Employee termination practices: 5 insights on restructuring, technology, and economic reasons

Enterprises must continually improve to stay competitive. This often involves enhancing efficiency and addressing challenges. Organizational restructuring, the application of new technologies, and various other improvement activities may lead to layoffs, issuing an announcement of  terminated employees. 

Changes in structure, and technology are not only the right but also the responsibility of enterprises to ensure sufficient capability to integrate into the global economy. However, many enterprises choose to restructure, reorganize labor, and reduce personnel due to reasons such as crisis, or economic downturns resulting in narrowing business scales and production to ensure the maintenance of enterprise operations during difficult times.

Understanding these situations, the Vietnam law allows enterprises to have the right to terminate the employment relationship with workers in cases of changes in structure, technology, or changes due to economic reasons where new job arrangements cannot be provided for the workers.

In this article, PLF Law Firm presents 5 important notes when dismissing employees in case of changes in structure, technology, or changes due to economic reasons:

1. Correctly identify cases of changes in technology, structure, or economic reasons

According to Article 42 of the Labor Code 2019, changes in technology, structure or economic reasons fall into the following cases:

• Changes in the organizational structure, labor rearrangement;
• Changes in processes, technology, and equipment associated with the employer’s business lines;
• Changes in products or product structure.

Meanwhile, economic reasons are identified as:

• ­Economic crisis or recession;
• Changes in law and state policies upon restructuring of the economy or implementation of international commitments.

Although the law does not specify procedures for cases of changes in structure, technology, or changes due to economic reasons, it is important to note that: 

• changes in structure or technology must indeed occur and have clear reasons and purposes; 
• enterprises need to fully comply with necessary internal procedures such as developing plans for restructuring, adopting new technology, defining objectives, assessing strengths and weaknesses when restructuring organization, labor, and making decisions regarding departmental separations, mergers, etc.

If an enterprise falsely claims restructuring, technological changes, or economic difficulties to terminate employment without following proper procedures, the termination is illegal. Unilaterally terminating labor contracts under these circumstances could lead to legal consequences for the enterprise.

2. Develop and implement a labor utilization plan

In cases of changes in structure, technology, or changes due to economic reasons that affect the employment of many workers or lead to the risk of job loss for many workers, the employer must develop and implement a labor utilization plan; and prioritize retraining workers for continued employment. If new job arrangements cannot be made for the workers, the employer may issue an announcement of terminated employees.

3. Exchange opinions with the employee representative organization at the facility, dialogue at the workplace

Before issuing an announcement of terminated employees, the employer must engage in discussions with the representative organization of the workers at the facility where the workers are members of such representation organization.

Furthermore, employers should conduct workplace dialogue following grassroots democratic regulations that they establish and issue based on relevant legal provisions.

4. Notify the Provincial People’s Committee and workers about dismissing such workers

The employer must notify the Provincial People’s Committee at least 30 days before terminating the employment relationship. Additionally, the employer must notify dismissed workers at least 30 days in advance due to changes in structure, technology, or economic reasons that prevent new job arrangements.

It’s important to note that the notification responsibility of the employer does not exempt or eliminate obligations related to complying with regulations regarding terminating the employment relationship in this case. Notification is an administrative procedure to ensure the management by state agencies regarding labor, economic, and social security. Additionally, upon receiving the notification, the Provincial People’s Committee may either guide the employer themselves or request relevant departments to ensure compliance with legal requirements, thereby minimizing the risk of disputes between workers and employers.

5. Full payment of redundancy allowance to employees

When developing a labor utilization plan, the employer must include a plan for providing redundancy allowance to workers who are dismissed. This plan should be formulated after consulting with representatives of the employees’ organization and conducting dialogue in the workplace, following grassroots democratic regulations and legal provisions. Once issued, the enterprise must adhere to and implement this plan.

Therefore, when dismissing workers in case of changes in structure, technology, or due to economic reasons, the employer needs to consider the legal requirements for such cases. Additionally, the employer should refrain from using restructuring, technological changes, or economic reasons as a pretext to dismiss workers who do not meet their preferences without considering the genuine nature of the restructuring, technological changes, or economic reasons.

Restructuring and downsizing are often necessary for businesses to survive and thrive. However, terminating employees is a complex process with legal implications. However, terminating employees, including issuing an announcement of terminated employees, is a complex process with legal implications. PLF Law Firm can provide the guidance you need. Contact PLF Law Firm today for a Free Initial 30-Minute Consultation with our legal expertise.

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Employee Termination