EMPLOYER UNILATERALLY TERMINATES LABOR CONTRACT IN VIOLATION OF NOTICE PERIOD 2025
Topic 15:
EMPLOYER UNILATERALLY TERMINATES LABOR CONTRACT IN VIOLATION OF NOTICE PERIOD
Senior Lecturer, Dr. Nguyễn Thị Bích
SUMMARY OF THE CASE AND COURT DECISION
[Judgment No. 531/2022/LĐ-PT dated August 30, 2022, of the People’s Court of Ho Chi Minh City regarding a dispute over unilateral termination of a labor contract.]
Summary of the Case:
On July 1, 2021, Ms. Dương Lệ entered into an indefinite-term labor contract with P S Co., Ltd. (hereinafter referred to as Company P). From July 14, 2021, to September 14, 2021, the Director issued a notice for employees to register for the “3-on-site” work arrangement due to the pandemic situation, but Ms. Dương Lệ did not register because her residence was located in a locked-down area. On October 5, 2021, when Ms. Dương Lệ reported to the company, she received a notice of termination of her labor contract.
Believing that Company P had terminated her labor contract unlawfully, Ms. Dương Lệ demanded that the company pay her severance allowance equivalent to four months of basic salary, totaling 18,920,000 VND, and compensation for 45 days of omitted notice, calculated based on her actual earnings (including basic salary and living allowance), amounting to 12,000,000 VND. Company P acknowledged that it had unilaterally terminated the labor contract with Ms. Dương Lệ effective October 1, 2021, in violation of the law. However, Company P only paid compensation for the 45 days of omitted notice based on her basic salary, amounting to 7,095,000 VND, which was transferred to Ms. Dương Lệ’s bank account.
Court Decision:
Both the trial court and the appellate court determined that Company P had unlawfully unilaterally terminated the labor contract with Ms. Dương Lệ and violated the required notice period. However, the appellate court found that the compensation for the violation of the notice period, calculated solely based on the basic salary, was inaccurate and should have been determined in accordance with Clause 1, Article 90 of the 2019 Labor Code during adjudication.
COMMENTARY
I. Introduction
In recent years, Vietnam’s labor law system has been progressively amended and supplemented to address emerging needs in labor practice. Labor legislation has increasingly demonstrated its role in regulating social labor relations, significantly contributing to the formation and stabilization of the labor market, enhancing human resources in both quantity and quality, and unlocking labor potential and productive forces.
However, it must be objectively acknowledged that violations of labor laws remain frequent. Among these, violations related to the unilateral termination of labor contracts by either employees or employers have given rise to conflicts and disagreements between the parties involved in labor relations. When unilaterally terminating a labor contract, both parties must ensure compliance with the legal conditions regarding grounds for termination and the required notice period.
In practice, however, there are numerous instances where employers have unlawfully terminated labor contracts by failing to adhere to the mandated notice period, adversely affecting and infringing upon the rights and interests of employees. Within the scope of this topic, the author will provide commentary to identify the employer’s breach of the obligation to provide prior notice when unilaterally terminating a labor contract and to examine the method for determining compensation for violations of the notice period.
II. Legal Issues
- Determination of the Termination of the Labor Contract by Company P with Ms. Dương Lệ
During 2020-2021, the Covid-19 pandemic outbreak in Vietnam significantly impacted many businesses, disrupting their production and operations and forcing them to reduce their workforce. However, in implementing such measures, numerous enterprises failed to adhere to the legal grounds and required procedures. Specifically, pursuant to Point c, Clause 1, Article 36 of the 2019 Labor Code, an employer may unilaterally terminate a labor contract due to a dangerous epidemic if the employer has exhausted all remedial measures but is still compelled to reduce jobs. When exercising this right, the employer must comply with the notice period requirements, which vary depending on the type of labor contract.
