Recently, the outbreak on a global scale of disease of Covid-19 due to a new strain of Coronavirus has made the economy move downwards, many enterprises suffer heavy losses, especially enterprises providing accommodation, tourism, restaurant services… Many enterprises have changed their labor policies to alleviate the economic damage caused by the Covid-19 epidemic, in which the most common is reducing personnel and salaries, bonuses of employees. So are these labor policies of the enterprises legal or not?
1. Reducing personnel
Currently, many enterprises have been conducting the reduction of personnel through those formalities (i) Employees temporarily leave work, and (ii) Employees leave work in the form of termination of a labor contract. The Labor Law 2012 also provides for these cases as follows:
(i) Employees temporarily leave work without terminating the labor contract
There are three (03) formalities specified in the Labor Law 2012 to allow employees to leave work temporarily as below:
Suspension of a labor contract (“LC”)
Pursuant to Clause 5 Article 32 of the Labor Law, employees and employers may reach an agreement on the suspension of LC due to the emergency pandemic status. However, employees and employers should deal and made in writing the due date of suspension the LC, and within 15 days from the expiry of the period of temporary suspension the LC, the employee must be present at the workplace and the employer must take back the employee to work. During the period of temporary suspension the LC, the employer does not have to pay salaries and pay insurance premiums for the employee because it does not arise to perform the work under the contract.
Pursuant to Article 98 of the Labor Law, if due to objective reasons such as dangerous epidemics or economic reasons leading to work suspension, the salary for work suspension shall be agreed upon by the employer and the employer but not lower than the regional minium wage set by the regulations of Government. During the time of work suspension, the employer still has to pay insurance premiums for the work suspension employee.
Pursuant to Clause 3, Article 116 of the Labor Law, the employer and the employee may agree on unpaid leave. In this case, the employee takes a temporary leave and does not receive a salary during the leave. If the employee does not work and does not receive a salary of 14 working days or more in a month, the employer does not have to pay social insurance (according to Clause 4 Article 42 of Decision No.595/QD-BHXH April 14th, 2017 of the Social Insurance Vietnam).
(ii) Employees leave work and their LC is terminated
According to Point c, Clause 1, Article 38 of the Labor Law, when there are force majeure reasons prescribed by law (due to epidemics), if the employer has sought all remedies but still has to reduce production and reduce employment, the employer has the right to unilaterally terminate the LC with the employer. However, it should be noted that when unilaterally terminating the LC, the employer must (i) prove that he has sought all measures and remedies to overcome the economic downturn caused by the epidemic, and (ii) fulfill the advance notice obligation for employees under Clause 2 Article 38 of the Labor Law, specifically as follows:
– At least 45 days for indefinite-term LC;
– At least 30 days for definite-term LC;
– At least 3 working days, for seasonal or work-specific LC of under 12 months as stipulated at Point b, Clause 1 of this Article.
In addition, the employer should also note a few cases where the law does not allow unilaterally to terminate the contract under Article 39 of the Labor Law.
When the employer unilaterally terminates the LC with the employee, the employee is entitled to a severance allowance when he has worked regularly for full 12 months or more, and he is entitled to a half-monthly salary allowance according to Article 48 of the Labor Law.
2. Reducing salaries, bonuses
Up to the present time, the law does not stipulate that employers are entitled to cut down on salaries and bonuses of employees for any reason, including legitimate reasons for force majeure events. Force majeure events such as natural disasters, epidemics are events that employers do not anticipate, but because employers and employees have signed LC, employers are responsible for paying wages and other related payments according to the signed LC. It is illegal to cut down on salaries and bonuses of employees when an epidemic occurs, unless the employee is arranged to take alternate leave to reduce the financial burden on the employer. For example, when employees work and stop working alternately (working time and time to stop work alternately), salaries and bonuses of employees are calculated based on actual working time and agreed salary work suspension as analyzed above.
Thus, on the issue of personnel reduction, the employer has the right to negotiate with the employee on temporary leave or unilaterally terminate the LC. However, it should be noted that unilaterally terminating the LC with the employees is quite risky for the employer because, in fact, it is difficult for the employer to prove that he has found all measures or remedies to overcome the economic downturn caused by the disease. We also had a lot of experience in similar cases, when the employees litigate the employer for unilaterally terminating the LC because the employer could not prove that he had tried all measures and remedies to overcome the difficult situation as above. Therefore, we highly recommend that employers and employees should reach a written agreement on temporary leave or unilaterally terminate the LC with the employee. In addition, employers need to know that it is against the law for employers to arbitrarily cut down on salaries and bonuses of employees performing work under the LC.
Given the current complicated disease situation, employers should take an appropriate approach and consider cases of reducing personnel, salaries and bonuses in order to minimize conflicts with their employees which may lead to employees litigating due to their illegal acts. Hopefully, the information provided by this article is useful for your work.
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TNTP & Associates International Law Firm
Lawyer Nguyen Thanh Ha