Question: Our company is currently reviewing personnel records in order to proceed with the termination of certain 2-year fixed-term labor contracts that are approaching their expiry date, as the company no longer has a need to continue employing these workers. However, during the review process, we identified two cases in which employees had signed fixed-term labor contracts with a term of 5 years instead of 2 years. The cause has been determined to be an administrative error by the HR department at the time of signing, resulting in a contract term of 5 years—which exceeds the maximum term allowed under the Labor Code. We would like to ask whether such labor contracts with an incorrectly stated term are legally valid. What legal risks or complications might the company face when terminating these labor contracts under these circumstances?
Answer
Pursuant to Point b, Clause 1, Article 20 of the 2019 Labor Code (“Labor Code 2019”), a fixed-term labor contract is a contract in which the parties agree on the duration and the time of termination of the contract within a period not exceeding 36 months from the effective date of the contract. In the company’s case, the two employees signed fixed-term labor contracts with a duration of 5 years (60 months). This duration exceeds the maximum limit permitted by law; therefore, the provision on the contract term is considered contrary to the legal regulations and may be declared partially invalid in accordance with Clause 2, Article 49 of the Labor Code 2019. Partial invalidity affects only the violating clause, while the remaining contents of the contract and the actual employment relationship between the parties remain valid.
Accordingly, the company may be subject to an administrative fine under Clause 1, Article 9 of Decree No. 12/2022/ND-CP, which provides that:
“1. 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.”
In addition, pursuant to Point c, Clause 3, Article 9 of Decree No. 12/2022/ND-CP regarding remedial measures, specifically:
“3. 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;”
Accordingly, to remedy the invalidity of the contract term provision, the company must make adjustments to ensure that the contract complies with statutory requirements. The most appropriate solution is to discuss and reach agreement with the employees to execute an addendum to the labor contract that adjusts the term to the maximum limit of 36 months, thereby restoring the contract to a valid status. Such an addendum must be based on the employees’ consent, in accordance with the principle of voluntary agreement in labor contract formation.
However, in the present context - where the company does not wish to continue employing these workers and intends to terminate the employment relationship - adjusting the contract term only serves to correct the legal non-compliance and does not enable the company to terminate the contracts on the ground of “expiration of the contract term.” Since the term provision has already been rendered invalid, the company cannot rely on contract expiration as a lawful basis to terminate the employment relationship in these two cases.
The company may negotiate with the employees to mutually agree on the termination of the labor contracts pursuant to Clause 3, Article 34 of the 2019 Labor Code. Aside from mutual agreement, the company may only proceed with unilateral termination or dismissal if there are clear legal grounds under Article 36 or Article 125 of the 2019 Labor Code.
In summary, although the labor contracts containing a term exceeding 36 months are considered partially invalid, this does not provide the company with a lawful basis to terminate the contracts on the ground of contract expiration. The most appropriate approach is to remedy the invalid term clause by executing a contract addendum and subsequently negotiate a mutual termination with reasonable financial support. Other options, such as dismissal or unilateral termination under Article 36, should only be pursued when there are solid legal grounds and sufficient evidence, given the high level of legal risk involved.
Consultation: Labor Law Services
