietnam’s evolving economic milieu.


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