The facts of the case indicate that the labor relationship between Company P and Ms. Dương Lệ was established under an indefinite-term labor contract effective from July 1, 2021. From June 2021, the Covid-19 pandemic severely affected Company P’s production and business activities, leading to a decision to reduce staff. Company P included Ms. Dương Lệ in the list of employees to be laid off. On October 1, 2021, Company P issued a termination notice, which was delivered to Ms. Dương Lệ on October 4, 2021. In issuing the notice, Company P compensated Ms. Dương Lệ for 45 days of omitted notice, calculated based on her basic salary, amounting to 7,095,000 VND.
According to the case details, Company P failed to provide evidence demonstrating that it had exhausted all remedial measures yet was still forced to reduce jobs. Furthermore, pursuant to Point a, Clause 2, Article 36 of the 2019 Labor Code, when unilaterally terminating an indefinite-term labor contract with Ms. Dương Lệ, Company P was required to provide at least 45 days’ prior notice.
In reality, Company P did not fulfill this notice obligation, necessitating a determination that this was a case of an employer unilaterally terminating a labor contract in violation of the notice period. Additionally, Company P admitted that its unilateral termination of Labor Contract No. 80110.03/HĐLĐ-P dated April 1, 2021, with Ms. Dương Lệ, effective October 1, 2021, was unlawful, and it had paid Ms. Dương Lệ compensation for the omitted notice period.
Looking broadly at this case, it is evident that even though an employer may pay compensation for the days of omitted notice, this does not mean the termination was lawful. Payment of wages for the period of omitted notice is merely one of the obligations an employer must fulfill when unlawfully terminating a labor contract, as stipulated in Article 41 of the 2019 Labor Code. In practice, there are numerous instances where employers unilaterally terminate labor contracts for reasons permitted by law but fail to comply with the notice period, instead negotiating with employees to pay wages for the omitted notice days as a means of claiming lawful unilateral termination. This approach lacks legal basis.
Termination is only deemed lawful under Clause 3, Article 34 of the 2019 Labor Code if, at the time of termination, both parties mutually agree to end the labor contract. An agreement between the employer and employee to pay wages for the omitted notice period does not inherently determine whether the employer’s unilateral termination was lawful.
- Legal Consequences of Company P’s Unlawful Unilateral Termination of the Labor Contract with Ms. Dương Lệ Due to Violation of the Notice Period
Pursuant to Article 39 of the 2019 Labor Code, unilateral termination of a labor contract is deemed unlawful if it does not comply with the provisions of Article 36 of the Code. In such cases, the employer must fulfill the obligations outlined in Article 41 of the 2019 Labor Code, which states:
“Article 41. Obligations of the Employer When Unlawfully Unilaterally Terminating a Labor Contract
- The employer must reinstate the employee to work under the previously concluded labor contract; pay wages, and make contributions to social insurance, health insurance, and unemployment insurance for the days the employee was unable to work, and pay the employee an additional amount equivalent to at least two months’ salary under the labor contract.
After being reinstated, the employee must refund any severance or job-loss allowances received from the employer, if applicable.
If the position or job stipulated in the labor contract no longer exists and the employee still wishes to work, both parties shall negotiate to amend or supplement the labor contract.
In cases of violation of the notice period provisions under Clause 2, Article 36 of this Code, the employer must pay an amount equivalent to the salary under the labor contract for the days of omitted notice.
- If the employee does not wish to continue working, in addition to the amounts payable under Clause 1 of this Article, the employer must pay severance allowance as prescribed in Article 46 of this Code to terminate the labor contract.
- If the employer does not wish to reinstate the employee and the employee agrees, in addition to the amounts payable under Clause 1 of this Article and the severance allowance under Article 46 of this Code, the parties shall negotiate an additional compensation amount for the employee, which must be at least equivalent to two months’ salary under the labor contract, to terminate the labor contract.”
As analyzed above, Company P unlawfully unilaterally terminated the labor contract, including by violating the notice period requirement. Therefore, in addition to obligations such as compensating for wages during the days the employee could not work, contributing to health insurance and unemployment insurance, and paying an additional two months’ salary under the labor contract as stipulated above, Company P must also compensate Ms. Dương Lệ an amount equivalent to her salary for the days of omitted notice (45 days). In the facts of this case, Company P acknowledged this obligation and paid compensation for the 45 days, calculated based on her basic salary, amounting to 7,095,000 VND.
