BONUSES IN LABOR CODE 2025
Topic 28:
BONUSES IN LABOR CODE
Senior Lecturer, MSc. Đoàn Công Yên
SUMMARY OF THE CASE AND THE COURT DECISION
[Judgment No. 08/2022/LĐ-PT dated September 9, 2022, issued by the People’s Court of Đồng Nai Province concerning disputes over wages and bonuses.]
Case Summary:
Mrs. Nguyễn Thị Quyên began working for M Vietnam Co., Ltd. (hereinafter referred to as Company M) on January 5, 2000, under an indefinite-term labor contract. Her job was as an assembly employee, and her current salary is 6,100,000 VND per month.
In 2020, Mrs. Quyên did not commit any violations of Company M’s rules. However, when her performance was reviewed for a salary raise, Company M classified her under category E, granting her only a 3% raise. Whereas, she should have been classified as category B, qualifying her for a 6% raise. Due to being rated under category E, her year-end bonus was also significantly reduced.
According to the collective labor agreement and Company M’s bonus policy issued on January 22, 2021, the bonus levels for 2020 ranged from 0.9 months’ salary to 2.2 months’ salary. Specifically, if the performance evaluation for the year 2020 fell under category A, the bonus would be 2.2 months’ salary; for category E—which corresponds to level 1—the bonus would be 0.9 months’ salary.
Thus, Mrs. Quyên filed a lawsuit requesting Company M to pay her the difference in bonuses for the year 2020 (covering the period from January 1, 2020, to December 31, 2020), amounting to 11,560,000 VND.
Court Decision:
The court did not accept Mrs. Nguyễn Thị Quyên’s claim against Company M regarding the dispute over “wages and bonuses.”
COMMENTARY
I. Introduction
In addition to wages and other welfare regimes, bonuses hold significant meaning for both employees and employers. Within the framework of Vietnam’s labor regulations, provisions regarding bonuses are outlined very concisely. Enterprises and employers generally disburse bonuses to employees through agreements or internal policies. These internal bonus policies are often designed to favor the employers.
Many employees either lack knowledge or possess incomplete understanding of the employers’ internal policies. Consequently, numerous labor disputes concerning bonuses have arisen in practice.
Through Judgment No. 08/2022/LĐ-PT dated September 9, 2022, issued by the People’s Court of Đồng Nai Province concerning disputes over wages and bonuses, we provide commentary on two important legal issues:
(i) Basis for awarding bonuses.
(ii) Bonus levels.
II. Legal Issues
- Basis for awarding bonuses:
Currently, there are various ways to describe bonuses. Bonuses can be understood to include any discretionary or non-discretionary payment, or “compensation” provided to employees beyond their regular wages [Michael Kelsheimer, Employment Law 101: Bonuses, [https://www.texasemployerhandbook.com/2014/03/employment-law-101-bonuses/]].
Some experts also argue that “bonuses are additional compensation to wages, awarded for new factors arising during labor processes (increased labor productivity, material savings, innovations, etc.) that have not been accounted for in the wages designated for positions or tasks” [Lưu Bình Nhưỡng (Editor-in-Chief) (2015), Scientific Commentary on the Labor Code, Labor Publishing House, Hanoi, p. 217.].
According to Vietnamese law, Article 104 of the 2019 Labor Code defines bonuses as “money or assets or other forms rewarded by the employer to the employee based on the results of production, business activities, and the level of work completion by the employee.” Thus, employers are permitted to determine or agree upon various forms of bonuses, such as in-kind rewards or monetary payments. Under current Vietnamese law, bonuses are provided based on the following grounds:
(i) Annual business performance:
In an enterprise, business performance is an essential factor to consider when implementing a bonus regime since the funds used for payment are a critical issue in both salary and bonus schemes. Enterprises experiencing losses or lacking assets face significant challenges, if not impossibility, in providing bonuses to employees.
Depending on the type of bonus, the business performance used to determine the bonus may be assessed weekly, monthly, quarterly, or annually. For example, the 13th-month bonus is often based on the business results of the entire year, while sales bonuses might rely on quarterly business outcomes.
Pursuant to regulations on workplace democracy, employers are obligated to disclose information about business plans and their implementation status, including those at the enterprise, department, workshop, and production team levels. This transparency enables employees collectively to understand whether the employer is capable of paying bonuses.
