COMPENSATION FOR DAMAGES IN CASES OF UNILATERAL TERMINATION OF EMPLOYMENT CONTRACTS IN VIOLATION OF THE LAW 2025
Topic 19:
COMPENSATION FOR DAMAGES IN CASES OF UNILATERAL TERMINATION OF EMPLOYMENT CONTRACTS IN VIOLATION OF THE LAW
Senior Lecturer, Dr. Nguyễn Thị Bích
SUMMARY OF THE CASE AND THE COURT’S DECISION
[Decision No. 04/2023/LĐ-ST dated 24 April 2023 of the People’s Court of Dĩ An City, Bình Dương Province on the dispute regarding unilateral termination of an employment contract.]
Case summary:
On 2 January 2021, Mr. Nguyễn Minh and P Transport LLC (hereinafter referred to as “Company P”) entered into Employment Contract No. 003/2021, with a one-year term (from 2 January 2021 to 2 January 2022) and a monthly salary of VND 5,640,000.
On 18 July 2021, Mr. Nguyễn Minh received a message via the company’s Zalo Group, stating: “From 19 July 2021, all employees will stop working to prevent and control the Covid-19 pandemic until further notice.” On 15 September 2021, Company P issued Notice No. 01/2021, informing Mr. Nguyễn Minh of the termination of his employment contract due to prolonged pandemic conditions and Company P’s inability to address employment concerns, resulting in the need to downsize.
In October 2021, the pandemic had stabilized, and Company P resumed normal operations. However, Company P did not adopt measures to remedy employment issues but maintained its decision to terminate Mr. Nguyễn Minh’s contract.
Believing that his rights were violated by Company P’s unlawful termination of his employment contract, Mr. Nguyễn Minh filed a lawsuit demanding Company P fulfill its obligations to compensate for damages arising from the unilateral termination in violation of the law.
Court’s decision:
The court partially accepted Mr. Nguyễn Minh’s lawsuit regarding the dispute over unilateral termination, declaring Company P’s notice of contract termination unlawful and ordering compensation for damages to Mr. Nguyễn Minh.
COMMENTARY
I. Introduction
Disputes concerning unilateral termination of employment contracts and compensation for damages (CD) are prevalent and frequently arise in labor relations. When employment contracts are unilaterally terminated in violation of the law, the terminating party is obligated to compensate the affected party. These compensation items and amounts are detailed in the 2019 Labor Code. However, the determination of these compensation amounts is far from straightforward and poses significant challenges for authorities tasked with resolving disputes due to the varying interpretations of these issues.
Through Decision No. 04/2023/LĐ-ST dated 24 April 2023 of the People’s Court of Dĩ An City, Bình Dương Province on a dispute regarding unilateral termination of employment contracts, the author aims to express insights and perspectives on the legality of Notice No. 01/2021 dated 15 September 2021 from Company P concerning Mr. Minh, and how compensation for damages should be determined in cases of unilateral termination.
II. Legal Issues
- Assessing the Actions of P Transport LLC in Terminating Mr. NguyễnMinh’s Employment Contract
The obligation to compensate for damages (CD) in cases of unilateral termination only arises when the act of termination is deemed unlawful under Article 41 of the 2019 Labor Code. To determine whether Company P is obligated to compensate Mr. Nguyễn Minh, it is first necessary to evaluate whether Company P’s termination of the employment contract was lawful or not.
The law respects freedom of agreement and the voluntary participation of parties in legal relationships. Hence, both parties have the right to freely negotiate and enter into employment contracts, and when there is no longer a need to work or to employ, both employees and employers have the right to unilaterally terminate employment contracts, provided they comply with the legal grounds and procedures for termination.
Firstly, regarding the grounds for termination:
Company P justified Mr. Nguyễn Minh’s termination under Point (c), Clause 1, Article 36 of the 2019 Labor Code, which grants employers the right to unilaterally terminate employment contracts in cases of “natural disasters, fires, dangerous epidemics, enemy destruction, or relocation, downsizing of production and business at the request of competent state authorities, where the employer has exhausted all measures to remedy the situation but is still compelled to reduce jobs.”
Examining the factual details of this case, on 18 July 2021, Mr. Nguyễn Minh received a Zalo message from Company P, stating: “From 19 July 2021, all employees will stop working to prevent and control the Covid-19 pandemic until further notice.” During this time, Mr. Nguyễn Minh and other employees stayed at home in compliance with Company policies. On 15 September 2021, Mr. Nguyễn Minh received Notice No. 01/2021 terminating his employment contract. However, during the pandemic leave period, Mr. Nguyễn Minh was not informed of any measures undertaken by Company P to address the difficulties. Furthermore, Company P failed to provide evidence proving that all remedial measures had been exhausted, necessitating layoffs.
