Question: What is the nature of the collaboration contract and what to consider when signing a collaboration contract instead of a labor contract?
Answer from lawyer:
The nature of the collaboration contract:
In reality, the collaboration contract is a name given by the parties to the agreement, not a particular type of contract with specific provisions. This contract may be identified as a “service relationship” or as a “labor relationshop” by the competent state agency, depending on the nature of the transaction it refers to.
(i) Where the subject matter of the collaboration contract is defined as a “service relationship”:
According to Article 513 Civil Code 2015, Contracts for services means an agreement between parties whereby a service provider performs an act for a client which pays a fee for that act.
Thus, the collaborator is the service provider. Providers of services will be charged by the party receiving collaborators. Depending on the agreement between the parties, collaborators can only finish the work within a specific period of time.
In this context, the collaborator (service provider) are not eligible for social insurance, health insurance, or unemployment insurance from the party receiving collaborators. Additionally, the service provider must pay personal income tax as prescribed by the Personal Income Tax Law. Taxes are normally imposed at 10%.
(ii) Where the subject matter of the collaboration contract is defined as a “labor relationship”:
According to Clause 1 Article 13 Labor Code 2019, An employment contract is an agreement between an employee and an employer on a paid job, salary, working conditions, and the rights and obligations of each party in the labor relations. A document with a different name is also considered an employment contract if it contains the agreement on the paid job, salary, management and supervision of a party.
Hence, in the event that the contract between collaborator and employer agree on the above terms, the Collaboration contract can be considered as an Labor contract.
In this context, the employer, the employee must comply with legal requirements regarding compulsory social insurance, compulsory health insurance, and unemployment insurance.
Please note that the State Authorities may consider a contract to be a “service relationshop” or an “labor relationship” depending on its nature, and not its name.
The legal risks when signing a collaboration contract instead of a labor contract
If the collaborator becomes familiar with the provisions of labor code and sues the enterprise in court to protect their rights, the employer may risk having their collaboration contract not recognized as legal by the Court, and in light of the provisions of labor code, the employer will be forced to enter into an original labor contract with that collaborator. Furthermore, the employer may also need to fulfill the obligations of the employer towards the employee for the period he or she has been working in the collaboration contract (including benefits for paying compulsory insurances for employees, paying overtime wages, and paying severance entitlements upon on termination of contract…). Additionally, for failing to properly deal with employees in the manner prescribed by the Labor Code, the employer might also face administrative sanctions with a maximum fine of VND 50,000,000.