TYPES OF EMPLOYMENT CONTRACTS AND INVALID EMPLOYMENT CONTRACTS 2025
Topic 7:
TYPES OF EMPLOYMENT CONTRACTS AND INVALID EMPLOYMENT CONTRACTS
Dr. Đinh Thị Chiến
SUMMARY OF THE CASE AND COURT’S FINDINGS
[Judgment No. 02/2023/LĐ-ST dated May 31, 2022, by the People’s Court of Cầu Giấy District, Hanoi]
Case Summary:
On February 3, 2016, Mr. Hưng and Bình Minh Company Limited (abbreviated as Bình Minh Company) signed Employment Contract No. 2/2016/BBM/EC, with the position of Director of the Administration and Human Resources Division, for a term from February 3, 2016, to February 2, 2017. On March 1, 2017, Bình Minh Company and Mr. Hưng continued to conclude a fixed-term Employment Contract No. 3/2017/BBM/EC, maintaining the same professional position, with a term from March 1, 2017, to February 29, 2020.
On October 20, 2017, pursuant to Bình Minh Company’s restructuring decision, the operations of its chain of stores, warehouses, and personnel were transferred to Hòa Bình Joint Stock Company (abbreviated as Hòa Bình Company). As part of this decision, Hòa Bình Company committed that “employee rights at Hòa Bình Company shall inherit the existing rights from Bình Minh Company.”
On November 1, 2017, in line with the restructuring decision, Mr. Hưng and Hòa Bình Company signed an indefinite-term Employment Contract No. 11/2017/B for the position of Director of Administration and Human Resources Division. In this contract, the representative of Hòa Bình Company was Mr. Hưng himself, authorized under Authorization Letter No. 406. The employee was also Mr. Hưng. (Under Authorization Letter No. 406, Mr. Hưng was only authorized to approve employment contracts, not to sign them.)
On June 30, 2020, Mr. Hưng submitted his resignation, expressing his wish to end his employment at Hòa Bình Company effective July 4, 2020.
Court’s Decision:
– The employment contracts dated February 3, 2016, and March 1, 2017, between Mr. Hưng and Bình Minh Company were voluntary and complied with legal provisions, thus considered valid.
– Employment Contract No. 11/2017/B was invalid because Mr. Hưng exceeded his authority in signing the contract.
– Employment Contract No. 3/2017/EC-BBM had transitioned into an indefinite-term employment contract and remained effective.
COMMENTARY
I. Introduction
Applying the correct type of employment contract is an essential requirement under labor laws, as it pertains to job stability for employees and serves as the foundation for determining the rights and obligations of the parties within the employment relationship. The choice of employment contract type also impacts regulations concerning contract forms, the identification of participants in different types of social insurance, and particularly the determination of the termination date and the conditions and procedures for unilateral termination by the parties.
An invalid employment contract is a legal concept used to address instances where contracts are concluded contrary to legal provisions. In principle, a completely invalid contract has no legal effect from the time of conclusion, and handling the consequences of such a contract prioritizes restoring the parties to their original state. However, for employment contracts, restoring the original state may lead to the outcome of job loss for employees. Thus, the review and resolution of invalid employment contracts follow unique principles aimed at protecting the employees’ rights to income and employment.
In the above case, the author will comment on the application of employment contract types and the handling of invalid contracts.
II. Legal Issues
- Types of Employment Contracts
The types of employment contracts are currently stipulated in Article 20 of the 2019 Labor Code as follows:
“1. Employment contracts must be concluded in one of the following types:
a) An indefinite-term employment contract is a contract in which the two parties do not determine the term or the time of termination of the contract’s validity;
b) A fixed-term employment contract is a contract in which the two parties determine the term, the time of termination of the contract’s validity, within a period not exceeding 36 months from the effective date of the contract.
