DETERMINING THE SUBJECTS REGULATED BY THE LABOR CODE 2025
Topic 1:
DETERMINING THE SUBJECTS REGULATED BY THE LABOR CODE
MSc. Lê Ngọc Anh
SUMMARY OF THE CASE AND COURT RULING
[Judgment No. 415/2022/LĐ-PT dated July 26, 2022, of the People’s Court of Ho Chi Minh City regarding a dispute over unilateral termination of a labor contract]
Case Summary:
Mr. Lê Hoàng is a shareholder of IP I Joint Stock Company and VNC F Joint Stock Company. Through Mr. Lê Hoàng, on June 1, 2017, Mr. Nguyễn Phong entered into a probationary contract with IP I Joint Stock Company for a probationary period of two months, with a salary of 15,000,000 VND per month and the position of ship captain.
After the probationary period ended, Mr. Phong continued working for IP I Joint Stock Company without signing a labor contract (hereinafter referred to as “LC”) until October 2018. In November 2018, he transferred to VNC F Joint Stock Company. On February 24, 2020, VNC F Joint Stock Company issued Decision No. 012602/2020/QD-VNCF dated February 20, 2020, terminating Mr. Nguyễn Phong’s LC effective February 25, 2020, citing the dissolution of the company’s department as the reason.
Bank account statements show that VNC F Joint Stock Company paid Mr. Phong a monthly salary of 25,000,000 VND via bank transfer, with the consistent description “salary for the month of…,” along with additional amounts for expenses related to repairs, maintenance, and procurement of equipment for the care of the vessel, which was company property assigned to Mr. Phong for management and work.
VNC F Joint Stock Company paid social insurance, health insurance, and unemployment insurance contributions for Mr. Phong from December 2018 to February 2020, and reported his cessation of employment effective March 2020, with an insured salary of 5,000,000 VND per month. However, VNC F Joint Stock Company acknowledged transferring funds to Mr. Phong for periodic vessel maintenance or incidental repairs but claimed these were made at Mr. Lê Hoàng’s request. The company argued that it only acted as a nominal party to the labor contract with Mr. Phong and did not actually employ him, asserting that his salary was deducted from the profit share of Mr. Lê Hoàng’s capital contribution.
Mr. Phong contended that VNC F Joint Stock Company unlawfully terminated his labor contract, adversely affecting his rights and interests. He filed a lawsuit requesting the court to annul the company’s termination decision, compel the company to compensate him for damages and emotional distress pursuant to Article 42 of the 2012 Labor Code, and address liability for non-contractual damages under Paragraph 1, Article 584 of the 2015 Civil Code.
Court Ruling:
In the first-instance labor judgment, Judgment No. 02/2022/LĐ-ST dated January 10, 2022, issued by the People’s Court of District 1, Ho Chi Minh City, the court ruled: “The entirety of the plaintiff Mr. Nguyễn Phong’s claims is not accepted.”
In the appellate labor judgment, Judgment No. 415/2022/LĐ-PT dated July 26, 2022, issued by the People’s Court of Ho Chi Minh City, the court ruled: “Partially accept the appeal of the plaintiff Mr. Nguyễn Phong. Amend part of the first-instance judgment.”
The accepted portion of Mr. Nguyễn Phong’s claims includes: annulment of Decision No. 012602/2020/QD-VNCF dated February 20, 2020, issued by VNC F Joint Stock Company; and an order requiring VNC F Joint Stock Company to compensate Mr. Nguyễn Phong for the following: wages for the days he was unable to work from February 25, 2020, to the date of contract termination (8 months and 8 days); two months’ salary for unlawful unilateral termination of the labor contract; and an amount equivalent to the wages for the days the company failed to provide prior notice.
COMMENTARY
I. Introduction
In the process of resolving a case in general, ensuring compliance with legal provisions regarding procedure, process, and applicable legal grounds requires, first and foremost, identifying the nature of the dispute: whether it is a civil, administrative, commercial, or labor dispute. This determination is critical because only by accurately classifying the dispute—or, in other words, the relationship between the parties involved—can we ascertain the appropriate law to apply in addressing the substance of the dispute, as well as the corresponding procedures and processes mandated by law that the parties must follow.
This issue is particularly significant in resolving labor disputes, as in practice, such disputes are increasingly complex. Some cases involve an interplay of labor and civil elements, while others are difficult to categorize, requiring the parties to prove whether the relationship bears the characteristics of a labor relationship (hereinafter referred to as “LR”).
