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Legal Update

Regimes Applicable to Employees Working at a Dependent Unit upon Its Assignment by the Employer

27 May 2010
Mayer Brown JSM Legal Update

On 15 December 2009 the Ministry of Labour, War Invalids and Social Affairs ("Molisa") issued Official Letter No. 4758/LDTBXH-LDTL ("Letter 4758") replying to a written request from Vietnam Electricity Joint Stock Corporation ("VNECO") regarding regimes applicable to the employees working at Green Plaza Da Nang Hotel, a dependent unit of VNECO upon its assignment by VNECO to another enterprise ("Assignee").

Letter 4758 points out that Article 31 of the Labour Code, Article 6 of Decree No. 44/2003/ND-CP dated 9 May 2003 ("Decree 44") and Circular No. 17/2009/TT-BLDTBXH dated 26 May 2009 of Molisa ("Circular 17") as well as the agreements in the hotel assignment contract will apply to the above case.

Article 31 of the Labour Code (as amended) stipulates:

"In cases where an enterprise merges, consolidates, divides, separates, or transfers ownership of, right to manage, or right to use the assets of the enterprise, the succeeding employer shall be responsible to continue performance of the labour contract of the employee. In the case where all available employees are unable to be utilised, there must be a plan for labour usage in accordance with law.

An employee whose labour contract is terminated pursuant to the provisions of this article shall be entitled to a severance allowance."

The "plan for labour usage" mentioned above is explained in Article 6 of Decree 44 as follows:

"In cases where an enterprise merges, consolidates, divides, separates, or transfers the ownership, management right, or right to use the assets of the enterprise, and all of the current employees are unable to be utilised, there must be a plan for labour usage containing the following basic particulars:

  1. The number of employees who will continue to be employed;
  2. The number of employees who will be re-trained in order that they are able to continue to be employed;
  3. The number of employees who will retire;
  4. The number of employees whose labour contracts will be terminated;
  5. The former employer and the continuing employer shall be responsible to resolve the rights of employees, including specifying responsibility for funding for training and for funding for loss of work allowances for employees whose labour contracts must be terminated.

The grass-roots trade union must participate in preparation of the plan for labour usage, and when the plan is implemented, it must be notified to the State administrative body for labour at the provincial level."

Circular 17 provides the formula for calculation of a severance allowance:

Severance allowance = Total working
duration at the enterprise calculating such allowance
x Wage used as basis to calculate severance
allowance
x 1/2

of which:

  • The total working duration (in years) at the enterprise calculating the severance allowance ("Enterprise") will be deducted by the period for which job loss insurance premiums have been paid. If the total working duration at the Enterprise includes any odd months (including the case of an employee who has worked for 12 full months or more at an enterprise or enterprises but the total working duration at the Enterprise is less than 12 months), such odd months will be rounded up to half a year for any working duration of one full month to below six months and rounded up to one year for any working duration of a full six months to below 12 months.
  • The wage used as the basis to calculate the severance allowance is the wage stated in the labour contract, using the average of the wages of the six months immediately preceding termination of the labour contract, including seniority and position wages and regional and position allowances (if any).

If an employee terminates his or her labour contract after the merger, consolidation, division, separation of the enterprise, or the transfer of the ownership, management right, or right to use the enterprise's assets, the succeeding employer is responsible to calculate the severance allowance, including for the period during which the employee worked for the immediately preceding employer. The basis for calculating the severance allowance is the wage stated in the labour contract, using the average of the wages of the six months immediately preceding termination of the last labour contract.

Letter 4758 concludes that:

  • As stipulated by the hotel assignment contract, the Assignee is to receive all the existing employees at the time of the assignment.
  • VNECO is responsible to pay all the expenses arising from the labour contracts and labour-related matters up to the date of the assignment.
  • IIf any employee voluntarily terminates his or her labour contract prior to the assignment, the relevant severance allowance will be paid by VNECO.

For inquiries related to this Legal Update, please contact:

Dao Nguyen ( )

Thinh Dan ( )

Learn more about our Vietnam offices and Employment & Benefits practice.

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