When the employment contract stipulated in point b, clause 1 of this Article expires, but the employee continues to work, the following shall apply:
a) Within 30 days from the expiration of the employment contract, the two parties must sign a new employment contract; during the time before a new employment contract is signed, the rights, obligations, and interests of both parties shall be implemented in accordance with the previously concluded contract;
b) If the 30-day period expires without a new employment contract being signed, the previously concluded contract stipulated in point b, clause 1 of this Article becomes an indefinite-term employment contract;
c) If the two parties sign a new employment contract that is a fixed-term contract, it may only be signed one additional time. Thereafter, if the employee continues to work, an indefinite-term employment contract must be signed, except for employment contracts with individuals hired as directors in state-funded enterprises or in the cases specified in Clause 1, Article 149; Clause 2, Article 151; and Clause 4, Article 177 of this Code.”
Compared to the 2012 Labor Code [Article 22 of the 2012 Labor Code stipulated three types of employment contracts: seasonal or work contracts with a term of less than 12 months; fixed-term contracts from 12 to 36 months; and indefinite-term contracts.], the 2019 Labor Code introduces an important innovation: combining the types of seasonal or specific job contracts with a term of less than 12 months and fixed-term contracts into one single category, namely fixed-term contracts not exceeding 36 months. This allows the parties the freedom to choose the type of employment contract in the first and second instances of conclusion. After the second expiration, if the employee continues to work, both Labor Codes mandate that the parties must conclude an indefinite-term contract.
Although the case was adjudicated when the 2019 Labor Code was effective, the application of the type of employment contract and its conversion in the described scenario occurred while the 2012 Labor Code was still in effect. However, the contracts signed by the parties fall into only two categories: fixed-term and indefinite-term contracts. Therefore, the provisions on contract conversion do not differ between the 2012 and 2019 Labor Codes.
In the aforementioned case, the conclusion of the first two employment contracts between Bình Minh Company and Mr. Hưng (Employment Contract No. 2/2016/BBM/EC and Employment Contract No. 3/2016/BBM/EC) was lawful. The parties consecutively entered into two fixed-term employment contracts, each lasting from 12 to under 36 months, which was in compliance with Article 22 of the 2012 Labor Code [This practice also aligns with Article 20 of the 2019 Labor Code.].
The restructuring activity of Bình Minh Company, as described in the court’s judgment—“the operations of Bình Minh Company’s chain of stores, warehouses, and personnel were transferred to Hòa Bình Company”—essentially constituted a corporate spin-off [At the time of the spin-off, Bình Minh Company adhered to Article 193 of the 2014 Law on Enterprises.]. The chain of stores, warehouses, and personnel of Bình Minh Company was divided into an independent legal entity, Hòa Bình Company. The restructuring decision of Bình Minh Company, which stated, “The company commits that the rights of employees at Hòa Bình Company will inherit the existing rights at Bình Minh Company,” aligns with Clause 1 of Article 45 of the 2012 Labor Code [This commitment also complies with Article 43 of the 2019 Labor Code.].
Therefore, in terms of the type of employment contract, the conclusion of the indefinite-term Employment Contract No. 11/2017/B between Hòa Bình Company and Mr. Hưng was consistent with legal provisions. The issue that requires further analysis regarding the conclusion of Employment Contract No. 11/2017/B is whether the contracting entity acted lawfully, which will be discussed later.
In the court’s decision, the validity of Employment Contract No. 11/2017/B was not recognized, with the reasoning based on the transformation of employment contracts. Accordingly, Employment Contract No. 3/2017/BBM/EC (effective from March 1, 2017, to February 29, 2020) was deemed the second fixed-term contract signed between Mr. Hưng and Bình Minh Company. After the spin-off of Hòa Bình Company from Bình Minh Company, the new company retained the obligation to continue performing this employment contract with Mr. Hưng. “Upon its expiration on February 29, 2020, if no new employment contract was signed between the parties, it was regarded as an indefinite-term employment contract.”
The court’s assessment of this contract transformation is unconvincing. In fact, after the spin-off into Hòa Bình Company, an additional event occurred, whereby the parties signed a new employment contract between Mr. Hưng and the newly established Hòa Bình Company. This is also consistent with Clause 1 of Article 45 of the 2012 Labor Code and Article 43 of the 2019 Labor Code. This event demonstrated the intent of the parties to terminate Employment Contract No. 3/2017/EC-BBM between Mr. Hưng and Bình Minh Company and to enter into a new indefinite-term contract between Mr. Hưng and Hòa Bình Company.