The case outlined in Judgment No. 415/2022/LĐ-PT dated July 26, 2022, of the People’s Court of Ho Chi Minh City (hereinafter referred to as “Judgment 415/LĐ-PT”) highlights a key legal issue for analysis: determining whether an LR existed between VNC F Joint Stock Company and Mr. Nguyễn Phong. This determination is foundational to addressing the subsequent claims of the plaintiff. As noted above, identifying the nature of the dispute (civil or labor) directly impacts the applicable legal framework, including the statute of limitations for filing a lawsuit, the resolution of the dispute’s substance, and the specific demands of the parties.
II. Legal Issues
- Distinct Characteristics of a Labor Relationship – Basis for Distinguishing It from Other Relationships
To determine the nature of the relationship between VNC F Joint Stock Company and Mr. Nguyễn Phong, it is essential to understand the fundamental characteristics of an LR as defined by law. Based on the provisions of Labor Code, legal scholars have identified that an individual LR, governed by the Labor Code, exhibits distinct features that differentiate it from LRs regulated by other legal fields. These characteristics are as follows:
First, an individual LR is established based on a labor contract (LC), with the parties entering into it voluntarily and on equal footing. However, once the LC is concluded, the employee (hereinafter referred to as “worker”) becomes subordinate to the employer. During the course of working for the employer, the worker is subject to the employer’s management, direction, oversight, and supervision (e.g., the employer establishes wage scales, determines bonuses, and imposes disciplinary measures on the worker).
This characteristic reflects the worker’s dependency on the employer and the authority wielded by the latter. Regardless of the employer, the worker must operate under the employer’s management, direction, inspection, and supervision of their professional activities [University of Law, Ho Chi Minh City (2022), Textbook on Labor Code, edited by Trần Hoàng Hải, 1st revised and supplemented edition, Hồng Đức Publishing House, p. 22].
Second, in an individual LR, the worker must personally exercise their labor rights and obligations. Article 28 of the 2019 Labor Code stipulates: “The work under a labor contract must be performed by the worker who entered into the contract.”
According to this provision, once the parties conclude an LC, they themselves must fulfill its terms. This is explained by the continuous and often long-term nature of the labor process. The performance of work is tied not only to wages and income but also to the worker’s health, personality, individual qualities, and skills. Therefore, irrespective of the employer, the worker must personally carry out their labor rights and obligations. Without the employer’s consent, the worker may not transfer these rights and obligations to another person [Id., pp. 114-115].
Third, during the establishment, modification, or termination of an individual LR, the participation of a representative organization of workers at the grassroots level is often involved. This stems from the inherent nature of an individual LR, where the worker is typically in a weaker position compared to the employer. Consequently, the law provides that grassroots worker representative organizations may participate in labor matters to represent and protect the legitimate rights and interests of workers [Id., p. 22].
- Determining the Relationship and Legal Status of the Parties in the Labor Relationship as Presented in the Case
Based on the distinctive characteristics of an individual labor relationship (LR) between a worker and an employer outlined above, it is evident that the subjects of this relationship consist of two parties: the worker (hereinafter referred to as “employee”) and the employer.
Regarding the Employee:
To qualify as a subject of an individual Labor Code relationship, an employee must possess both Labor Code capacity and labor behavioral capacity.
– Labor Code Capacity refers to the ability, as prescribed by law, for an individual to participate in a legal relationship, thereby becoming entitled to rights and bearing legal obligations. Accordingly, the Labor Code capacity of an individual is the ability granted by law to an employee to have the right to work, receive wages, enjoy safe and hygienic working conditions, and fulfill their obligations under the labor contract (LC) they have entered into. This is an objective capacity, external in nature, and independent of the subjective will of either the employee or the employer. It is manifested through the system of legal provisions in place.
– Labor Behavioral Capacity refers to an individual’s ability to directly engage in a specific legal relationship through their own actions to exercise rights and fulfill legal obligations. In other words, labor behavioral capacity is the ability of an employee to participate directly in a Labor Code relationship through their own conduct, thereby enjoying rights and bearing obligations during the labor process.
Labor behavioral capacity is determined by factors that serve as prerequisites, namely physical capacity and mental capacity. Physical capacity means the employee must have the health necessary to perform the work agreed upon in the LC, while mental capacity refers to the ability to comprehend the labor activities they undertake. Consequently, to possess labor behavioral capacity, an individual must reach a certain age.