- Basis for Calculating Compensation When an Employer Unilaterally Terminates a Labor Contract in Violation of the Notice Period
The following legal provisions serve as the basis:
– Clause 1, Article 41 of the 2019 Labor Code states: “In cases of violation of the notice period provisions under Clause 2, Article 36 of this Code, the employer must pay an amount equivalent to the salary under the labor contract for the days of omitted notice.”
– Clause 1, Article 90 of the 2019 Labor Code provides: “Salary is the amount paid by the employer to the employee as agreed for performing work, including the salary for the job or position, salary allowances, and other additional payments.”
– Clause 5, Article 3 of Circular 10/2020/TT-BLĐTBXH stipulates:
“5. The salary for the job or position, form of payment, payment period, salary allowances, and other additional payments are regulated as follows:
a) Salary for the job or position: specifies the salary calculated based on time for the job or position according to the salary scale or table established by the employer under Article 93 of the Labor Code; for employees paid based on output or lump-sum wages, the salary calculated based on time is recorded to determine the unit price of output or lump-sum wage;
b) Salary allowances as agreed by both parties, including:
b1) Allowances to compensate for working conditions, job complexity, living conditions, or labor attraction factors not fully accounted for in the agreed salary under the labor contract;
b2) Allowances tied to the employee’s work process and performance results.
c) Other additional payments as agreed by both parties, including:
c1) Additional payments with a specific amount agreed upon alongside the salary under the labor contract and paid regularly with each salary payment;
c2) Additional payments without a specific amount agreed upon alongside the salary under the labor contract, paid regularly or irregularly with each salary payment, tied to the employee’s work process and performance results.
For other benefits and welfare such as bonuses under Article 104 of the Labor Code, initiative bonuses, meal allowances, support for fuel, phone, travel, housing, childcare, or child-rearing; assistance when an employee’s relative passes away, an employee’s family member marries, the employee’s birthday, support for employees facing difficulties due to occupational accidents or diseases, and other support or allowances, these shall be recorded separately in the labor contract.
d) The form of salary payment is determined by both parties under Article 96 of the Labor Code;
đ) The salary payment period is determined by both parties under Article 97 of the Labor Code.”
Company P’s calculation of compensation for the days of omitted notice based solely on the basic salary, amounting to 7,095,000 VND, is inadequate under the law, as the salary under the labor contract includes the basic salary, salary allowances, and other additional payments. Consequently, the appellate panel determined that the trial court’s ruling, which calculated Company P’s compensation for the violation of the notice period based solely on the basic salary, was inappropriate and should have adhered to Clause 1, Article 90 of the 2019 Labor Code regarding salary during adjudication.
Since this issue was not appealed by the plaintiff (Ms. Dương Lệ), the appellate panel agreed to record the ruling as “not accepting the plaintiff’s claim for compensation for the violation of the 45-day notice period.” However, this case highlights a lesson in determining compensation for notice period violations: the salary for the days of omitted notice must be the salary under the labor contract, encompassing the basic salary, salary allowances, and other additional payments.
Hypothetically, if Ms. Dương Lệ had appealed the compensation amount for the notice period violation, arguing it should include both her basic salary and living allowance (assuming this was an agreed salary allowance under the labor contract), the court might have accepted her claim, compelling Company P to pay 12,000,000 VND as compensation for the 45 days of omitted notice due to the unlawful unilateral termination of the labor contract.
III. Conclusion
The termination of a labor contract is a significant legal event, as it affects the employment, income, and livelihood of the employee, the production and business operations of the employer, and potentially the broader socio-economic situation. To prevent arbitrary unilateral terminations and protect the legitimate rights and interests of both parties, the law explicitly stipulates notice periods for employers or employees when unilaterally terminating a labor contract. A violation of the notice period is considered an unlawful unilateral termination, subjecting the violator to legal consequences as prescribed by law.
Therefore, parties in a labor relationship must fully understand and strictly comply with the regulations on notice periods when terminating a labor contract to best safeguard their rights and interests and minimize potential legal risks.
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