Article 36 of the Labor Code 2019 restricts employers from unilaterally terminating an employment contract outside 7 statutory legal grounds. Within the broader Vietnam employment law and HR compliance for FDI companies framework, invoking invalid grounds, miscalculating notice periods, or bypassing procedural steps causes courts to declare dismissals unlawful.
An unlawful termination ruling compels employers to reinstate the worker, pay retroactive insurance, back wages for the entire dispute period, and statutory compensation equal to at least 2 months salary. For an executive earning VND 30,000,000 monthly, a 6-month dispute generates direct exposure of at least VND 240,000,000, excluding legal costs and labor audit risks.
1. The 7 Statutory Termination Grounds Under Article 36
Employers cannot terminate employment at will or substitute advance notice with cash without mutual written consent. Unilateral pay in lieu of notice is not recognized under Vietnamese labor law. Every unilateral termination must strictly satisfy one of the 7 grounds in the Labor Code 2019:
| Statutory Ground (Article 36.1) | Application Conditions | Mandatory Evidentiary Dossier |
|---|---|---|
| 1. Repeated non-performance (Point a) | Assessed against internal criteria issued after consulting the employee-representative organization (where one exists) and publicly posted. | Evaluation logs of failed cycles (two consecutive cycles recommended); signed Performance Improvement Plan (PIP). |
| 2. Prolonged medical treatment (Point b) | Inability to work after 12 months (indefinite), 6 months (12-36 months), or half the term (<12 months). | Hospital discharge records or medical certificates issued by competent healthcare facilities. |
| 3. Force majeure or relocation (Point c) | Natural disaster, fire, major epidemic, or state relocation where downsizing is unavoidable. | Official government emergency declaration or written relocation order from state authorities. |
| 4. Absence after suspension (Point d) | Worker fails to report within 15 calendar days following expiration of contract suspension. | Written absence record logged after day 15; certified summons notice sent via registered mail. |
| 5. Unauthorized absence for 5 days (Point e) | Absent without valid legal justification for 5 or more consecutive working days. | Daily timesheets; written daily absence logs; formal written requests for explanation. |
| 6. Statutory retirement age (Point dd) | Reaching statutory retirement age (in 2026: 61 years 6 months for men, 57 years for women). | Original personnel file, ID card/passport; written retirement notice issued prior to termination. |
| 7. Untruthful recruitment data (Point g) | Providing fraudulent personal or credential information that directly affected hiring. | Initial job application and CV; written verification letter from training institutions confirming fraud. |
Risk Distinction: Workforce downsizing from restructuring, technological changes, or mergers falls under Articles 42 to 44, requiring a formal labor usage plan, trade union dialogue, and 30-day notice to the provincial People’s Committee and the affected employees. Review comprehensive rules at Vietnam employment law and HR compliance for FDI companies.
2. Statutory Notice Periods by Contract Type
Short notice, even by one day, triggers payment of salary for the unserved notice days and exposes the dismissal to challenge. The Labor Code 2019 and Decree 145/2020/ND-CP set the minimum notice periods:
| Labor Contract Type | Statutory Notice Period | Legal Citation | Calculation Rule |
|---|---|---|---|
| Indefinite-term contract | At least 45 days | Article 36.2.a Labor Code 2019 | Counted by consecutive calendar days |
| Fixed-term contract (12-36 months) | At least 30 days | Article 36.2.b Labor Code 2019 | Counted by consecutive calendar days |
| Fixed-term contract under 12 months | At least 3 working days | Article 36.2.c Labor Code 2019 | Counted by actual working days |
| Specialized industries (aviation, maritime, enterprise managers) | At least 120 days (indefinite or fixed-term of 12 months or more) At least one-fourth of the term (under 12 months) |
Article 7 Decree 145 | Applies to flight crew, aircraft maintenance staff, seafarers and enterprise managers under the Law on Enterprises |
| Unauthorized absence of 5+ days | Zero notice required | Article 36.1.e, 36.3 Labor Code 2019 | Immediate dismissal upon proper documentation |
Issue written notice with signed acknowledgment and record the actual date, to avoid disputes over when the notice period began. For prolonged illness, notice is at least 3 working days regardless of contract type; grounds (d) and (e) require no notice. Employers cannot substitute notice with money without voluntary written agreement. See contract conversion rules at Vietnam labor contract types, auto-conversion rules, and probation compliance.
3. Severance Allowance vs. Job-Loss Allowance Comparison
Severance allowance and job-loss allowance differ fundamentally in legal grounds, qualifying thresholds, and payout formulas under the Labor Code 2019 and Decree 145:
| Comparison Criteria | Severance Allowance (Article 46) | Job-Loss Allowance (Article 47) |
|---|---|---|
| Triggering Grounds | Contract expiration; mutual agreement; lawful unilateral termination; dissolution. | Structural or technological changes; economic hardship; enterprise merger or division. |
| Tenure Qualification | Regularly employed for at least 12 full months. | Regularly employed for at least 12 full months. |
| Statutory Payment Rate | 0.5 month salary for each qualified service year. | 1.0 month salary per qualified service year, with a minimum floor of 2 months salary. |
| Calculation Period | Total working tenure minus periods covered by unemployment insurance (UI) and prior payouts. | Total working tenure minus periods covered by unemployment insurance (UI) and prior payouts. |
| Base Calculation Salary | Average contractual salary of the 6 consecutive months preceding termination. | Average contractual salary of the 6 consecutive months preceding termination. |
| PIT Treatment | Statutory payout is exempt from PIT; the portion above the statutory rate is exempt only where a higher rate is set in the company regulations, labor contract, or collective agreement (Article 8.3(h) Decree 253/2026/ND-CP, from July 1, 2026). | Same treatment as severance allowance. |
Under Decree 145, working periods are rounded: 1 to 6 months counts as 0.5 year; over 6 months counts as 1.0 year. Base salary is the average contractual wage of the preceding 6 consecutive months, excluding irregular bonuses and non-fixed allowances. See compensation structures at employer payroll costs and gross-to-net calculation guide.
