Question: What procedures must an employer follow when terminating employment contracts due to organizational restructuring, technological changes, or economic reasons?
Answer:
Under Article 42 of the Labor Code 2019, an employer may terminate employment contracts in cases of organizational restructuring, technological changes, or economic reasons. However, such termination is only lawful if the employer fully complies with the statutory conditions and procedures. Failure to do so may result in the termination being deemed unlawful.
First, the employer must determine whether the workforce reduction falls within the statutory grounds of organizational restructuring, technological changes, or economic reasons under the Labor Code 2019. If the restructuring affects the employment of multiple employees, the employer is required to prepare a Labor Utilization Plan in accordance with Article 44 of the Labor Code 2019.
When preparing the Labor Utilization Plan, the employer must consult the employees’ representative organization at the grassroots level (if any) and publicly disclose the plan to employees within 15 days from the date it is approved.
If, after implementing the Labor Utilization Plan, the employer is still unable to arrange alternative employment for the affected employees, it may proceed with the termination of employment contracts. In such cases, the employer must provide at least 30 days’ prior written notice to both the provincial People’s Committee and the affected employees before the termination takes effect.
Following the termination, the employer is required to settle all outstanding salaries and other employee entitlements, pay job-loss allowances (where applicable), complete the procedures for confirming the employee’s social insurance and unemployment insurance contribution records, and return any original documents retained from the employee. Under Article 48 of the Labor Code 2019, these obligations must generally be fulfilled within 14 working days from the termination date. However, in cases of workforce reduction due to organizational restructuring, technological changes, or economic reasons, this period may be extended to no more than 30 days.
In practice, many employers issue restructuring decisions or termination notices without first preparing a Labor Utilization Plan, consulting the employees’ representative organization, or notifying the competent authorities. These procedural deficiencies are common and may result in the termination being declared unlawful, exposing the employer to compensation liabilities.
Conclusion:
An employer may reduce its workforce due to organizational restructuring, technological changes, or economic reasons only after satisfying all legal requirements and complying with the procedures prescribed by the Labor Code 2019. Preparing a Labor Utilization Plan, fulfilling notification obligations, and ensuring employees’ statutory rights are protected are essential steps to minimize legal risks.
If your business requires legal advice on workforce reductions due to corporate restructuring, preparing a Labor Utilization Plan, or lawful employment termination procedures, please contact SB Law. Our experienced lawyers and legal professionals are ready to provide timely and practical legal support.
