Terminating an employment contract is a process that requires strict compliance with labour laws to ensure the legitimate rights and obligations of both the employee and the business. 

However, many businesses still make mistakes that contravene the Labour Code, leading to unnecessary legal consequences. The article below outlines and analyses some common mistakes made by businesses when terminating employment contracts, along with lessons drawn from two cases based on real situations. 

Common Mistakes Made by Businesses When Terminating Employment Contracts 

1. Failing to Adhere to Notice Period Requirements 

One of the most common errors is not adhering to the notice period requirement when terminating an employment contract. The notice period for terminating an employment contract is stipulated in Clause 2, Article 36 of the Labour Code 2019. 

Accordingly, the notice period depends on the type of contract and the reason for termination. However, many businesses overlook this requirement, leading to terminations being deemed unlawful, with a high likelihood that the business will have to compensate the employee. 

2. Lack of Transparency in Performance Evaluation 

Some businesses do not issue a Work Completion Evaluation Policy as required by labour law or fail to clearly establish performance evaluation criteria in the policy. This lack of clarity leaves businesses without a basis for termination and complicates the process of justifying terminations for employees who repeatedly fail to meet job requirements as per point (a), Clause 1, Article 36 of the Labour Code 2019. Such lapses can expose the business to legal disputes. 

3. Failure to Follow Proper Disciplinary Procedures 

In cases involving disciplinary dismissal, failing to follow the proper disciplinary procedures is also a common error. 

A business might fail to issue workplace rules in accordance with labour law or may not implement strict workplace rules for disciplinary procedures, fail to collect sufficient evidence, fail to document the incident at the time of the violation, or fail to conduct disciplinary meetings according to legal requirements. 

These mistakes can render a dismissal decision legally invalid. 

5. Non-compliance with Organisational Structure and Labour Restructuring Regulations 

When making changes to the organisational structure or reorganising the workforce, many businesses fail to develop a clear workforce utilisation plan, do not organise workplace dialogues, fail to comply with retraining requirements, neglect to inform surplus employees, or fail to consult with employee representative organisations. This can lead to employee complaints and lawsuits. 

6. Failing to Fully Settle Financial Obligations 

Many businesses do not fulfil their financial obligations concerning employees’ entitlements within the prescribed timeframe after contract termination. This can lead to legal disputes and damage the business’s reputation. 

Lessons from Two Real Cases 

CASE 1 – Pacific Gas Company Unilaterally Terminates the Employment Contract with Mr. NTT 

Summary: This case involves Pacific Gas Company’s unilateral termination of the employment contract with Mr. NTT, the company’s former General Director. In the appellate decision, the Court ruled that Pacific Gas’s unilateral termination was unlawful. Consequently, Pacific Gas was ordered to compensate Mr. NTT with over VND 5.4 billion. 

Details: 

  • Reason: Pacific Gas based its unilateral termination of Mr. NTT’s employment on the Board of Directors’ dismissal decision without following the proper procedures and protocols under labour law. 
  • Judgement: The Court ruled that Pacific Gas’s unilateral termination was unlawful and required the company to compensate Mr. NTT. 
  • Compensation: Over VND 5.4 billion. 

Lesson: This case clearly illustrates the importance of businesses exercising extreme caution when terminating an employment contract, especially when dismissing and terminating the contract of a Manager. Relying solely on a dismissal decision made under the Law on Enterprises without considering the Labour Code poses significant risks for businesses, potentially resulting in large compensation payouts. 

CASE 2 – Judgement of 12/09/2023 Regarding Wage Disputes After Termination of Employment Contract No. 3590/2023/LĐ-ST 

The full judgement: https://congbobanan.toaan.gov.vn/2ta1366544t1cvn/chi-tiet-ban-an   

Case Summary: On 14/02/2022, Mr. T and Joint Stock Company H entered into Employment Contract No. 00061/2022/HĐLĐ-ADHPP with the following terms: 

  • Job Position: Bidding staff within the Technical Planning Department. 
  • Salary: VND 8,475,000 per month. 
  • Contract Duration: 12 months, from 14/02/2022 to 13/02/2023. 
  • Salary Payment Date: The 10th of the following month. 

During his employment, Mr. T received an actual salary of VND 13,000,000 per month. However, the Company terminated Mr. T’s contract on 10/10/2022 without fully paying his wages for July, August, and September 2022. 

Mr. T demanded that the Company pay the following: 

  • Unpaid Wages: VND 36,000,000. 
  • Late Payment Interest: VND 3,573,000. 
  • Closing of Social Insurance Record. 

Details: 

Court Ruling: The Court affirmed that the employment contract between Mr. T and Joint Stock Company H was lawful. The Company violated its obligation to pay wages, making Mr. T’s claim for unpaid wages and late payment interest justified. Joint Stock Company H was also ordered to cooperate with the social insurance authority to close Mr. T’s social insurance record. 

Court Decision: 

  • Accepted Mr. Nguyen Minh T’s claim: 
  • Ordered Joint Stock Company H to pay outstanding wages for July, August, and September 2022 totalling VND 36,000,000. 
  • Ordered Joint Stock Company H to pay late payment interest totalling VND 3,573,000. 
  • Ordered Joint Stock Company H to cooperate with the social insurance authority to close Mr. Nguyen Minh T’s insurance record. 
  • Ordered Joint Stock Company H to pay first-instance labour court fees of VND 1,187,190. 

Lesson: This case is a prime example of an employer failing to fulfil outstanding obligations upon termination of an employment contract, prompting the employee to take legal action to protect their rights. Therefore, businesses must comply with legal regulations and procedures regarding employment contract terminations, especially concerning wage payment and social insurance record closures. 

Mistakes made by businesses when terminating employment contracts not only cause financial loss but can also damage the business’s reputation. To avoid unnecessary legal risks, businesses must understand legal regulations and follow the correct procedures. 

The legal seminar “Terminating Employment Contracts: Regulations and Practices, How to Do It Effectively?” presented by Lawyer Ngo Thi Kim Trinh, Partner at Phuoc & Partners, offers a valuable opportunity for attendees to update their knowledge, avoid unfortunate mistakes, and optimise their human resource management processes. 

The seminar not only provides essential skills but also shares practical insights from leading experts in the field of labour law. 

Join us in building a fair, transparent, and effective working environment!