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

Currently, production and business are affected by difficult economic conditions, leading many enterprises to change their structure, technology, and labor arrangements to (i) cut down costs; (ii) optimize work processes. Accordingly, employers make structural and technological changes through various forms such as downsizing or altering working conditions, significantly impacting the employees’ jobs. Hence, the law requires employers to comply with certain requirements before implementing changes in structure and technology to ensure the rights and benefits of employees. 

In this article, we will present the legal requirements when employers make structural and technological changes that result in the termination of labor agreements with employees, as well as the legal consequences of non-compliance with these requirements. 

1. Legal requirements related to terminating employment agreements with employees due to structural and technological changes

Employers must fall into one of the following cases to be considered as making structural and technological changes: 

• Organizational restructuring, labor rearrangement;

• Changes in processes, technology, machinery, equipment related to the employer’s industry or business; 

• Changes in products or product structure.

Develop and implement a labor utilization plan when structural and technological changes affect the employment of a large number of employees.

Note: When developing a labor utilization plan, employers must consult with the labor representative organization at the workplace where such an organization exists. The plan must be publicly announced to employees within 15 days from the approval date, ensuring the main contents are as follows:  

• The number and list of employees to continue employment, those to be retrained for continued employment, and those to be transferred to part-time work; 

• The number and list of retiring employees; 

• The number and list of employees whose agreements must be terminated; 

• Rights and obligations of the employer, employees, and related parties in implementing the labor utilization plan; 

• Measures and financial sources to ensure the plan’s implementation. 

Have exchanged opinions with the labor representative organization at the workplace (for places where such an organization exists) and notified the Provincial People’s Committee and employees at least 30 days in advance.

Provide redundancy allowances for employees who have worked regularly for at least 12 months, paying one month’s salary for each year of work, but not less than two months’ salary. The salary used to calculate redundancy allowances is the average salary of the last six consecutive months under the labor agreement before the employee loses their job.

Note: The working time used to calculate job redundancy allowances is the total actual working time for the employer minus the time the employee participated in unemployment insurance under the law on unemployment insurance and the time the employer paid redundancy allowances.  

2. Legal consequences when employers do not comply with legal requirements related to terminating employment agreements with employees due to structural and technological changes 

The termination of employment by employers due to structural and technological changes is the legal basis for terminating the labor contract under Article 34.11 of the 2019 Labor Code. As mentioned above, the law sets out requirements that employers must meet before terminating the labor agreements with employees because of structural and technological changes; therefore, if employers fail to comply with any of the requirements listed in Section 1, it is considered a violation of the law. However, in this case, it is not considered a unilateral termination of the labor agreement against the law under Article 39 of the 2019 Labor Code. 

According to the Court’s practice of resolution of labor disputes, when employers violate the provisions on terminating labor agreements due to structural and technological changes, the Court still applies the same legal consequences of the illegally unilateral termination of labor agreements as stipulated in Article 41 of Labor Code 2019 to protect the rights and interests of employees, although the Court does not specifically explain the legal basis. 

Based on the Court’s decisions, if employers do not comply with the law when terminating the labor agreements due to structural and technological changes, they are obliged to: 

• Re-employ the employees under the labor agreements, pay salaries, social insurance, health insurance, and unemployment insurance for the days the employees do not work, and pay an additional amount to the employees of at least two months’ salary under the labor contract. 

• In case employees do not wish to continue working: in addition to the amount mentioned in section (i), employers shall pay severance allowance according to the legal regulations to terminate the contract.

• In the event that the employers do not want to keep hiring the employees, and the employees agree, in addition to the amount mentioned in section (i) and severance allowance, the parties agree on additional compensation for the employees, but it must be at least two months’ salary under the labor agreement to terminate the labor agreements. 

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