05 Legal Notes For The Business When Executives Depart From The Company

The group of employees (“Employees”) holding managerial positions in a company (“Senior management”) is a special workforce. They are people with expertise, deep understanding, multitasking ability, and acumen, empowered by the employer to manage and make decisions related to a certain area(s). Because of the importance of senior management, the business should pay constant attention to and strict implement the recruitment and cooperation process until they leave the company. Below are 5 legal notes for a business when its senior management leaves the company. 

1. Terminating the labor contract (“labor contract”) in accordance with the laws 

From legal and practical perspectives, there are some common cases leading to the termination of a labor contract: (i) there is an agreement to terminate the labor contract between the business and the employee, (ii) the labor contract expires but one of the parties does not renew the contract, (iii) the employee is subject to a disciplinary dismissal, (iv) one of the parties unilaterally terminates the labor contract, or (v) the business changes its organizational structure and/or reorganizes its employment leading to the termination of the employee’s job.  

Even if a senior executive leaves the company for any of the above-mentioned reasons, the termination of a labor contract must always satisfy two conditions: (i) there are clear grounds for termination of such contract (in terms of content), (ii) it strictly complies with the order and procedures as prescribed by the laws (in terms of form). Violation of any element always carries the risk of leading to serious legal consequences. Especially, when the senior management has great influence over the rest of the employees and the business, as well as the salaries and benefits to determine the compensation liability for illegally terminating the labor contract are considerably high, etc. Therefore, in all cases of terminating labor contracts with the senior management, the business is encouraged to reach a termination agreement due to the safety and harmony achieved by such solution. 

See more Termination of an indefinite term labor contract: What should the employer do?  

2. Reviewing and requesting the senior management to fulfill their obligations before the date of labor contract termination

During the labor contract termination process, the business has the right to review and request the senior management to perform and complete the following tasks:  

(i) Complete the remaining tasks and obligations under the labor contract or those arising in the working process before the date of labor contract termination. 

(ii) As they manage various jobs and projects, keep a lot of important information and data of the business, and at the same time own a lot of property incentives such as houses, cars, phones…, so the determination, handover and takeover of work and assets from the senior management must be done strictly and clearly within a specific time limit and there should be a handover record established by the parties. 

(iii) Review and request the senior management to complete unfinished liabilities, return receivables from partners/customers they are currently occupying, complete compensations for material damage to the business (if any) or other obligations. 

Or support the business in guiding and training new employees to take over and continue to the management. 

3. Commitments to support and cooperate with the business after the termination of their labor contracts

In many cases, the sudden departure of the senior management can cause disruption in the business’ operation or difficulties and obstacles for the business if there is no suitable replacement. Therefore, it is recommended that the business should obtain agreements and commitments from the senior management to supporting, continuing the work, training or other forms of collaboration on long-term projects or because their presence is needed before the termination of their labor contracts. 

4. Responsibility for maintaining the confidentiality

Data and information about revenue and profits, a list of partners/customers/suppliers, employees or business secrets, technological secrets, etc. are crucial assets that every business has invested its efforts and money in and trade off time and experience for. The databases and information that senior management has access to, once disclosed, will greatly affect the business’ operations, reputation, prestige or, more seriously, its financial position and market share. Therefore, the business should explain to the senior management their responsibility for information confidentiality and the legal consequences that they must encounter if they violate the previously established confidentiality agreement. In the event that the parties have not yet bound their obligations of confidentiality in writing, an independent Confidentiality Agreement is necessary. 

See more Regulations on an enterprise’s protection of its business secrets 

5. Non-competition agreement

Normally, a non-competition agreement, whether it exists in the form of a clause in a labor contract or an independent agreement, shall bind employees, including the senior management, to non-competition, or not working for a competitor within the duration of the labor contract and a certain extended period thereafter. From a legal perspective in Vietnam, the non-competition agreement after the end of a labor contract has been neither fully recognized nor vetoed in some cases. As a result, the business can consider such agreement as a tool to deter and defend against any competition violations by the senior management. In addition, at the time the labor contract is terminated, the business should clarify, update and supplement the non-competition agreement to make it clearer, more complete and more appropriate. 

Disclaimer: This article is for general information only and is not a substitute for legal advice. Apolat Legal is a Vietnamese law firm with experience and capacity to advise on matters related to Employment. Please click here to learn more about our services and contact our lawyers in Vietnam for advice via email info@apolatlegal.com.

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