The legal form of the employment relationship between the two parties at the time of the dispute was Employment Contract No. 11/2017/B between Mr. Hưng and Hòa Bình Company.
- Invalid Employment Contracts
Regarding Employment Contract No. 11/2017/B concluded between Mr. Hưng and Hòa Bình Company, in which Mr. Hưng was both the representative of Hòa Bình Company and the employee, the judgment declared this contract invalid under the law because Mr. Hưng exceeded his authority by signing a contract with himself. According to Authorization Letter No. 406, Mr. Hưng was only authorized to approve contracts, not to sign them.
According to the author, this reasoning in the judgment is somewhat correct but lacks comprehensiveness, as the act of signing this employment contract not only exceeded authority but also violated the principle of representation stipulated in Article 141 of the 2015 Civil Code. Clause 3 of this Article states: “An individual or legal entity may represent multiple individuals or legal entities; however, they must not, in the name of the represented party, establish or perform civil transactions with themselves or with a third party that they also represent, except as otherwise provided by law.”
Thus, the signing of Employment Contract No. 11/2017/B was unlawful and deemed wholly invalid at the time of conclusion under point b, clause 1, Article 50 of the 2012 Labor Code, which states: “The person signing the employment contract is not authorized to do so.”
The legal consequences of a wholly invalid employment contract are stipulated in Article 52 of the 2012 Labor Code and guided by Article 11 of Decree 44/2013/NĐ-CP as follows: “Within 15 days of receiving the decision declaring the employment contract wholly invalid due to unauthorized signing, the labor management authority where the company is headquartered must guide the parties to re-sign the employment contract.”
Therefore, if the court declared the final employment contract between Mr. Hưng and Hòa Bình Company wholly invalid, it must transfer the case to the Department of Labor, War Invalids, and Social Affairs where Hòa Bình Company is headquartered for this authority to guide the parties to re-sign the contract properly. However, the court handled the case on the grounds that the contract between Mr. Hưng and Hòa Bình Company had transformed into an indefinite-term employment contract and thus did not follow this procedure.
Under the 2019 Labor Code, Employment Contract No. 11/2017/B between Mr. Hưng and Hòa Bình Company would also be considered wholly invalid under point b, clause 1, Article 49. The legal consequences of this invalid contract are stipulated in Article 10 of Decree 145/2020/NĐ-CP, which states: “When an employment contract is declared wholly invalid due to unauthorized signing, the employee and employer must re-sign the contract in compliance with legal provisions. If no new contract is signed, the employment relationship is terminated.”
According to the author, the handling of invalid employment contracts as stipulated in Decree 145/2020/NĐ-CP does not adequately protect the employee’s right to employment. This is because in most cases, employees cannot know whether the company’s representative who signed the employment contract with them is properly authorized, and therefore, the employee is not at fault in signing such contracts. Furthermore, if the employee has worked for the employer for a certain period, demonstrating that the company’s legal representative is aware of the employee’s engagement without objection, then the legal validity of the contract should be acknowledged.
In this case, although Mr. Hưng was at fault for signing the employment contract with himself, knowing that this exceeded his authority and was unlawful, the fact remains that after signing the contract, he worked for Hòa Bình Company for over two years with agreed-upon work and benefits specified in the contract (from July 11, 2017, to his resignation on June 30, 2020). This situation necessitates that the legal representative of Hòa Bình Company must have been aware of the contract and did not object. Applying Article 10 of Decree 145/2020/NĐ-CP to terminate the employment contract in cases where the employee does not wish to terminate it fails to adequately protect the employee’s rights.
III. Conclusion
Determining the type of employment contract and its legal validity at the time of the dispute is crucial for resolving disputes over unilateral termination: identifying the duration of the contract, the termination date, and the resolution of the parties’ rights. Furthermore, this case illustrates that assessing the legal validity of employment contracts and handling invalid contracts must consider safeguarding employees’ employment rights.
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