Company P terminated Mr. Nguyễn Minh’s employment contract on 15 September 2021, while he was still on leave at Company P’s request. According to Clause 2, Article 37 of the 2019 Labor Code, employers are prohibited from unilaterally terminating employment contracts while employees are on annual leave, personal leave, or any other agreed leave. Consequently, in this case, Company P lacked the legal grounds to unilaterally terminate the employment contract. Thus, Notice No. 01/2021 issued by Company P is unlawful due to its lack of justification.
Secondly, regarding the procedures and process:
As the contract between Mr. Nguyễn Minh and Company P was a fixed-term employment contract, the company was required to provide Mr. Nguyễn Minh with at least 30 days’ notice. Point (b), Clause 2, Article 36 of the 2019 Labor Code stipulates this requirement. In this case, Mr. Nguyễn Minh received Notice No. 01/2021 on 15 September 2021, informing him of contract termination effective from 15 October 2021. Therefore, the advance notice period complies with the required duration and does not violate the law.
From the above analysis, since Company P’s termination of Mr. Nguyễn Minh’s employment contract was unlawful, the company is obligated to fulfill its responsibilities in accordance with Article 41 of the 2019 Labor Code.
- Employer’s Obligation to Compensate for Damages in Cases of Unilateral Termination of Employment Contracts in Violation of the Law
When an employer unlawfully terminates an employment contract, the employer must compensate the employee to address material and emotional damages caused by such unlawful actions. Consequently, under Article 41 of the 2019 Labor Code, employers are required to fulfill the following obligations towards employees:
Firstly, reinstate the employee under the terms of the signed employment contract.
As the fault lies with the employer in such cases, the law grants the employee the right to decide whether to continue the employment relationship. If the employee does not wish to resume employment or agrees to terminate the contract, the employment relationship ends, and the employer must pay severance allowances and/or additional compensation as agreed upon, but not less than the equivalent of two months’ salary under the contract. If the employee wishes to continue working, the employer is obligated to reinstate the employee.
In Mr. Nguyễn Minh’s case, as he did not wish to return to work at Company P, he only requested that Notice No. 01/2021 dated 15 September 2021 issued by Company P be declared unlawful. Thus, Company P is not required to reinstate him. Referring to other practical cases, if the employment contract between the employee and employer is a fixed-term contract that has already expired before the first-instance trial, and the parties have not agreed to renew the contract, the employer is not obligated to reinstate the employee.
Secondly, pay wages, and contribute to social insurance, health insurance, and unemployment insurance for the period during which the employee was not allowed to work, plus an amount equivalent to at least two months’ salary under the contract.
The 2019 Labor Code introduces a notable improvement over the 2012 Labor Code in this regard. Previously, the 2012 Labor Code required employers to “pay wages, social insurance, and health insurance for the days the employee was not allowed to work,” which led to varying interpretations during adjudication. Some courts ruled that employers were responsible for paying monetary compensation in lieu of social and health insurance contributions, while others maintained that employers must fulfill these obligations through actual contributions to the appropriate funds.
The 2019 Labor Code clarifies this ambiguity by explicitly stating: “Employers must pay wages and contribute to social insurance, health insurance, and unemployment insurance for the days the employee was not allowed to work.” Hence, since 1 January 2021, when an employer unlawfully terminates an employment contract, they are prohibited from substituting monetary payments in place of actual contributions to social insurance, health insurance, and unemployment insurance.
In the case above, Mr. Nguyễn Minh requested Company P to compensate for the following items:
(i) Wages for the days not worked from 15 October 2021 to 2 January 2022 (the expiration date of the employment contract), amounting to 2 months and 16 days, calculated at the monthly salary of VND 5,640,000, totaling VND 14,751,000. The court determined that the 2 months and 16 days constituted the period during which the employee was not allowed to work, in accordance with Clause 1, Article 41 of the 2019 Labor Code. Hence, the court accepted this request.
(ii) Social insurance, health insurance, and unemployment insurance contributions for the days not worked, and conversion into cash: As stipulated in Clause 1, Article 41 of the 2019 Labor Code (analyzed previously) and Article 21 of the Law on Social Insurance, the employer is obligated to contribute to social insurance for employees. Therefore, Company P is required to pay contributions for social insurance, health insurance, and unemployment insurance, and Mr. Nguyễn Minh must also fulfill his contribution obligations with the company. However, the court rejected the request to convert these obligations into monetary compensation as there is no legal basis for this conversion.
(iii) Compensation equivalent to two months’ salary for unlawful unilateral termination: VND 5,640,000 x 2 months = VND 11,280,000. This aligns with Clause 1, Article 41 of the 2019 Labor Code.
