Employment and Labor ARTICLES

Ceasing Work Or Unilaterally Terminating Labour Contracts

Ceasing Work Or Unilaterally Terminating Labour Contracts

As Covid-19 Pandemic gives no signals of subsiding, many enterprises have not yet gone back to their normal operation status. This issue arises from the characteristics of certain business sectors and the limitation policies from the respective governments of many countries. Many enterprises have no customers or manufacturing materials, leading to their shortage on budget. To maintain their operations, they have to take cutting-down personnel expenses into consideration.

Accordingly, two possible methods recently considered by some enterprises is ceasing work or terminating labour contracts with their employees. Accordingly, each method has different implementations and legal consequences that the employers should understand before making their decisions. This article gives a better view on this issue.

Enterprises cease work in accordance with labour contracts

As being unable to provide jobs for all employees as committed under labour contracts, many enterprises are forced to allocate other jobs to their employees to retain human resources as well as ensure employees’ income. In this case, the allocation shall not exceed 60 working days accumulated in 01 year. Otherwise, it will require the concerned employees’ consent in writing. As for the income, its calculation will be based on the new jobs. If the income from the new jobs is lower than the previous ones, the employees shall be entitled to have income equal to that of the previous jobs for a 30-working day term. After that, the income from the new jobs shall be at least 85% of the income from previous jobs and not be lower than the minimum wage in the area.

However, if some employees do not agree with the allocation that exceeds the 60-day term, enterprises will have to cease work of such employees and pay the wages on ceasing work with them. If there is only a few employees, the amount to be paid by the employer may not be much, but for businesses with a large number of employees, especially manufacturing enterprises, the cost of ceasing work is very large. This will be a great difficulty for enterprises, especially when they are unable to put ceasing work to a stop.

Option for terminating labour contract

If not being able to pay wages on ceasing work to employees, enterprises have to consider terminating labour contracts. Article 36.1 of the Labour Code provides that enterprises can unilaterally terminate labour contracts “c) Where as a result of a natural disaster, fire, major epidemic, hostility, relocation or downsizing requested by a competent authority, the employer, despite having taken all necessary measures to remedy the problem, still needs to reduce the number of jobs.”

For this solution, enterprises must prove the condition of “the employer, despite having taken all necessary measures to remedy the problem, still needs to reduce the number of jobs”. If there is enough basis that enterprises could still allocate jobs to employees but chose to unilaterally terminate the labour contracts, they may not be able to avoid the illegality in unilaterally terminating contract and have to pay damages to employees. Please note that even the laws allow unilateral termination, but in some cases, even after fully satisfying all above conditions, enterprises still cannot terminate the contracts. Such cases include:

– The employee is suffering from an illness or work accident, occupational disease and is being treated or nursed under the decision of a competent health institution, except for the cases stipulated under the labour regulations.

– The employee is on annual leave, personal leave, or any other type of leave permitted by the employer.

– The employee is pregnant, on maternal leave or raising a child under 12 months of age.

Choosing to cease or terminate labour contracts

This will really be a difficult decision for each enterprise after considering its business and financial situation. Choosing these options needs careful consideration of many factors like business plans, plans to retain professional personnel, the financial level to pay for both cases of ceasing work and termination of labor contracts. If the conditions are met by the enterprise for each case, legal consequences may arise from each of the above plans. Based on the analysis of these criteria, the enterprise makes a decision to choose the appropriate option.

Each option will have different legal consequence. The corresponding conditions and the way of implementation of each option will also be different. Incorrect implementation of the order that is intangible with the law and regulations will push the business into legal consequences. Violating labor laws would subject the business to sanctions as well as arises compensation obligations for employees. Businesses should pay special attention to this issue.

In addition to choosing 1 of the 2 solutions mentioned above, some enterprises have considered to establish an agreement with the employee on the termination of the labour contract. The termination of the labour contract will require the consent of the employee. Besides, there are some benefits for both sides in encouraging them to set up termination documents. In fact, this solution is difficult to implement due to the objections of employees, but this is considered the quickest solution if agreed by the employee because in this way, the termination of the labor contract is established based on the voluntariness of employees. In this way, enterprises can eliminate all disputes with employees.

In pandemic circumstances, enterprises face difficulties and challenges in adapting and surviving. Thus, choosing to cut labor-related costs through the two above forms is a solution that can be seen as effective, though not desirable for the enterprise. When using the two above methods, enterprises need to understand the legal process as well as their own circumstances to make a reasonable choice. In order to minimize risks, enterprises should still prioritize agreements with employees over the use of statutory termination procedures.

The article is based on the current laws at the time of drafting as noted above and may no longer be appropriate at the time the reader accesses this article due to changes in applicable law and specific cases that the reader wants to apply. Thus, the article is for informational reference only.

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