Question:
An employee has worked for a company for five years and has participated in unemployment insurance throughout the entire period of employment. Upon the lawful termination of the employment contract, the employee requests that the company pay severance allowance for the five years of service. Is the company legally required to pay this allowance?
Answer:
Pursuant to Clause 1, Article 46 of Labor Code No. 45/2019/QH14, an employer is responsible for paying severance allowance to an employee who has regularly worked for the employer for at least 12 months, upon termination of the employment contract in the cases prescribed by law, except where the employee is eligible for a pension or voluntarily abandons their job without a legitimate reason for five consecutive working days or more.
However, the period used to calculate severance allowance does not necessarily cover the employee’s entire period of employment with the company. Specifically, Clause 2, Article 46 of the 2019 Labor Code provides:
“The working period used to calculate severance allowance is the total period during which the employee has actually worked for the employer, minus the period during which the employee has participated in unemployment insurance in accordance with the laws on unemployment insurance and the period for which the employer has already paid severance allowance or redundancy allowance.”
In addition, Clause 1, Article 8 of Decree No. 145/2020/ND-CP dated 14 December 2020, detailing and guiding the implementation of certain provisions of the Labor Code regarding working conditions and labor relations, provides further guidance on the circumstances in which employers are required to pay severance allowance upon termination of employment contracts.
Pursuant to Clause 1, Article 46 of the 2019 Labor Code, severance allowance is calculated at one-half (1/2) month’s salary for each year of service eligible for severance allowance. The salary used as the basis for calculating the allowance is the average salary under the employment contract for the six months immediately preceding the employee’s termination of employment, in accordance with Clause 3, Article 46 of the 2019 Labor Code.
Applying these provisions to the above situation, if the employee has worked for five years and participated in unemployment insurance throughout the entire five-year period, and there are no other periods of employment eligible for severance allowance, there is no remaining period to be included in the calculation of severance allowance. Accordingly, the company is not required to pay severance allowance for those five years.
Conversely, if the employee has any actual working period that was not covered by unemployment insurance and satisfies the statutory conditions for receiving severance allowance, the company must determine the corresponding eligible period and calculate and pay the allowance in accordance with the law.
Conclusion:
A An employer is not automatically required to pay severance allowance for the entire period of an employee’s service with the company. Where the employee has participated in unemployment insurance throughout the entire employment period, the employer is not required to pay severance allowance for that period. However, the company should review the employee’s employment history, unemployment insurance participation records, and the specific circumstances of employment termination to accurately determine its payment obligations.
Should your company require further advice on this matter, please contact SB Law for timely assistance from our team of lawyers and legal experts.