In Vietnam, based on the psychological and physiological characteristics of Vietnamese people and the country’s socio-economic conditions, the State stipulates that citizens acquire labor behavioral capacity at the age of 15 [Paragraph 1, Article 3 of the 2019 Labor Code provides: “The minimum working age of an employee is 15 years old, except as provided in Section 1, Chapter XI of this Law”].
This aligns fully with the provisions of ILO Convention No. 138, which states that “the minimum age for admission to employment shall not be less than the age of completion of compulsory schooling and, in any case, shall not be less than 15 years. For countries with underdeveloped economies and educational systems, an age of 14 may be specified.” Many countries worldwide, including developed nations such as Germany, Italy, the Netherlands, Sweden, and Japan, also set the minimum working age at 15 [National University of Hanoi (1999), Textbook on Vietnamese Labor Code, National University Publishing House, p. 78].
Regarding labor behavioral capacity, Labor Code scholarship also recognizes the concept of partial labor behavioral capacity (or incomplete labor behavioral capacity). This applies to cases where an employee has not yet reached the age specified in Paragraph 1, Article 3 of the 2019 Labor Code but is still permitted to perform certain types of work allowed by law (provided that the employee’s parents or legal guardian consent).
Such cases include employees working in fields such as culture and arts, gifted sports, traditional occupations, and handicrafts [See Circular No. 09/2020/TT-BLĐTBXH dated November 12, 2020, detailing and guiding the implementation of certain provisions of the Labor Code regarding minor workers]. Additionally, there are individuals with limited Labor Code capacity, such as those imprisoned or prohibited by competent authorities from undertaking specific jobs.
Regarding the Employer:
According to Paragraph 2, Article 3 of the 2019 Labor Code, “An employer is an enterprise, agency, organization, cooperative, household, or individual that hires or employs workers to work for them under an agreement; in the case of an individual employer, they must have full civil behavioral capacity.”
Thus, similar to the employee, an employer must also possess both Labor Code capacity and labor behavioral capacity to qualify as a subject of an individual Labor Code relationship.
– Labor Code Capacity of the Employer refers to the ability, as prescribed by law, for the employer to have the right to recruit and utilize labor.
– Labor Behavioral Capacity of the Employer refers to the ability of the employer to recruit and utilize labor through their own actions.
An employer may be either an individual or an organization. In the context of this case, we are addressing an organization. Unlike individual employers, the Labor Code capacity of organizational employers is not determined by age. The legal status and capacity of such employers are based on their establishment being permitted, created, or recognized by the State.
General legal provisions (such as the Constitution, statutes, and other legal documents) provide the initial basis, while specific administrative decisions or implicit recognition serve as the direct basis for establishing the legal status of the employing entity. This legal foundation is critical for employers to engage in activities related to the recruitment and utilization of labor [University of Law, Hanoi (2019), Textbook on Vietnamese Labor Code, cited above, p. 95].
Another distinguishing feature of organizational employers (e.g., enterprises, agencies, or organizations) compared to individual employers is that their labor behavioral capacity is exercised through a legally authorized representative or a person delegated under the law. These subjects are specifically regulated under Paragraph 3, Article 18; Point i, Paragraph 2, Article 118 of the 2019 Labor Code, with detailed guidance provided in Article 69 of Decree No. 145/2020/NĐ-CP.
In, short, whether it is the employee or the employer, both parties in an individual Labor Code relationship must possess two types of capacity: Labor Code capacity and labor behavioral capacity. Of these, labor behavioral capacity is the decisive factor. At the most general level, the capacity of the parties can be categorized into three degrees: full capacity, limited capacity, and no capacity. These degrees may be determined by the subject themselves, by the law, or by a combination of both. For individuals, capacity is tied to their age. For organizations or enterprises, capacity depends on the capacity of their legally authorized representative [Id., pp. 96-97].
The legal status of a party entering into a contract is not determined solely by age. It also depends on whether that party qualifies as someone who “hires, employs, and compensates labor,” as stipulated in Article 6 of the 1994 Labor Code. However, in subsequent iterations—the 2012 Labor Code and the 2019 Labor Code—lawmakers removed the phrases “compensates labor” and “under a labor contract” and replaced them with “under an agreement.”
– Article 6 of the 1994 Labor Code states: “An employer is an enterprise, agency, organization, or individual—at least 18 years old if an individual—that hires, employs, and compensates labor.”
