In production and business, there are many reasons that may lead to companies needing to downsize their workforce, particularly when the Covid-19 pandemic continues to resurge as it is presently. In the case of workforce reduction, what should companies in Vietnam be mindful of?
Article table of contents
4 steps that enterprises in Vietnam must undertake when reducing personnel from 2021 (Illustrative Image)
05 Cases Leading to employee reduction
According to the provisions of Article 42 of the 2019 Labor Code which will take effect from January 1, 2021, there are situations that could lead to employers having to reduce staff, including:
* Structural and Technological Changes
Case 1: Organizational Restructuring and Labor Reorganization
This is the case when the employer makes changes in their organizational structure.
Example: Merging two or more departments into one consolidated department to reduce personnel costs may put certain employees at risk of being laid off.
Case 2: Changes in Business Processes, Technology, Machinery, and Equipment Used in Production and Business
Example: A company producing handmade coconut candy might invest in machinery such as coconut extractors, candy presses, and packaging machines, creating a more industrialized production line. The automation and high productivity of these machines can result in fewer operators needed, hence some employees may be laid off.
Case 3: Changes in Products and Product Structures
Example: A company currently producing palm-leaf hats decides to shift its focus to manufacturing high-end ceramics. The existing workforce might not meet the new demands of the company.
* Economic Reasons:
Case 4: Economic Crisis or Recession
Case 5: Implementation of Government Policies during Economic Restructuring or International Commitments.
4 steps that enterprises in Vietnam must undertake when reducing personnel
When any of the above situations occur, enterprises cannot immediately reduce their workforce. Specifically, according to the provisions of Article 44 and Article 45 of the 2019 Labor Code, enterprises must complete the following 4 steps:
Step 1: Develop and Implement a Labor Utilization Plan with the Participation of the Grassroots Trade Union, including:
- The number and list of employees to be retained, retrained, part-time;
- The number and list of employees retiring;
- The number and list of employees whose contracts will be terminated;
- Rights and obligations of employers, employees, and related parties in implementing the labor utilization plan;
- Measures and financial resources to ensure the plan's implementation.
Step 2: Consult with the Grassroots Trade Union Regarding Employee Layoffs
Before laying off employees, the employer must consult with the organization's representative for employees at the establishment (Grassroots Trade Union) regarding the layoff.
Step 3: Notify the Provincial Department of Labor - Invalids and Social Affairs in Writing 30 Days Before Implementing the Layoff (if involving 2 or more employees).
Note, the notification must include:
- Name, address of the employer, and the legal representative of the employer;
- Total number of employees; number of employees to be laid off;
- Reasons for the layoff; timing of the layoff;
- Projected costs for severance benefits.
Step 4: Pay Severance Allowances
According to Article 47 of the 2019 Labor Code, severance payments must be made to employees as follows:
- Provide severance allowances to employees who have been working regularly for the employer for 12 months or more. Each year of work entitles them to one month’s salary, but not less than two months’ salary. That is, if an employee has only worked for the employer for 1 year, the severance allowance received would still be 2 months' salary.
- The working time to calculate severance is the total actual working time for the employer minus the time the employee has participated in unemployment insurance according to the law on unemployment insurance and the time the employer has paid severance or unemployment benefits.
- The salary to calculate the severance allowance is the average salary of the 6 consecutive months under the labor contract before the employee loses the job.
These are the 4 steps enterprises must follow if they wish to reduce staff from 2021. However, only when falling into one of the cases aforementioned, the enterprise is permitted to reduce their employees. If an enterprise reduces staff without falling into the above cases or does not follow the correct procedure of these 4 steps, it is considered an unlawful unilateral termination of labor contracts.
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