In the case between Mr. Bùi Quang and Company K, according to Judgment 936/2017/LĐ-PT dated September 29, 2017, by the People’s Court of Ho Chi Minh City, the trial panel did not directly assess the annual business performance of the employer but indirectly considered their capacity to pay bonuses. This was demonstrated in its observation that “since the company stopped paying salaries and bonuses to Mr. Quang, the foreign deputy general director has continued to receive bonuses as usual.” The author agrees with the reasoning and resolution adopted by the trial panel.
Although the law mandates the disclosure of business information, many employers fulfill this obligation superficially. Numerous enterprises find ways to circumvent the law or intentionally provide false information, committing financial reporting fraud. This leads to situations where certain businesses consistently report losses yet continuously expand operations, offer generous bonuses, and provide high commissions.
(ii) Level of work completion by the employee:
The level of work completion reflects the results achieved by the employee over a period compared to the agreements or regulations of the employer. This evaluation period could be short (e.g., a week, a month, a quarter) or long (e.g., a year), depending on the intended use of these results.
To determine the level of work completion by an employee, employers must possess data and information regarding the achieved results (output data), as well as data and information about the quantity and quality of work required of the employee (input data). Input data typically includes tasks the employee must perform, the progress for each specific task, and criteria for assessing work completion, such as whether or not company rules were violated and the level of diligence demonstrated. Employers may incorporate this information into labor contracts or internal documents, such as salary policies and bonus policies.
Bonus provisions, regardless of their form—be it in bonus policies, financial regulations, agreements within labor contracts, or other agreements—become obligations once issued or agreed upon by the enterprise and must be strictly observed.
In another dispute between Mr. Thanh and Tân Thịnh An Co., Ltd. [Judgment No. 09/2010/LĐ-ST dated September 8, 2010, issued by the People’s Court of District 3, Ho Chi Minh City], the trial panel asserted, based on the commitment document signed on November 6, 2008, that Mr. Thanh was ineligible for bonuses due to violations of company rules, specifically taking five days off without a valid reason and being late to work one day.
Similarly, in Judgment No. 34/2011/LĐ-ST dated June 17, 2011, issued by the People’s Court of Tân Bình District, the trial panel noted that this salary amount (the 13th-month bonus) related to the annual work evaluation according to company policy, and the employee was therefore not entitled to receive the bonus.
In the case between Mr. Bùi Quang and Company K, the trial panel remarked: “During the appellate hearing, the defendant’s representative confirmed that since the company began operations, the Member Council has conducted meetings or recorded minutes evaluating the work completion of the general director and deputy general director.
However, the general director and deputy general director have continued to receive full monthly, quarterly, and New Year bonuses annually. Thus, the Member Council, being aware of these bonus payments, has tacitly recognized that the general director and deputy general director have successfully completed their work.” The author agrees with the trial panel’s reasoning since evaluating work completion is an employer’s obligation—they possess full authority and resources to manage personnel within the enterprise.
If no evaluation is conducted and the employee has not committed any violations, it can be understood that the employer recognizes the employee’s successful completion of assigned tasks. Conversely, if the employer lacks any regulations concerning work completion levels, it suggests the employer has forfeited their right to manage and establish policies. Consequently, bonus payments depend on annual business results and the agreement between the parties in labor contracts and collective labor agreements regarding these payments.
In summary, if there is an agreement or decision concerning work completion levels, the employer must evaluate the employee’s performance to provide a basis for bonus payments. In cases where the employer does not organize evaluations, it is assumed the employee has fulfilled their duties.
In the dispute between Mrs. Quyên and Company M, Company M established and issued a salary raise policy in the form of a business communication document, including regular assessments of salary increases for 2020 and 2021. The salary increase rates for employees were categorized into types A, B, C+, C, C-, D, and E, with rates ranging from 3% to 7.5%, depending on the company’s evaluation and classification of the employees.
According to Company M’s policy, titled “Personnel Evaluation Method for Operational Staff Applicable Since 2014,” and the company’s policies issued in 2020 and 2021, employees rated as type E were eligible for a 3% salary raise. The trial panel stated: “Mrs. Quyên was rated as type E in 2020, based on the company’s salary raise policy, and in 2021, she received a 3% salary raise amounting to 221,000 VND. Therefore, the company’s decision to grant Mrs. Quyên a 3% salary raise aligns with legal regulations and company policy.”
