Question:
Dear Lawyer, our Company has entered into a fixed-term Labor Contract with an employee. However, due to changes in our business structure, the Company no longer requires the position held by this employee. This employee has not violated any Company regulations.
We currently wish to terminate the Labor Contract with the employee before its expiration, providing 30 days' notice in accordance with a mutual agreement on early termination between both parties.
Could you please advise us on the legal provisions that the Company may refer to in order to terminate the Labor Contract in this case?
Answer:
For the situation described, SB Law provides the following advice to the client:
Case 1: Termination of the Labor Contract by Mutual Agreement
Your Company may refer to Clause 3, Article 34 of the 2019 Labor Code, which allows for termination of the Labor Contract by mutual agreement. The company can issue a notice to the employee, proposing a discussion and mutual agreement on the terms for early termination of the Labor Contract.
If the Company successfully negotiates with the employee and both parties reach a consensus, the Labor Contract can be terminated based on the mutual agreement.
Note:
The company must ensure that the agreement to terminate the Labor Contract is documented in writing. The document should explicitly state that the employee fully consents to the termination and agrees voluntarily without any coercion.
Case 2: Termination of the Labor Contract due to organizational restructuring or labor reorganization
The Company may rely on the provisions regarding termination of employment due to changes in structure or technology to terminate the labor contract with an employee, as stipulated below:
Pursuant to Clause 11, Article 34 of the Labor Code 2019:
"Article 34. Cases of labor contract termination
...
11. The employer terminates the labor contract with the employee as stipulated in Articles 42 and 43 of this Code."
Pursuant to Article 42 of the Labor Code 2019:
"1. The following cases are considered changes in structure or technology:
a) Changes in organizational structure, labor reorganization;
...
3. In the case of changes in structure or technology that affect the employment of multiple employees, the employer must develop and implement a labor utilization plan as prescribed in Article 44 of this Code. If new jobs are available, priority should be given to retraining employees to continue their employment.
- In cases of economic reasons leading to the risk of job loss or termination for many employees, the employer must develop and implement a labor utilization plan as prescribed in Article 44 of this Code.
- If the employer is unable to resolve the employment issue and must terminate the employees, they are required to pay severance allowances in accordance with Article 47 of this Code."
Specifically, the process and procedures for organizational restructuring or labor reorganization are carried out as follows:
Step 1: Develop a labor utilization plan
To implement organizational restructuring or labor reorganization, the company must prepare a labor utilization plan if such changes affect the employment of multiple employees, as required by law.
Step 2: Conduct workplace dialogue and consult the grassroots labor representative organization regarding the labor utilization plan
When developing the labor utilization plan, the company must consult with the grassroots labor representative organization, which in this case is the company’s labor union.
Additionally, as stipulated in Article 63.2 of the Labor Code 2019, the company is obligated to conduct workplace dialogue when implementing organizational restructuring, labor reorganization, and developing a labor utilization plan.
Step 3: Notify the Provincial People's Committee and employees
Once the labor utilization plan is approved by the company, it must be publicly communicated to employees within 15 days from the date of approval (Clause 2, Article 44 of the Labor Code 2019). At the same time, the company must provide written notification of the termination of the labor contract due to organizational restructuring or labor reorganization at least 30 days in advance (Article 42 and Clause 1, Article 45 of the Labor Code 2019) to the Provincial People's Committee and employees.
Step 4: Issue a decision to terminate the Labor Contract and Settle entitlements for employees upon Contract Termination
- Issue a decision to terminate the Labor Contract:
After 30 days from the date the company sends the notification to the Provincial People's Committee and employees, the company proceeds to issue a decision to terminate the labor contract with the employee.
- Settle entitlements for employees upon Contract Termination:
For employees who have worked for the company for at least 12 months and whose labor contracts are terminated prematurely due to labor reorganization, they will be entitled to severance pay, equivalent to one month’s salary for each year of work.
The period of employment used to calculate severance pay is the total actual time the employee has worked for the employer, minus the time the employee has participated in unemployment insurance as prescribed by law and the period for which the employer has already paid severance or redundancy pay. The salary used to calculate severance pay is the average salary of the last six months under the labor contract before the employee loses their job.
Note that if the employee's severance pay calculation period equals zero, the employee will be entitled to a minimum severance pay of two months' salary.
However, for employees who have worked for less than 12 months, the employer is not required to pay this severance amount.
Therefore, the company can terminate the employee’s contract early for organizational restructuring or labor reorganization. However, in this case, the company is obligated to develop and implement a labor utilization plan.
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