My company has repeatedly entered into fixed-term labor contracts with an employee. Currently, a dispute has arisen between the two parties, and the employee is claiming compensation on the grounds that the company violated regulations regarding the permissible number of successive fixed-term contracts. In this case, is our company legally obligated to pay such compensation, and will we be subject to administrative penalties?
Answer:
Regarding the execution of labor contracts, pursuant to Article 20 of the Labor Code 2019, where the employer and the employee enter into a fixed-term labor contract (not exceeding 36 months), upon the expiry of such contract, the parties may execute a new fixed-term labor contract. However, such renewal is permitted only once; for the subsequent term, the parties are mandatory required to enter into an indefinite-term labor contract, except for certain specific cases.
“Article 20. Types of employment contracts
- An employment contract shall be concluded in one of the following types:
...
- b) A fixed-term employment contract is a contract in which the two parties fix the term of the contract for a duration of up to 36 months from the date of its conclusion.
- If an employee keeps working when an employment contract mentioned in Point b Clause 1 of this Article expires:
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- c) The parties may enter into 01 more fixed-term employment contract. If the employee keeps working upon expiration of this second fixed-term employment contract, the third employment contract shall be of indefinite term, except for employment contracts with directors of state-invested enterprises and the cases specified in Clause 1 Article 149, Clause 2 Article 151 and Clause 4 Article 177 of this Labor Code.”
Accordingly, if the company's employees do not fall under the aforementioned exceptions, the company's continued execution of fixed-term contracts from the third time onwards constitutes a violation of the law regarding the entry into labor contracts.
Pursuant to Article 9 of Decree No. 12/2022/ND-CP, which stipulates penalties for violations concerning the entry into labor contracts:
“Article 9. Violations against regulations on conclusion of employment contracts
- The following fines shall be imposed upon an employer for commission of one of the following violations: failing to enter into written employment contracts with employees who do jobs with a term of full 01 month or longer; failing to enter into a written employment contract with the authorized representative of the group of employees aged 18 or older to do seasonal works or certain jobs with a term of less than 12 months as prescribed in Clause 2 Article 18 of the Labour Code; failing to enter into the right type of employment contract with employees; entering into employment contracts that do not contain primary information as prescribed by law:
- a) A fine ranging from VND 2.000.000 to VND 5.000.000 shall be imposed if the violation involves 01 - 10 employees;
- b) A fine ranging from VND 5.000.000 to VND 10.000.000 shall be imposed if the violation involves 11 - 50 employees;
- c) A fine ranging from VND 10.000.000 to VND 15.000.000 shall be imposed if the violation involves 51 - 100 employees;
- d) A fine ranging from VND 15.000.000 to VND 20.000.000 shall be imposed if the violation involves 101 - 300 employees;
- dd) A fine ranging from VND 20.000.000 to VND 25.000.000 shall be imposed if the violation involves 301 employees or more.
...
- Remedial measures
- c) The employer is compelled to enter into the right type of employment contract with employees when failing to enter into the right type of employment contract with employees as specified in Clause 1 of this Article;
...”
It should be noted that the aforementioned fine levels apply to individual employers; in the case of a violation by an organization, the fine shall be doubled pursuant to Clauses 1 and 3, Article 6 of Decree No. 12/2022/ND-CP. Therefore, your company may face fines ranging from 4,000,000 VND to 50,000,000 VND depending on the number of employees affected, and shall be compelled to implement remedial measures by entering into the correct type of labor contract with the employees as regulated.
However, under the current labor laws, there is no provision requiring an employer to pay a specific penalty or separate compensation to an employee solely due to the incorrect classification of the labor contract. In the event that the employee requests compensation, the employee must prove that the incorrect type of labor contract has actually affected their legitimate rights and interests, and must also demonstrate that actual damages have arisen from such circumstance.
Therefore, in this case, your company is not obligated to pay the above-mentioned compensation due to the absence of a clear legal basis. The appropriate remedial measure would be for the company to re-execute the labor contract with the correct type (an indefinite-term labor contract) in order to ensure compliance with applicable legal regulations.