4. 14-Day Post-Termination Settlement and Statutory Formalities
The Labor Code 2019 requires both parties to settle all outstanding liabilities within 14 working days from termination (Article 48.1). This deadline extends up to 30 calendar days only under force majeure or enterprise restructuring.
Mandatory Financial Obligations:
- Outstanding wages: Full settlement of earned salary up to the final working day.
- Unused annual leave: Cash compensation for untaken statutory annual leave.
- Severance or job-loss allowance: Full statutory disbursement based on service years.
Administrative and Regulatory Formalities:
- Social insurance book closure: Finalizing contribution confirmation with Vietnam Social Security (VSS) and returning original papers held, including qualification diplomas. Social insurance books are now issued electronically; a paper book is issued only on request (Law on Social Insurance 41/2024/QH15). Employers are strictly prohibited from withholding a paper social insurance book for commercial disputes. Refer to Vietnam social insurance 2026 rates and VSS compliance framework.
- Foreign employee formalities: Returning the Work Permit to the issuing authority within 15 days of its expiry (Article 31.1 Decree 219/2025/ND-CP), as covered in the work permit guide, and completing personal income tax finalization before departure and within 45 days of the contract end date (Article 10.5(d) Decree 252/2026/ND-CP) under personal income tax finalization under the 183-day residency rules.
5. Legal Consequences and Financial Liabilities of Unlawful Termination
Employers terminating contracts in breach of statutory grounds or procedures face mandatory civil remedies (Article 41 Labor Code 2019):
- Mandatory reinstatement: Restoring the employee to their exact original position, title, and contract salary.
- Back pay and insurance arrears: Paying full salary and retroactive social, health, and unemployment insurance contributions for all days not permitted to work.
- Statutory compensation: Paying additional compensation equal to at least 2 months contractual salary. If notice rules were breached, paying wages for unserved notice days.
- Settlement upon non-reinstatement: If the employee declines reinstatement, paying statutory severance. If the employer does not wish to reinstate and the employee agrees, both parties negotiate additional compensation of at least 2 months salary.
In addition to civil remedies, corporate employers face administrative fines under Decree 283/2026/ND-CP (effective September 10, 2026, replacing Decree 12/2022/ND-CP; organization-level fines are 2x the individual-level figures):
| Violation Category | Legal Citation | Administrative Fine Range (Organizations) | Mandatory Remedial Action |
|---|---|---|---|
| Failure to pay amounts owed after unlawful unilateral termination | Article 18.2 Decree 283/2026 | VND 2,000,000 to 40,000,000 (tiered by number of employees affected) | None specified |
| Failure to pay within 14 days | Art. 18(2) Decree 283/2026 | VND 2,000,000 to 40,000,000 (tiered by number of employees affected) | None specified |
| Failure to pay, or underpayment of, severance or job-loss pay | Art. 18(2) Decree 283/2026 | VND 2,000,000 to 40,000,000 (tiered by number of employees affected) | Pay the full severance or job-loss allowance plus interest at the highest non-term deposit rate of state commercial banks |
| Withholding social insurance book | Art. 18(2) Decree 283/2026 | VND 2,000,000 to 40,000,000 (tiered by number of employees affected) | Complete the social and unemployment insurance contribution confirmation and return the papers held |
| Retaining original IDs or diplomas while concluding or performing the contract | Article 15.2(a) Decree 283/2026 | VND 40,000,000 to 50,000,000 | Immediate return of all original identity cards and qualification diplomas |
6. Mutual Separation Agreements and Risk Mitigation for FDI Employers
A Mutual Separation Agreement (MSA) under the Labor Code 2019 is the safest operational mechanism for FDI employers undergoing restructuring. Management must control 3 core risks:
- Duress and coercion claims: Coercing an employee to sign under threat of disciplinary dismissal can cause courts to void the agreement. Maintain consultation records, provide reasonable review time, and offer voluntary financial packages.
- Absolute protection for female employees: The Labor Code 2019 strictly prohibits unilateral termination on grounds of marriage, pregnancy, maternity leave, or nursing an infant under 12 months (Article 137.3). Review compliance rules at maternity and paternity leave employer obligations.
- Protections for trade union officials: Terminating a non-full-time trade union officer requires written agreement from the directly superior trade union (Article 28 Law on Trade Unions 50/2024/QH15). Terminating a member of the leadership of the grassroots employee-representative organization requires written agreement with that leadership (Labor Code 2019). If agreement fails, the parties report to the competent authority and the employer may decide only after 30 days. For union compliance, review trade union fee obligations and prohibited employer conduct rules.
Unilateral termination disputes are exempt from mandatory conciliation and proceed directly to the People’s Court (Article 188.1 Labor Code 2019). Prepare solid evidentiary files and review procedural rules at Vietnam labor dispute resolution and employer compliance procedures.
Strategic Labor Advisory and Termination Compliance by ICLV
Indochina Link Vietnam (ICLV) assists foreign-invested enterprises with personnel file audits, performance evaluation frameworks, mutual separation agreements, and labor dispute representation:
- Comprehensive legal audit of personnel dossiers and risk evaluation prior to executing unilateral terminations.
- Professional drafting of mutual separation agreements and compliant performance improvement plans (PIP).
- Guidance on social insurance book closure, expat personal income tax departure clearance, and work permit handovers.
- Representation and legal defense in labor conciliation and People’s Court proceedings.
Contact our payroll and HR specialists for comprehensive labor compliance advisory.
