Labor Disputes in Vietnam: Compliance & Practices for FDI Employers

Labor disputes arise from wage calculation errors, improper termination procedures, and documentation gaps—issues FDI accounting and HR teams prevent through systematic compliance. Vietnam’s Labor Code 2019 requires specific procedures for termination notice periods, severance calculations, and dispute resolution pathways.

Mishandling these requirements triggers administrative penalties under Decree 12/2022/ND-CP—ranging from VND 50-75M for illegal termination to VND 60-80M+ for violations affecting 100+ workers—plus back-pay liabilities and reinstatement costs. Understanding termination compliance, proper severance formulas, and documentation standards transforms labor disputes from reactive crises into manageable HR compliance processes within Vietnam’s FDI payroll and accounting landscape.

Understanding Labor Disputes in Vietnam

Labor disputes encompass conflicts between employers and employees involving employment terms, wages, and termination procedures. For FDI accounting teams, most disputes stem from preventable compliance gaps rather than intentional violations.

Common Causes of Labor Disputes

Unfair dismissal occurs when employers terminate contracts without justified legal grounds or fail to follow proper notice procedures under Labor Code 2019 Articles 34-38. FDI employers often apply home-country “at-will” employment assumptions to Vietnam’s cause-based termination regime—vague performance issues or “not a good fit” rationales fail compliance standards.

Wage and overtime calculation errors dominate FDI disputes. The 200% overtime rate for holidays, 150% for weekend work, and complex allowance classifications create disputes when payroll systems don’t match Vietnamese requirements. Social insurance contributions, 13th month salary timing, and probation period wages (minimum 85% of official salary) add complexity for foreign accounting teams.

Holiday overtime at 200-300% rates is a frequent source of wage disputes—confirm current schedules and multiplier rules in Vietnam’s 2026 public holidays and employer leave obligations.

Documentation gaps during contract execution—unsigned amendments, verbal policy changes, incomplete Internal Labor Regulations (ILR)—create evidence weaknesses favoring employees during dispute resolution. Missing performance evaluations, absent written warnings, or incomplete disciplinary meeting minutes invalidate termination procedures regardless of substantive justification.

Legal Framework

The Labor Code 2019 provides the primary framework. Key provisions affecting accounting compliance: Article 16 (employment contract contents), Article 34 (probation wages), Articles 45-48 (overtime calculations), Articles 88-97 (salary requirements), Articles 98-105 (Internal Labor Regulations), Article 190 (6-month statute of limitations for requesting conciliation).

Decree 145/2020/NĐ-CP details social insurance calculations. Decree 337/2025 introduces e-contract requirements effective July 2026—digital authentication standards affect documentation validity during disputes.

Labor disputes arise from gaps across the full employment lifecycle—for the complete compliance framework from hiring through separation, see Vietnam employment law and HR compliance for FDI companies.

The Statutory Process for Employment Termination

Proper termination procedures prevent most labor disputes FDI employers face. Understanding legal grounds, notice requirements, and severance calculations enables compliant terminations minimizing dispute risk.

Legal Grounds for Termination

Both employers and employees have specific grounds for unilateral contract termination under Labor Code 2019.

Notice period timing affects final wage calculations, unused leave payouts, and severance calculation dates. A 45-day notice for indefinite contracts means termination effective date determines which monthly cycle includes final payments and social insurance contributions.

Each termination ground requires specific evidence thresholds and procedural steps—see employee termination legal grounds and severance calculation procedures for detailed Article 36 compliance.

Notice Requirements and Documentation

Written termination notice must include: termination effective date, legal ground cited, employee’s final working day, severance calculation if applicable, final wage payment date, and social insurance settlement process.

Documentation Timeline: Written termination notice delivered → Employee signature → Notice period expires (45/30/3 days) → Effective termination → Final settlement within 14 working days per Article 48 (extendable to 30 days in special cases).

Termination Documentation Checklist:

• Original employment contract with all signed amendments
• Job description with performance standards
• Performance evaluations (annual minimum, quarterly preferred)
• Written warnings for performance/discipline issues
• Termination notice with employee signature
• Final wage and severance calculation worksheets
• Social insurance settlement confirmation

Decree 337/2025 establishes requirements for electronic labor contracts from July 2026—e-contracts must be concluded via compliant platforms with digital signatures, timestamps, and proper ID tagging under Articles 6-7. While e-contracts are encouraged, paper-based contracts remain valid under the Labor Code. Employers using e-contracts must migrate to approved centralized platforms before July 2026 to ensure evidentiary integrity.