- Bonus Levels
Enterprises and employees often have conflicting interests when it comes to bonus amounts. Employers tend to use bonuses as tools to achieve their personnel management goals while aiming to pay the lowest bonuses possible. On the other hand, employees view bonuses as rewards for effort and aspire to receive the highest possible amounts. Therefore, unclear bonus policies or agreements are likely to lead to conflicts of interest and disputes.
Similar to the conditions and grounds for bonus payments, the specific bonus amounts are not stipulated by the State. This approach reflects the lawmakers’ current stance of minimal intervention in labor relations between parties, aiming to allow labor relations to follow market economy principles. Hence, bonus levels are determined by the employer in internal policies or agreements with employees or employee groups.
Employers should adhere to the fundamental principle that “Employers should not act arbitrarily or in ways contrary to good faith in labor relations, which destroy trust between employers and employees” [Thomson Snell & Passmore, Is a discretionary bonus truly discretionary?, [https://www.ts-p.co.uk/insights/is-a-discretionary-bonus-truly-discretionary/], accessed February 10, 2025], as this may lead to the termination of labor contracts or violations of contractual terms.
Typically, bonuses within enterprises are divided into different levels. In many organizations, employees receive corresponding bonuses based on their work completion levels. In others, bonuses may also be tied to both work completion levels and actual working periods within a calendar year.
According to Article 104 of the 2019 Labor Code: “Bonus policies are determined by employers and publicly announced at the workplace after consulting with the employees’ representative organization at the establishment, where such an organization exists.”
The collective labor agreement of Company M specifies that “The company’s management evaluates employees’ performance to determine annual salary raises in January after consulting with the trade union executive committee (excluding salary adjustments mandated by government regulations).” Moreover, Company M’s collective labor agreement and bonus policy issued on January 22, 2021, with the consent of the grassroots trade union executive committee, stipulate that 2020 bonuses range from 0.9 months’ salary to 2.2 months’ salary.
For example, employees rated as type A for their 2020 work performance receive bonuses equivalent to 2.2 months’ salary, whereas those rated type E—corresponding to level 1—receive bonuses of 0.9 months’ salary. In practice, in 2020, Mrs. Quyên exhibited a non-cooperative attitude, disobeyed superior directives, and performed poorly. She fell under the category described as: “Repeatedly causing serious issues related to compliance, cooperation, responsibility, and accuracy in assigned work.”
Thus, under Company M’s bonus policy, Mrs. Quyên was classified as type E. The trial panel asserted that Company M’s bonus provisions are legally valid and that awarding Mrs. Quyên a bonus of 0.9 months’ salary, amounting to 6,958,800 VND, was lawful.
Generally, bonuses are paid after the completion of a production/business cycle. For instance, second-quarter 2018 business bonuses were paid at the start of the third quarter of 2018, as employer performance evaluations were only available then. However, there are instances where bonuses are paid in advance to employees. In such cases, employees are often required to commit to specific obligations with the employer.
If these commitments are violated, employees may have to return the bonuses received in advance. For example, in Judgment No. 03/2014/LĐ-ST dated March 3, 2014, issued by the People’s Court of District 2, Ho Chi Minh City, Mrs. Vũ Thị Minh Hiền and Long Vân Company signed labor contract annex No. 2, effective from October 1, 2011. According to this annex, Mrs. Hiền was entitled to a monthly bonus of 1,037,695 VND, credited to her account during monthly salary payments.
To receive this bonus, the employee committed to working for the company for 12 months starting October 1, 2011. If Mrs. Hiền voluntarily resigned before completing 12 months, she was required to return the full bonus amount received since October 1, 2011. Based on this agreement, the court ruled that Mrs. Hiền must repay Long Vân Company the bonus amounts received from October 2011 to February 2012.
III. Conclusion
Bonuses are a legal framework established by the State to empower parties in labor relations to negotiate and collectively bargain or to grant employers autonomy. Bonus policies must be publicly announced at the workplace after consulting with the collective labor representative organization at the establishment.
However, many employers do not issue bonus policies, resulting in disputes over bonus conditions and levels. To minimize such labor disputes, employers should draft clear, specific bonus regulations and inform employees openly and transparently.
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“The article’s content refers to the regulations that were applicable at the time of its creation and is intended solely for reference purposes. To obtain accurate information, it is advisable to seek the guidance of a consulting lawyer.”
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