Termination of labor relations with enterprise’s directors

Introduction: Currently, many enterprises are implementing the mechanism of hiring managers with the title of Director or General Director (hereinafter referred to as “Director“), paying salaries, remuneration and prescribed social insurance, but do not sign labor contracts and only issue the appointment decision of the Board of Directors/Members’ Council/President of such enterprises (hereinafter referred to as the “Enterprise“). This raises a question whether, when the Enterprise no longer wants that person to be the Director, the Enterprise must comply with the provisions of the labor law, or it is only required to issue a dismissal decision of the Board of Directors/Members’ Council/President of such enterprise. This issue will be analyzed and discussed in this research. 

1. Labor relations between directors and enterprises 

Pursuant to Article 3.5 of the Labor Code 2019 (“Labor Code 2019“): “Labor relations are social relations arising in the hiring, employing and paying wages between employees, employers, representative organizations of the parties and competent state agencies“. Accordingly, labor relations are formed when there exists 02 factors: (i) the hiring and use of labor, and (ii) the payment of wages between the employee and the employer. 

Considering that:  

• The Enterprise hired an individual as the Director according to the appointment decision of the Board of Directors/Members’ Council/President of the Enterprise to perform the tasks of the Director, which are specified in the appointment decision and/or the company’s Charter and/or in other internal documents of the Enterprise (if any) and in accordance with the Enterprise Law 2020. Specifically, the Director performs the day-to-day business management of the company, organizes the implementation of the company’s business plan and investment plan, recommends the organizational structure plan, internal management regulations of the company, labor recruitment, ..
• The enterprise pays salaries of the Director.  

Therefore, there are grounds to claim that the labor relations between the Enterprise and the Director have been established in accordance with the provisions of the Labor Code.   

2. Labor contract between Director and Enterprise

According to the provisions of Article 13.1 of the Labor Code 2019: “A labor contract is an agreement between an employee and an employer on paid employment, wages, working conditions, rights and obligations of each party in labor relations. In case the two parties agree by another name but have contents showing the paid employment, salary and management, administration and supervision of one party, it is considered a labor contract.” Accordingly, an employment contract is considered to exist if there is an agreement on (i) paid employment, wages, and (ii) the management, administration and supervision of one party over the other. 

As analyzed in Section 1 above, the Enterprise hired the Director to perform certain jobs, and paid the Director with salary. On the other hand, the Enterprise has the management, administration and supervision of the Director in accordance with the Law on Enterprises 2020, in the Company’s Charter and other internal documents of the Enterprise (if any). Specifically, the Director is obliged to be supervised by the Board of Directors/Members’ Council/President of the Enterprise, responsible to the Board of Directors/Members’ Council/President of the Enterprise and before law for their exercise of assigned rights and obligations.  

Hence, there are grounds to claim that the labor contract has been established by the Director and the Enterprise, even though the parties do not executed the Labor Contract in writing in accordance with the provisions of the Labor Code 2019. However, this is not a ground to negate the existence of an labor contract between the Parties. 

3. Termination of labor relations with the Director 

As analyzed in the above sections, there are grounds to believe that the labor relationship and labor contract between the Director and the Enterprise have been established. Therefore, in case an enterprise wants to terminate the labor relations with the Director, it must comply with the provisions on termination of the labor contract in Article 34 of the Labor Code 2019.  

Accordingly, an enterprise that wants to unilaterally terminate the labor relationship with the Director must satisfy the following conditions:  

a. There are appropriate reasons as prescribed by law

The reasons that the employer is entitled to unilaterally terminate the labor contract with the employee include:

(i) The employee regularly fails to complete the work – determined according to the criteria for assessing the level of work completion in the employer’s regulations promulgated in accordance with the law; 

(ii) The employee is sick or has an accident and has been treated for 06-12 consecutive months (depending on the term of the labor contract), but their working capacity has not yet recovered; 

(iii) Due to natural disasters, fires, dangerous epidemics, enemy disasters or relocation or narrowing of production and business at the request of competent state agencies, the employer has sought all remedies but is still forced to reduce the workplace; 

(iv) The employee is not present at the workplace after the period of suspension of the performance of the labor contract as prescribed by law;  

(v) The employee reaches the retirement age as prescribed by law; 

(vi) The employee unilaterally quits working without an appropriate reason for 05 consecutive working days or more; 

(vii) The employee provides untruthful information when entering into a labor contract that affects the recruitment of labor. 

b. There is prior notice from the employer

Depending on the term of the labor contract, the employer must notify an appropriate period of time to the employee about the unilateral termination of the labor contract. 

Although the Enterprise and the Director do not sign a labor contract, there are still grounds to claim that the labor relations and labor contract between the parties have been established. Therefore, when an enterprise wants to change its director, it is obliged to comply with the provisions of the Labor Code and relevant legislation. In case the Enterprise does not meet the conditions to unilaterally terminate the labor contract, the Enterprise should negotiate and sign an agreement to terminate the labor contract with the Director to avoid risks that may arise.  

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