Understand the key elements of employment contracts in Vietnam
In Vietnam, labor law recognizes two main categories of employment agreements, which are differentiated by their duration and termination clauses. These categories cater to various employment scenarios.
Indefinite-term employment contracts do not have a specific end date stipulated in the contract. Employment continues until terminated by either party following legal procedures. Termination requires following specific notice periods and potential severance payments as outlined in the Labor Code of Vietnam (2019). This type of contract offers greater job security for employees. It is often associated with more comprehensive benefits packages, including social insurance, health insurance, and paid leave.
Fixed-term contracts are further divided into two subcategories based on their duration:
These contracts have a predetermined period not exceeding 36 months from the effective date. They can be renewed once upon mutual agreement between employer and employee. If renewed a second time, the contract automatically converts to an indefinite-term contract upon its next expiration. Termination can be done by either party with shorter notice periods compared to indefinite-term contracts, depending on the contract details.
These contracts apply to specific projects, tasks, or seasonal requirements with a duration of less than 12 months. They are typically not renewed. Termination can be done by either party with minimal notice periods as specified in the contract.
Employment agreements in Vietnam are the foundation of the relationship between an employer and employee. These contracts establish expectations, rights, and obligations for both parties. To ensure compliance with Vietnamese labor law and protect the interests of both employer and employee, several essential clauses should be included in every employment agreement.
The core components of an employment agreement in Vietnam define the basic framework of the employment relationship. These elements are mandated by Article 13 of the 2019 Labor Law of Vietnam.
While not mandatory, several additional clauses can be incorporated into an employment agreement to further clarify expectations and protect both parties.
The Vietnamese Labor Code permits employers to establish a probationary period within employment agreements. This trial period serves a dual purpose: it allows employers to assess an employee's suitability for the role, and it gives employees a chance to determine if the position aligns with their expectations.
The key points regarding probationary periods in Vietnam, as outlined in the 2019 Labor Code (Article 27), include:
The minimum salary during the probationary period cannot be less than 85% of the agreed-upon wage for the position.
Both the employer and employee have the right to terminate the probationary contract or employment contract without prior notice or compensation during this period.
Upon completion of the probationary period, the employer must inform the employee of the assessment. If satisfactory, the employer can either continue with the existing employment contract or sign a new one. If the performance is deemed unsatisfactory, the employer may terminate the employment relationship.
Vietnamese employment agreements often include confidentiality and non-compete clauses to safeguard an employer's legitimate business interests. However, the approach to these clauses in Vietnamese labor law differs from common law jurisdictions.
Confidentiality clauses are designed to protect an employer's sensitive information, such as trade secrets, customer lists, or technical know-how. Vietnamese law acknowledges the need to protect trade secrets, as outlined in the Law on Intellectual Property (Article 103).
An employer can use a confidentiality clause to limit an employee's disclosure or unauthorized use of such confidential information during and after their employment. The clause should clearly define the scope of confidential information and the limitations placed on the employee.
Non-compete clauses restrict an employee's ability to work for a competitor or establish a competing business after leaving the company. The legal enforceability of non-compete clauses in Vietnam is less clear-cut.
The Labor Code does not mention non-compete clauses. However, employers may argue for their enforceability based on the Civil Code (Article 359) regarding the protection of business secrets. This argument depends on demonstrating that the non-compete clause is necessary to protect the employer's legitimate business interests and does not unreasonably restrict the employee's right to work.
We're here to help you on your global hiring journey.