Question:
Our company signed a fixed-term labor contract with a foreign employee for a duration of 12 months, with salary adjustments made via an annex. The company will not extend the contract with this employee. We intend to require the employee to hand over their work and will not require them to work during the final month of the contract. The company will pay their full salary up until the contract's expiry date.
Please advise on the procedure for terminating the contract to minimize legal risks for the company. Also, what salary base should be used to calculate severance pay for this employee?
Response:
Regarding this matter, SB Law provides the following advice:
1. Procedure for Employee Termination
1.1. Legal Basis for Contract Termination
Based on the information provided by your company, SB Law understands that the labor contract with the employee specifies an expiry date.
According to Clause 1, Article 34 of the 2019 Labor Code:
"Article 34. Cases of Termination of a Labor Contract
1. Expiry of the labor contract, except for the case specified in Clause 4, Article 177 of this Code.
…"
Thus, when the labor contract expires and there is no additional agreement between the company and the employee regarding an extension, the labor contract will terminate.
1.2 Procedure for Termination of a Labor Contract Upon Expiry
Step 1: Provide Written Notice of Contract Termination
According to Clause 1, Article 45 of the 2019 Labor Code, the company must notify the employee in writing of the termination of the labor contract upon its expiry.
Although the law does not stipulate a specific timeframe for such notice, SB Law recommends notifying the employee as early as possible before the contract’s expiration.
Step 2: Fulfill Procedures Related to Employee Rights
In accordance with Clause 1, Article 48 of the 2019 Labor Code, the company must settle all payments related to the employee's rights within 14 working days from the termination of the labor contract.
Additionally, under Clause 3(a), Article 48 of the 2019 Labor Code, the company must complete procedures for confirming the employee’s social insurance and unemployment insurance contributions and return these along with any original documents retained by the company.
2. Salary Used for Calculating Severance Allowance
Based on Article 46.3 of the 2019 Labor Code, the salary used to calculate severance allowance is the average salary of the six consecutive months under the labor contract immediately preceding the employee's termination.
According to Article 90.1 of the 2019 Labor Code, the structure of “salary” includes the wage based on the job or title, salary allowances, and other additional payments.
Article 3.5 of Circular 10/2020/TT-BLĐTBXH stipulates:
a) Wage based on the job or title: This refers to the time-based wage for the job or title according to the salary scale or payroll system developed by the employer in accordance with Article 93 of the Labor Code. For employees paid based on products or contracts, this indicates the time-based wage used to determine the product unit price or contractual wage.
b) Salary Allowances Agreed Upon by Both Parties:
b1) Allowances to compensate for factors such as working conditions, the complexity of the job, living conditions, or the level of labor attraction that are not fully accounted for in the agreed salary under the labor contract.
b2) Allowances linked to the employee's working process and job performance.
c) Other Additional Payments Agreed Upon by Both Parties:
c1) Additional payments with a specific monetary value determined alongside the agreed salary in the labor contract, paid regularly in each wage period.
c2) Additional payments without a specific monetary value determined alongside the agreed salary in the labor contract, paid either regularly or irregularly in each wage period, and linked to the employee's working process and job performance.
For other benefits and welfare regimes, such as bonuses regulated under Article 104 of the Labor Code, initiative bonuses, mid-shift meal allowances, and support for transportation, telephone expenses, commuting, housing, childcare, or raising small children; as well as support provided in cases such as the death of an employee's relative, the marriage of a relative, the employee's birthday, assistance for employees facing difficulties due to work-related accidents or occupational diseases, and other types of support or allowances, these should be specified in a separate section of the labor contract.
Therefore, the company must rely on the above-mentioned regulations and the employee’s payroll details to determine the salary used for calculating the severance allowance for that employee.
