Other BriefingsTermination and Severance in Vietnam: A Guide for Foreign Employers
Termination in Vietnam is not a simple administrative matter. The country’s labor laws are built to protect employees, and even small missteps by an employer, especially a foreign one, can lead to costly legal disputes or reputational damage.
Understanding the grounds for lawful dismissal, procedural requirements, severance entitlements, and special risks facing foreign-invested enterprises is essential to maintaining compliance and reducing liability.
Legal grounds for termination in Vietnam
Vietnamese law sets clear and limited grounds under which an employer can lawfully terminate an employment contract. These include reasons such as mutual agreement, contract expiration, poor performance, restructuring, misconduct, or prolonged illness. However, each ground must be supported by evidence and handled according to the procedures stipulated in the Labor Code.
Employers cannot terminate contracts on discriminatory grounds, such as pregnancy, union involvement, or personal beliefs. Doing so can result in reinstatement orders and compensation claims.
Required procedures for a lawful termination
Terminating an employee in Vietnam involves more than citing a valid reason. Employers must follow several procedural steps to ensure the dismissal is legally valid. Failing to comply with these procedures, even if the reason is legitimate, can result in the termination being deemed unlawful.
Provide advance notice
Employers are required to give written notice according to the type of employment contract. For indefinite-term contracts, a 45-day notice period applies. For fixed-term contracts of 12 months or more, the notice period is 30 days. For short-term contracts under 12 months, the required notice is just 3 working days. In cases involving serious misconduct, immediate termination without prior notice may be permitted, but it must be supported by strong evidence and follow disciplinary protocols.
Hold a dialogue with the employee
Before making any final decision, the employer must conduct a dialogue with the employee. This meeting allows the employee to respond to the termination grounds and provides the employer with evidence of a fair and transparent process.
Obtain approval from the authorities
In scenarios like mass layoffs or structural reorganization, employers must notify and obtain approval from the local labor authority. Failure to secure necessary approvals can delay terminations and lead to penalties.
Issue a written termination decision
After completing the above steps, the employer must issue a formal written decision outlining the reason for dismissal, the effective date, and any payments due.
Settle final payments
Employers must complete all final payments within 7 to 14 working days. This includes salary, unused leave, severance (if applicable), and any other contractual entitlements. Delayed or incomplete payments are a common cause of post-termination disputes.
Severance and compensation requirements
Employees terminated for lawful reasons unrelated to misconduct are generally entitled to severance. This is calculated as half a month’s average salary for each full year of service, excluding periods covered by unemployment insurance.
The average salary is based on the employee’s earnings over the last six months, including base wage and fixed allowances. For example, an employee earning VND 12 million monthly for three full years of non-insured service would receive VND 18 million in severance.
In redundancy situations, job-loss allowances apply. These are calculated as one month’s salary per year of service, with a legal minimum of two months’ salary, regardless of length of service. This applies even when unemployment insurance contributions were made.
Employers must also settle wages, unused leave, and other benefits during the final payment. Ensuring accurate calculations and timely disbursement is critical to avoiding disputes.
Risks unique to foreign employers
Foreign-invested enterprises (FIEs) often encounter legal trouble due to unfamiliarity with Vietnam’s employment laws. A common issue arises when foreign HR teams apply their home-country standards, such as at-will termination, without adjusting to Vietnamese legal requirements.
Case example: A European logistics company operating in Ho Chi Minh City terminated a mid-level employee without holding a dialogue or issuing a formal notice. Though the employee had underperformed, the employer lacked proper documentation and skipped procedural steps. The employee filed a complaint and was reinstated with six months’ back pay. The company also faced reputational issues in its local hiring efforts.
To avoid similar outcomes, foreign employers should ensure that internal labor rules are registered with authorities and employment contracts are localized to comply with Vietnamese law.
Redundancies and collective layoffs
Mass layoffs due to restructuring or financial hardship trigger additional obligations. Employers must consult with the trade union, submit a dismissal plan to the Department of Labor, and provide adequate financial support to affected workers. Coordination with job placement centers may also be required. These are not optional steps; failure to comply may result in sanctions or invalidation of the termination.
Potential legal consequences of wrongful termination
Wrongful terminations expose employers to significant risks. Employees may bring claims to the labor inspectorate, arbitration centers, or the court. If found unlawful, employers may be required to reinstate the employee and pay back wages and damages. In serious cases, they may face administrative fines or suspension of operations.
Such outcomes are preventable. Employers who follow due process and properly document terminations significantly reduce their legal exposure.
Ensuring compliant exits for long-term success
Termination in Vietnam is a legal process and not just a business decision. Missteps can have long-lasting consequences, including reputational damage, financial loss, and regulatory scrutiny. Companies that adopt clear policies, follow the law, and maintain proper records will be well-positioned to manage workforce transitions successfully.
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