– Paragraph 2, Article 3 of the 2012 Labor Code provides: “An employer is an enterprise, agency, organization, cooperative, household, or individual that hires and employs labor under a labor contract; if an individual, they must have full civil behavioral capacity.”
– Paragraph 2, Article 3 of the 2019 Labor Code provides: “An employer is an enterprise, agency, organization, cooperative, household, or individual that hires and employs workers to work for them under an agreement; if an individual, they must have full civil behavioral capacity.”
In other words, a key distinction in the 2019 Labor Code is that it defines the concepts of employee and employer without tying their establishment to “under a labor contract,” as was the case in the 2012 Labor Code, and instead uses the broader phrase “under an agreement.”
– Paragraphs 1 and 2, Article 3 of the 2012 Labor Code state:
- “An employee is a person at least 15 years old, capable of working, who works under a labor contract, receives wages, and is subject to the management and direction of an employer.”
- “An employer is an enterprise, agency, organization, cooperative, household, or individual that hires and employs labor under a labor contract; if an individual, they must have full civil behavioral capacity.”
– Paragraphs 1 and 2, Article 3 of the 2019 Labor Code state:
- “An employee is a person who works for an employer under an agreement, receives wages, and is subject to the management, direction, and supervision of the employer. The minimum working age is 15, except as provided in Section 1, Chapter XI of this Law.”
- “An employer is an enterprise, agency, organization, cooperative, household, or individual that hires and employs workers to work for them under an agreement; if an individual, they must have full civil behavioral capacity.”
This shift in wording primarily aligns with the revised and expanded definition of a “labor contract” (LC) in the 2019 Labor Code. Specifically, Paragraph 1, Article 13 of the 2019 Labor Code builds on the definition of an LC from Article 15 of the 2012 Labor Code while adding a provision that agreements under a different name, but which demonstrate terms involving paid work, wages, and the management, direction, and supervision by one party, are still considered LCs [Paragraph 1, Article 13 of the 2019 Labor Code].
This addition is regarded as an effort to enhance the identification of LCs and LRs, addressing situations where parties evade legal obligations—such as participating in social insurance (SI)—by using alternative contract names to avoid the responsibilities and duties of an employer in an LR [Phạm Thị Thanh Việt, “Many New Points in the Labor Code Regarding Labor Contracts,” Government Electronic Newspaper of the Socialist Republic of Vietnam, https://baochinhphu.vn/nhieu-diem-moi-trong-bo-luat-lao-dong-ve-hop-dong-lao-dong-102267368.htm, accessed July 3, 2023].
Accordingly, this provision emphasizes the essential characteristic of an LC, which serves as the basis for identifying and distinguishing it from other contracts with similar terms. That characteristic is the management, direction, and supervision of the employer over the employee within their relationship.
From the above analysis and comparison, it is clear that under the 2019 Labor Code, the critical factor for identifying and distinguishing an individual LR from other relationships is the legal dependency of the employee on the employer, whereby the employer has the authority to manage, direct, and supervise the employee. This characteristic, combined with evidence of wage or compensation payment, serves as a key indicator for determining the legal status of the parties in an LR, particularly the party acting as the employer. These criteria are explicitly and clearly stipulated in the 2019 Labor Code.
Judgment 415/LĐ-PT demonstrates that the People’s Court of Ho Chi Minh City relied on the aforementioned characteristics of the parties to determine whether the relationship between Mr. Nguyễn Phong and VNC F Joint Stock Company constituted a labor relationship (LR) governed by the Labor Code. The appellate court concluded that the relationship between Mr. Nguyễn Phong and VNC F Joint Stock Company was indeed an LR, based on the following reasons:
First, based on the case file, evidence, and a comparison with the statements and confirmations of the parties, it was established that: On June 1, 2017, Mr. Nguyễn Phong signed a probationary contract with IP I Joint Stock Company for a two-month probationary period, with a salary of 15,000,000 VND per month and the position of ship captain. After the probationary period ended, Mr. Phong continued working for IP I Joint Stock Company until November 2018, when he transferred to VNC F Joint Stock Company, where he worked until the termination decision was issued on February 24, 2020.
