What is Labor Downsizing?

Occasionally, media outlets report that some companies, for certain reasons, conduct labor reductions and lay off a large number of employees at once. So, how is the term "labor reduction" understood? And in which cases does the termination of a labor contract fall under labor reduction?

The concept of labor reduction has not been thoroughly examined and clarified, as evidenced by its mention in Vietnam's legal normative documents. Currently, only 19 documents use the term “labor reduction,” including 6 Official Dispatches, 5 reports, 5 decisions, 1 resolution, 1 plan, and 1 notification from state agencies such as the Government Office, the State Bank, the Ministry of Labor, War Invalids, and Social Affairs, etc.

According to the provisions of the Labor Code 2012, the concept of labor reduction is understood as follows:

Labor reduction is the action taken by an employer to reduce the number of current employees in the enterprise or cooperative for various reasons such as structural changes, technological changes, economic reasons, or due to redundancy following the merger, division, separation, or consolidation of the enterprise or cooperative.

The cases considered labor reduction include:

- Labor reduction due to structural or technological changes- Labor reduction for economic reasons- Labor reduction after the merger, consolidation, division, or separation of the enterprise or cooperative.

The termination of a labor contract (LD) in cases of labor reduction has several characteristics:

First, labor reduction is a case of LD termination.

Reducing the number of current employees in the enterprise means the termination of one or several current LDs in the enterprise.

The labor reduction regulations (Articles 44, 45) are also part of Section 3, Chapter 3 of the Labor Code 2012, regarding the termination of LDs.

Second, labor reduction is an action performed by the employer.

During the production and business process, employers must develop a reasonable labor usage plan to achieve the highest efficiency, thereby reducing costs and increasing profits. If the enterprise encounters economic difficulties or decides to change its technology structure to increase labor productivity, maintaining the same number of employees without change will make it difficult and increase costs for the enterprise. Therefore, labor reduction depends on labor law regulations and the employer's determination in specific cases.

Third, labor reduction creates diverse legal consequences.

If the labor reduction complies with the law, the labor relationship between the employer and the employee will terminate. If the enterprise conducts labor reduction against labor law regulations, whether the labor relationship continues depends on whether the employee wishes to continue working in the enterprise or not and the enterprise’s obligation to pay certain amounts such as salaries, social insurance, severance allowances, etc. Thus, labor reduction creates diverse legal consequences, and different cases will result in different outcomes.

Fourth, labor reduction generally impacts more employees than other LD termination cases.

In other LD termination cases, usually only one employee is affected in a specific instance. However, labor reduction is carried out through the employer's decisions such as decisions to divide the enterprise, reduce the enterprise's production scale, etc. Following these decisions, the enterprise will devise a labor usage plan and reduce redundant labor after these decisions and plans. In this context, it can be said that labor reduction generally impacts more employees than other LD termination cases.

Fifth, lawful labor reduction terminates the labor relationship between the parties in the LD.

This is a basic common feature of LD termination cases. If the labor reduction falls within economic reasons, structural, technological changes, division, separation, merger, or consolidation of the enterprise or cooperative as stipulated by labor laws, upon the termination of the LD, the labor relationship between the employer and the employee will end.

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