Contract type determines notice period length and termination rights—review Vietnam labor contract types, auto-conversion rules, and probation compliance to confirm current contract classification before issuing notice.

Disciplinary Procedures

Terminations based on misconduct require structured procedures before termination becomes valid.

Required Steps: (1) Written notice to employee 5 working days before hearing with specific misconduct described, (2) Disciplinary hearing with company representatives, employee (may bring counsel/union rep), and witness present—meeting minutes document employee explanation and evidence, (3) Written decision within 7 days citing violation and legal basis with employee signature.

Missing any procedural step invalidates disciplinary action regardless of misconduct severity. Budget 2-4 weeks for proper procedures before termination effective date.

Severance Pay and Benefits

Severance calculation formula: 0.5 × Monthly Average Wage × Years of Service (Labor Code 2019 Article 46).

Monthly Average Wage: Last 6 consecutive months before termination. Includes base salary plus regular allowances (position, seniority, cost-of-living). Excludes overtime, bonuses, one-time payments.

Example: Employee with 5 years service, VND 20M monthly average wage:
0.5 × VND 20M × 5 = VND 50M severance

Eligibility: Minimum 12 months employment, termination by employer (except serious misconduct), not covered by unemployment insurance for this termination.

Payment deadline: Within 14 days of termination. Late payment triggers penalty interest at 2× State Bank base rate.

Severance is NOT required when: employee voluntarily resigns, serious misconduct termination, unemployment insurance applies, or employee transfers with continuous service recognition. Verify unemployment insurance status before calculating—paying both creates unnecessary cost exposure.

Severance calculates on average monthly salary including contractual allowances—confirm which gross components count in employer payroll costs and gross-to-net calculation guide.

Consequences of Non-Compliance

Improper termination generates costs exceeding statutory penalties. Understanding total exposure enables proper financial planning.

Financial Exposure

When courts rule termination invalid, employers must compensate: full salary for dispute period (3-12 months typical), social insurance contributions for same period, unused annual leave, overtime differentials, and pro-rated 13th month salary.

Real Cost Example:

• Original severance: VND 50M
• Employee monthly salary: VND 20M
• Dispute duration: 9 months
• Back-pay: VND 180M (9 × VND 20M)
• Social insurance: VND 38.7M (9 months × 21.5% employer rate)
• Legal representation: VND 25M
• Total exposure: VND 293.7M vs VND 50M original severance

Back-payment of employer SI contributions during dispute periods adds 21.5% to total exposure—see Vietnam social insurance 2026 rates and VSS audit compliance for contribution calculation rules.

Administrative Penalties (Decree 12/2022/NĐ-CP):

• Illegal contract termination: VND 50-75M
• Late severance payment: VND 40-50M
• Improper notice period: VND 20-30M
• Missing documentation: VND 15-25M
• Social insurance violations: 12-18% of unpaid amount

Reinstatement orders create continued salary obligations, workplace complications, and difficulty executing subsequent termination. Reinstatement costs 3-5 times initial severance when factoring management time and eventual compliant termination. Early settlement during conciliation typically costs 10-20% of full dispute exposure.

Operational Risks

Union escalation triggers workplace-wide HR audits. Media exposure damages employer branding in Vietnam’s networked FDI talent market—negative reviews circulate through LinkedIn, employment forums, and industry communities. Recruitment costs increase when employer reputation suffers—technical roles requiring 4-6 weeks to fill add 2-3 weeks due to reputation concerns, costing VND 15-25M per position in delayed productivity.

Union escalation during disputes triggers compliance verification across all mandatory contributions—ensure trade union fee obligations and prohibited employer conduct rules are current before any dispute proceeds.

Labor authorities prioritize FDI employers for compliance audits following disputes. HCMC Department of Labor increased FDI audits by 35% in 2024-2025. Penalties compound when audits discover systemic violations affecting multiple employees.

Optimal Practices for Employers

Proactive compliance through systematic policies and documentation prevents disputes from escalating.

Establishing Clear Termination Policies

Every FDI company with ≥10 employees must maintain updated Internal Labor Regulations (ILR) per Labor Code Article 119.