Bank account statements showed that VNC F Joint Stock Company paid Mr. Phong a monthly salary of 25,000,000 VND via bank transfer, consistently labeled as “salary for the month of…,” along with additional amounts for expenses related to repairs, maintenance, and equipment procurement for the care of the vessel—a company asset assigned to Mr. Phong for management and work. A representative of VNC F Joint Stock Company acknowledged transferring these funds for Mr. Phong to perform periodic vessel maintenance or address incidental issues, but claimed this was done at the request of Mr. Lê Hoàng.
Second, according to Official Letter No. 2064/BHXH dated September 11, 2020, from the District 1 Social Insurance Agency, VNC F Joint Stock Company had paid social insurance, health insurance, unemployment insurance, and occupational accident and disease insurance contributions for Mr. Phong from December 2018 to February 2020, and reported his cessation of employment effective March 2020, with an insured salary of 5,000,000 VND per month.
Third, Decision No. 012602/2020/QD-VNCF dated February 20, 2020, issued by VNC F Joint Stock Company, terminating the labor contract (LC) with Mr. Nguyễn Phong effective February 25, 2020, cited the LC signed with him and provided the reason for termination as the dissolution of a company department.
Fourth, VNC F Joint Stock Company argued that it acted only nominally in the LC with Mr. Phong and did not actually employ him, asserting that his salary was deducted from the profit share of Mr. Lê Hoàng’s capital contribution. However, the company provided no evidence to substantiate this claim.
Thus, there was sufficient basis to determine that the plaintiff, Mr. Nguyễn Phong, had actually worked continuously for 16 months (from November 2018 to February 20, 2020) in a yacht department directly under VNC F Joint Stock Company, earning a monthly salary of 25,000,000 VND paid by the company.
Based on this reasoning, the court relied on Paragraph 6, Article 3 of the 2012 Labor Code, which defines an LR, to conclude that the employer in the LR with Mr. Phong was VNC F Joint Stock Company, not Mr. Lê Hoàng. The court affirmed that an LR existed between VNC F Joint Stock Company and Mr. Nguyễn Phong. Consequently, Mr. Nguyễn Phong’s claim against VNC F Joint Stock Company for compensation due to unilateral termination of the LC was deemed to have a legal basis for consideration
[See further the Assessment of the Trial Panel in Judgment No. 415/LĐ-PT dated July 26, 2022, of the People’s Court of Ho Chi Minh City regarding the dispute over unilateral termination of a labor contract. Since this case occurred in 2020, a time when the 2012 Labor Code was in effect, the court’s decision was based on the provisions of the 2012 Labor Code].
In light of the analyses presented above, the author agrees with the trial panel’s perspective in this case regarding the grounds and evidence used to establish the existence of a labor relationship (LR), including the labor contract (LC), payment of wages or compensation, and contributions to social insurance (SI) and health insurance for the employee.
However, if a similar case were to be resolved under the 2019 Labor Code at the present time, the author believes it would be necessary to further evaluate the element of management, supervision, and direction exercised by the employer over the employee. This is a core factor in distinguishing and determining whether the relationship between the parties is an LR or a civil relationship, as the presence of an LC or wage payment is not always clearly evident.
In practice, a somewhat similar case has occurred, and the resolution by both the first-instance and appellate courts differed from this case. In that instance, the courts considered evidence of actual management, supervision, and direction, which demonstrated that the LC was fictitious, created solely to formalize SI benefits for the employee. Additionally, there was no actual wage payment to the employee. Consequently, the courts determined that no genuine LR existed between the parties, and the LC was deemed invalid [See further the case in Judgment No. 595/2022/LĐ-PT dated September 23, 2022, of the People’s Court of Ho Chi Minh City regarding a dispute over unilateral termination of an LC].
III. Conclusion
The case in question occurred in 2020 and was therefore resolved under the 2012 Labor Code. However, if a similar case were to arise after the 2019 Labor Code took effect (from January 1, 2021), as analyzed and compared above, the relationship between Mr. Nguyễn Phong and VNC F Joint Stock Company would still be classified as an LR. The provisions in Article 3 of the 2019 Labor Code indicate that, in essence, the definition of an employer has not changed compared to Article 3 of the 2012 Labor Code.
This means that to determine whether an LR falls within the scope of the Labor Code, the following factors must be considered: whether an LC was concluded between the parties; whether one party is responsible for hiring, employing, and compensating the other; and, crucially, whether there is a legal dependency between the employee and the employer, whereby the employer has the authority to manage, direct, and supervise the employee. These are the key indicators explicitly and clearly stipulated in the 2019 Labor Code, serving as the basis for courts to apply in resolving similar cases in the future.
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