Agreement on future termination of labor contract

In the context of an increasingly dynamic labor market, employers and employees continuously seek flexible solutions in their employment relationships. In many cases, the parties wish to anticipate and enter into an agreement on the termination of the labor contract at the time of concluding the labor contract (“Labor Contract”). However, the question arises as to whether such an agreement is lawful under the current labor regulations. 

1. Legal basis 

The Labor Code 2019 (hereinafter referred to as the “Labor Code”) provides detailed regulations on cases of termination of labor contracts in Chapter III, Section 3, from Article 34 to Article 38. According to Article 34 of the Labor Code, one of the grounds for terminating a labor contract is that “both parties agree to terminate the labor contract”. This indicates that Vietnamese labor law recognizes agreement as a legitimate method for terminating an employment relationship.  

Moreover, the law does not prohibit an agreement to terminate a labor contract at the time of its execution, with the termination being tied to a specific future event. However, it is important to note that the fundamental principle of labor law is to protect the lawful and legitimate rights and interests of employees (1). Any agreement that risks depriving or limiting the legitimate rights and interests of employees may be deemed invalid.  

Therefore, an agreement to terminate the labor contract at the time of signing must be made entirely voluntarily (2) by both parties, particularly the employee, and must ensure that the employee fully understands their rights and obligations. For an agreement to terminate a labor contract at the time of signing based on a future event to be considered lawful, the following factors must be taken into account: 

• The termination event must be clear and identifiable 

The agreed-upon event serving as the basis for termination must be specific, objective, and likely to occur in the future. Ambiguous provisions or clauses that unreasonably restrict the employee’s rights should be avoided.  

• Employee’s voluntary consent 

It must be demonstrated that the employee fully and voluntarily agrees to the termination clause without coercion or misinterpretation. 

• Ensuring the employee’s minimum entitlements 

The agreement must not diminish the minimum entitlements that the employee is legally entitled to. It must not be used as a means to evade severance payment obligations or to unlawfully terminate the employee. 

• Compliance with other labor law provisions 

The termination agreement must not contravene other provisions of the Labor Code, such as severance pay, unemployment benefits (if applicable), and other employee rights upon contract termination. 

2. Perspective of labor management authorities  

In practice, labor authorities hold different opinions on this matter. Specifically, according to informal discussions with the Ho Chi Minh City Department of Labor, Invalids and Social Affairs (DOLISA), this authority takes the view that the parties are fully entitled to agree on the termination of the labor contract at the time of signing the contract. 

Meanwhile, some other local labor management authorities (such as the DOLISA of Ba Ria – Vung Tau Province and the DOLISA of Dong Nai Province) argue that a prior written agreement on the termination of the labor contract upon the occurrence of a specific future event does not provide a sufficient legal basis for terminating the contract. 

3. Recommendations 

Although the Labor Code does not explicitly prohibit agreements to terminate a labor contract at the time of signing based on a future event, such agreements carry significant legal risks. These risks primarily relate to proving the employee’s voluntary consent and ensuring their rights are protected. Labor authorities may scrutinize such cases and may declare the agreement invalid if there are signs of employee rights violations or a lack of voluntary consent.  

Therefore, employers should exercise extreme caution when entering into agreements to terminate a labor contract at the time of signing such labor contract based on a future event. To mitigate legal risks, the parties should: 

• Draft the clause clearly and specifically, ensuring the objectivity of the termination event. 

• Fully explain the content and implications of the clause to the employee, ensuring they understand their rights and obligations. 

• Carefully consider other relevant provisions of labor law related to contract termination to ensure compliance. 

• Maintain comprehensive records proving the employee’s voluntary consent. 

• When the termination event occurs, both parties may sign another agreement to formally terminate the labor contract.  

An agreement to terminate a labor contract at the time of signing such labor contract, contingent upon a future event, may not necessarily violate the law if it meets the requirements of voluntariness, clarity, and protection of the employee’s legal rights. However, due to the potential legal risks, employers and employees should carefully evaluate such agreements to ensure compliance with labor laws and to safeguard the interests of both parties. 

(1) Labor Code 2019. Article 4, Clause 1  

(2) Labor Code 2019. Article 7, Clause 1  

See more:

1/ Distinguishing the notice of employment agreement termination upon agreement expiration and unilateral termination of employment agreement

2/ Termination of employment agreements due to structure and technology changes under labor code

3/ Can employees and employers agree to severance pay before terminating the labor contract?

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