Vietnam: Common Errors When Entering Into Employment Contracts

Employment contracts are the legal basis for establishing labor relations between enterprises and employees. Although it is essentially a civil relationship, labor relations have many specific differences that arise from a certain gap between the parties involved in labor relations. In particular, in labor relations, enterprises have an information advantage, which makes it easier to make decisions that affect employees. As a document that establishes the labor relationship between the enterprise and the employee, the employment contract is quite strictly regulated by law in terms of content and form, which ensures the right of the parties to negotiate, but still in the spirit of protecting the legitimate rights and interests of the weaker party, the employee. Due to this specific factor, many companies still make many errors when concluding employment contracts. These errors can lead to many risks for companies during their operations.

Based on our experience in providing services to clients, in this article we will mention some errors that companies often make when concluding employment contracts.

1. Errors the lack of authority the insufficient authority of the person signing the company's employment contract

As mentioned above, employment contracts have certain differences from other types of civil contracts, especially with regard to the issue of authority to conclude employment contracts.

Specifically, in other types of civil contracts, the legal representative of the company may authorize an individual to enter into a contract and at the same time allow that individual to authorize another individual to enter into a contract. In other words, the law does not limit the number of authorizations and reauthorizations to enter into a contract, as long as the reauthorization is an act permitted by the previous authorizer.

However, for employment contracts, Point a Clause 3 Article 18 of the Labor Code 2019 stipulates that the person who enters into an employment contract on the part of the enterprise is the legal representative of the enterprise or a person authorized by law. In accordance with this provision, if the legal representative of an enterprise authorizes a person to conclude an employment agreement, that person may not reauthorize another person to do so. If an enterprise has an employment contract entered into by a re-authorized person as mentioned above, such employment contract may be declared invalid in its entirety pursuant to Item b, Paragraph 1, Article 49 of the Labor Code 2019, as the person of the enterprise entering into the employment contract does not have sufficient authority.

In addition, it should be noted that the conclusion of employment agreements for certain important positions in the company is currently also regulated by the Law on Enterprises 2020. For example, there is a circumstance when a company concludes an employment contract with an employee who will hold the title of general director of the company. Pursuant to Point i Clause 2 Article 153 of the Law on Enterprises 2020, the Board of Directors is the body authorized to enter into employment contracts with the general manager of the company. However, the Board of Directors is not an individual, so it cannot enter into contracts. Instead, the Board of Directors, through the Board of Directors Meeting, will exercise its right to delegate the execution of an employment contract to an individual. This individual will be the person authorized to enter into an employment contract with the general director of the company.

Many companies often make mistakes regarding the authority to conclude employment contracts. Although the consequences of the invalid contract in this case are not too significant for the enterprise, if the employment contract is declared completely invalid, the enterprise and the employee must reenter the contract with sufficient authority. For companies with a large number of employees, re-signing employment contracts on a large scale will cause many inconveniences for them and their employees.

2. The employment contract does not explicitly specify the main contents required by the law

The employment contract must have the main contents specified in Clause 1, Article 21 of the Labor Code 2019, and at the same time, these contents must be specifically drafted according to the instructions in Article 3 of Circular 10/2020/ TT-BLDTBXH.

However, in reality, this is also one of the errors that companies often make, as the requirement of contents in employment contracts will be particularly difficult for companies that have a large number of employees or employees whose job nature changes frequently.

Specifically, the Labor Code 2019 requires companies to include the following content in the employment contract: (a) the name and address of the employer, the full name and title of the person of the employer entering into the employment contract; (b) the full name, date of birth, sex, place of residence, national identity card number, ID card or passport of the person entering into the employment contract on the employee's side; (c) the job and place of work; (d) the term of the employment contract; (dd) Salary according to job or title, form of payment, payment period, salary allowances and other supplements; (e) system of promotion and salary increase; (g) working hours and rest periods; (h) safety equipment for employees; (i) social, health and unemployment insurance; (k) education, training, improvement of professional qualifications and skills.

In our experience, companies often make mistakes in identifying employees' jobs and work locations. This is one of the errors we mentioned in our legal guideline "Labor Law Compliance and Common Errors Made by Enterprises" published in May 2023. Companies can refer to the detailed content of the errors and our suggested solutions for these errors at: Legal guidelines: Labor law compliance and common errors made by enterprises

In addition, through the inspection conclusions of the Ministry of Labor, War Invalids and Social Affairs, we also found that enterprises made errors by not providing specific regulations on the form of payment of employees' wages. Specifically, Clause 2 Article 96 of the Labor Code 2019 stipulates that salary may be paid in cash or through the employee's personal account opened at a bank. As a result of this regulation, many companies simply include in the employment contract the content "Form of payment: Bank transfer". However, according to the inspection results, this content does not comply with the law (please see the inspection conclusion here). Therefore, it can be understood that according to the above legal regulations, companies must clearly specify the form of salary payment, which is transfer to the employee's personal account. This account may be specified in the employment contract or designated by the employee from time to time. At the same time, if the employment contract stipulates that the employee can designate an account to receive the salary from time to time, the company should take care to exclude its liability by requiring the employee to notify within a certain period of time if there is a change in the salary account.

3. The contract includes provisions for terminating the employment relationship that are contrary to the law

When drafting employment contracts, some companies often wish to include in the contract content on the termination of labor relations with employees in certain cases. For example, the regulations are shown in the following inspection conclusions: "During the term of the employment contract, employees who violate the company's internal regulations will have their employment contracts terminated" (see the inspection conclusion here) or "the employer has the right to dismiss an employee if it is found that the employee has committed fraudulent acts in the application " (please see the conclusion discuss this inspection conclusion here).

Enterprises should note that, from their perspective, to terminate the labor relationship with the employee, the enterprise can unilaterally terminate the employment contract or dismiss the employee. However, in these two forms, enterprises must strictly comply with the regulations on conditions, order and procedures. Currently, the Labor Code 2019 has very specific and detailed regulations on the grounds for the enterprise to unilaterally terminate the employment contract with employees¹ or discipline the employee in the form of dismissal². In particular, these regulations do not allow enterprises to agree or stipulate other grounds outside the basis provided by law. Therefore, if the content of the employment contract is inconsistent with the legal basis, these regulations will not be effective.

Specifically, in the first case, the Labor Law stipulates that employees who violate labor discipline in the internal labor regulations will be disciplined in the following forms according to the law, including: reprimand, extending the period of salary increase to not more than 06 months, demotion or dismissal without any form of labor discipline is "termination of employment contract". Meanwhile, in the second case, it can be seen that "fraudulent behavior in application documents" is not a basis for the enterprise to apply the disciplinary form of dismissal according to the law.

If enterprises include the above content in the employment contract and rely on these regulations to unilaterally terminate the employment contract or dismiss the employee, it will lead to a situation where the enterprise unilaterally terminates the employment contract or dismisses the employee in an illegal manner.

In addition to the above-mentioned errors, enterprises often make many other errors in the process of concluding employment contracts, such as errors related to confidentiality and non-competition clauses, provisions on deductions from employees' salaries, and so on. In order to identify and avoid these errors, companies can refer to the Legal Guidelines on Labor Law Compliance and Common Errors Made by Enterprises of May 2023 and the Legal Guidelines on Labor Law Compliance and Common Errors Made by Enterprises (Part 2), which will be published by us on our website soon.

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