Required ILR Contents: Working time/rest time (prevents overtime disputes), workplace discipline (establishes misconduct standards), safety/hygiene obligations, property protection definitions (defines serious violations), salary payment procedures, disciplinary procedures (ensures consistent handling).

ILR must be consulted with employee representatives, registered with district DOLISA, updated when Labor Code changes, and distributed to all employees with signature acknowledgment.

Documentation Requirements: Create written procedures for performance evaluation standards, progressive discipline steps (verbal → written warning → suspension → termination), termination approval workflow (HR → legal → director), severance calculation verification, and exit process timeline.

Training and Compliance Reviews

Accounting Team Training: Vietnam severance formulas, social insurance coordination with severance, monthly wage average calculation (6-month window), notice period impact on payroll cycles, e-contract documentation standards (Decree 337/2025).

HR Team Training: Legal grounds by contract type, notice period requirements (45/30/3 days), disciplinary hearing procedures, documentation standards, when to engage legal counsel.

Quarterly Compliance Audits: Review employment contracts signed and filed, performance evaluations current, ILR updated and DOLISA-registered, social insurance filings current, overtime formulas verified, e-contract migration status.

Quarterly audits should verify overtime base rates against updated regional minimums—see Vietnam’s 2026 minimum wage rates and employer compliance impact for current floors by region.

Common Gaps: Missing contract amendments (verbal increases not documented), incomplete probation records, outdated ILR (not updated since 2019), social insurance calculation errors, e-contract non-compliance.

Cost Comparison: Annual prevention (audits + ILR + training) costs VND 50-100M. Single dispute exposure averages VND 150-300M for mid-level employee through arbitration.

When to Engage Legal Counsel

Refer to licensed labor law practitioners before termination notice for: pregnant employees, union leaders, employees with ≥15 years service, mass terminations (≥10 employees in 30 days), cases with documentation gaps.

For standard terminations with complete documentation and clear legal grounds, internal teams can execute following established procedures, then engage counsel only if employee files dispute.

Resolving Labor Disputes

Vietnam requires three-stage resolution. Understanding the process enables accounting teams to support documentation and budget legal costs.

Stage 1: Conciliation (labor conciliator completes mediation within 5 working days) – Labor Conciliation Agency facilitates settlement. Free administrative process. If agreement reached: binding and resolved. If no agreement: proceeds to arbitration or court.

Stage 2: Arbitration or Court (arbitration approximately 37 days total; court 3-6 months) – Labor Arbitration Council handles wage/contract disputes with arbitral tribunal established within 7 working days and decision issued within 30 days from establishment, VND 15-30M legal representation. People’s Court handles termination/social insurance with 3-6 month first-instance judgment, VND 40-60M legal representation.

Settlement Cost Guidance: Conciliation settlement costs 100-150% of original claim (e.g., VND 50M → VND 60M). Post-arbitration settlement costs 150-200%. Full court defense costs 300-500% including legal fees and back-pay risk.

Documentation Support: Accounting teams provide employment contracts, payroll records (12+ months), social insurance records, time/attendance for overtime disputes, performance evaluations, disciplinary records, termination notice with signatures, severance calculation worksheets, final settlement payments.

E-Contract Compliance: From July 2026, arbitration councils may require digital authentication certificates, platform registration verification, and compliant storage. Complete platform migration before June 2026 to avoid evidence validity challenges.

Settlement Decision Framework: If original claim ≤VND 30M with complete documentation, defend through arbitration (likely win, VND 15-25M cost). If claim VND 30-80M with documentation gaps, settle during conciliation at 120-140%. If claim ≥VND 80M or serious documentation deficiencies, settle immediately at 100-120%. Pregnancy, union leader, or discrimination claims require immediate legal counsel engagement with expected settlement at 150-200%.

This guide provides regulatory overview and accounting compliance guidance. It does not constitute legal advice for dispute representation. Consult licensed Vietnamese labor law practitioners for case-specific dispute resolution strategy.

Indochina Link Vietnam provides HR compliance and payroll advisory services including Internal Labor Regulations development, severance calculation audits, employment documentation systems, and quarterly compliance reviews. For dispute representation, we refer clients to trusted legal partners. Contact our HR compliance team for confidential assessment of your documentation systems.