Thirdly, entitlement to severance allowance (SA) as prescribed by Article 41 of the 2019 Labor Code.
Eligibility conditions for employees to receive SA include: working continuously for the employer for at least 12 months when the employment contract is terminated under Clauses 1, 2, 3, 4, 6, 7, 9, and 10 of Article 34 of the 2019 Labor Code; not meeting retirement eligibility; and not voluntarily leaving the job without valid reasons for 5 consecutive working days or more. The calculation of SA is detailed in Article 8 of Decree No. 145/2020/NĐ-CP, where the eligible working period is the total actual working time minus periods during which unemployment insurance contributions were made and periods where the employer already paid job-loss allowances.
In the labor relationship above, on 2 January 2021, Company P and Mr. Nguyễn Minh entered into a fixed-term employment contract of one year from 2 January 2021 to 2 January 2022. Company P contributed to social insurance, health insurance, and unemployment insurance for the employee. Therefore, the time used to calculate SA is: (actual working time minus the time with unemployment insurance contributions) equals 0. As a result, Mr. Nguyễn Minh is not entitled to receive SA from Company P.
Fourthly, receiving unpaid leave allowances under Covid-19 prevention and control policies.
Pursuant to Resolution 68/NQ-CP and Decision 23/2021/QĐ-TTg, employees working at enterprises that temporarily suspended operations at the request of competent state authorities for Covid-19 prevention and control, with employment contracts temporarily suspended or unpaid leave lasting 15 consecutive days or more from 1 May 2021 to 31 December 2021, and who participated in mandatory social insurance, are entitled to an allowance of VND 3,710,000.
In this case, Company P placed Mr. Nguyễn Minh on unpaid leave but failed to fulfill its obligation to compile a list of eligible employees and submit it to the District People’s Committee for disbursement. Therefore, the court ruled that Company P must pay VND 3,710,000 to Mr. Nguyễn Minh, consistent with Resolution 68/NQ-CP.
Key considerations in resolving these compensation items:
– Regarding the wages used to calculate compensation amounts:
By law, the wages used for calculating compensation are those stipulated in the employment contract. In practice, however, the wages stated in the employment contract often differ from the actual wages received by employees. Courts must determine which wage level to use when calculating employee entitlements, in accordance with Article 90 of the 2019 Labor Code and Circular No. 10/2020/TT-BLĐTBXH.
– Regarding the period defined as “the days the employee was not allowed to work”:
Currently, no legal guidelines explicitly define “the days the employee was not allowed to work.” Based on court adjudication practices, this period may depend on the type of employment contract. Some opinions suggest that the period begins from the time the employment contract is unlawfully terminated until the contract’s expiration (for fixed-term contracts) or the date when a court ruling becomes legally effective (for indefinite contracts), regardless of whether the employee found new work.
Conversely, other opinions argue that the period should reflect the employee’s actual employment status. Under this view, the days the employee was not allowed to work are calculated from the date of unlawful termination until the contract’s expiration (for fixed-term contracts) or until the employee finds new employment and starts contributing to social insurance.
Regarding this issue, Guideline No. 33/HD-VKSNDTC dated 8 November 2022 of the Supreme People’s Procuracy clarifies: “If the employee secured new employment and began contributing to social insurance before filing the lawsuit or before the first-instance trial, the ‘days the employee was not allowed to work’ as defined in Clause 1, Article 41 of the 2019 Labor Code should be calculated up to the date the employee started the new job.”
In the labor relationship above, the employment contract signed between Company P and Mr. Nguyễn Minh was a fixed-term contract. As such, the court’s calculation of the days not worked up until the expiration date of the contract is appropriate.
– Regarding compensation for wages corresponding to the days when advance notice was not provided:
As analyzed earlier, Company P issued advance notice of the employment termination to Mr. Nguyễn Minh 30 days prior, in compliance with legal requirements. Therefore, the company did not violate the advance notice period. Consequently, Company P is not obligated to compensate for wages corresponding to the 15 days allegedly in violation of the advance notice period (amounting to VND 3,253,846). The court’s decision to reject this compensation claim is consistent with the law.
III. Conclusion
From the above case, it can be observed that the law explicitly outlines the legal consequences of unlawfully terminating employment contracts. Hence, both employers and employees must thoroughly understand and adhere to legal provisions when unilaterally terminating employment contracts to mitigate legal risks. For courts handling labor disputes, it is crucial to clearly understand the legal regulations, apply them flexibly over different periods, and balance the needs and rights of the parties involved to arrive at appropriate resolutions, especially in cases where legal provisions are ambiguous or subject to differing interpretations.
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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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