Question:
Dear Lawyer, Our company is undergoing a restructuring process, and it is highly likely that we will need to terminate an employment contract with one of our employees. Could you please advise on the legal risks the company might face in such a situation? What consequences could we encounter if we fail to comply with the proper procedures?
Response:
In this case, SB Law provides the following advice:
The company may rely on the provisions for termination of employment due to changes in structure or technology as stipulated in Articles 42 and 43 of the 2019 Labor Code to terminate the employment contract with the employee.
Specifically, the process and procedures for restructuring or reorganizing the workforce involve the following four steps:
Step 1: Develop a labor utilization plan.
Step 2: Conduct workplace dialogue and consult with the employees' representative organization at the establishment regarding the labor utilization plan.
Step 3: Notify the provincial People's Committee and the employees.
Step 4: Issue a decision to terminate the employment contract and settle benefits for the employee upon termination.
If the company fails to terminate the employment contract properly and in full compliance with legal regulations, it may face the following risks:
1. Risk of Lawsuits from Employees
In cases where the restructuring plan affects only one employee, it may be deemed unreasonable and classified as a unilateral termination of the employment contract. Typically, structural changes impact multiple employees, such as reassignment to different jobs, relocation, or job loss.
To ensure that the restructuring plan is considered reasonable, the company should carefully evaluate and reorganize the roles of other employees within the department where the affected employee is working. This approach will help demonstrate the necessity and legitimacy of the structural changes.
2. Risk of Administrative Penalties
In addition to addressing disputes directly with the affected employee, the company may face inspections or audits by competent state authorities. Specifically, the employee could file a complaint about the company's "non-compliance with the law" with the relevant authorities, potentially leading to the following administrative penalties:
i. Failure to Notify Termination of Employment Contracts
Under Article 12.1 of Decree 12/2022/ND-CP, the company may be fined between VND 2,000,000 and VND 6,000,000 for failing to provide written notice to the employee regarding the termination of the employment contract in accordance with the provisions of the Labor Code.
ii. Regarding the Settlement of Employee Benefits upon Termination of the Employment Contract
Pursuant to Article 12.2 of Decree No. 12/2022/ND-CP, the Company may be fined between VND 2,000,000 and VND 4,000,000 for the following violations: failing to comply with regulations on the time limit for payment of benefits to employees upon termination of the employment contract; failing to pay or underpaying severance allowance to employees as prescribed by law; failing to pay or underpaying job-loss allowance to employees as prescribed by law; failing to pay or underpaying compensation to employees as prescribed by law in cases of unlawful unilateral termination of the employment contract; failing to complete procedures for confirming social insurance and unemployment insurance contribution periods and returning them along with original documents retained from employees after termination of the employment contract as prescribed by law; and failing to provide copies of documents related to the employee's work history upon request after termination of the employment contract.
iii. Regarding the Process of Termination of Employment Contracts due to Restructuring or Technological Changes
Pursuant to Article 12.2 of Decree No. 12/2022/ND-CP, the Company may be fined between VND 10,000,000 and VND 20,000,000 for the following violations:
a) Failing to consult with the labor union in advance or failing to provide at least 30 days' prior notice to the provincial People's Committee or employees;
b) Preparing a labor utilization plan that does not include all essential contents as required by law or failing to consult with the labor union when developing the labor utilization plan.
iv. Regarding Collective Labor Agreements
Pursuant to Article 16.1.a of Decree No. 12/2022/ND-CP, the Company may be fined between VND 2,000,000 and VND 6,000,000 for failing to submit the collective labor agreement to the labor authority under the provincial People's Committee where the company’s headquarters is located, as required by law.
v. Regarding Labor Regulations
If the Company has not registered its labor regulations as required by law, pursuant to Article 19.2.a of Decree No. 12/2022/ND-CP, it may be fined between VND 10,000,000 and VND 20,000,000 for failing to register its labor regulations in accordance with legal provisions.
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