Lawful Labor Cuts

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In the course of operations, enterprises are able to implement the labor cuts under certain circumstances such as structural and technological changes or due to economic reasons. However, enterprises should take into consideration their obligations in order not to violate the labor regulations.

Cases where labor cuts are allowed

According to the current labor regulations, enterprises can implement the labor cuts in the following cases:

  1. Changing in structure and technology which leads to the impact on the jobs or lead to the risks of job loss of two or more employees. In this case, the enterprise is entitled to retrench the employees, provided that the enterpise is still unable to settle the new jobs for the said employees after establishing and implementing the employment plans.

The changing of structure and technology  includes: changing in organizational structure, reorganizing labor; changing in products or product structure; changing of processes, technology, machinery, equipment manufacturing and trading in association with the production and business sectors of enterprises.

  1. Due to economic reason, many employees are at risk of job loss and resignation; enterprises must develop and implement the employment plans under the provisions of law. In case the job loss fails to be solved, enterprises can retrench the employees. The “economic reason” herein is understood as crisis or recession, the implementation of the State policy in restructuring the economy or the implementation of international commitments, etc.

Obligations of enterprises

Prepare the employment plans
The employment plans require the following major contents:

  • List and number of the employees who will remain employed, and the employees to be trained before remaining employed;
  • List and number of retired employees;
  • List and number of employees to be transferred to work part-time; the employees whose labor contract will be terminated;
  • Measures and financial resources to ensure the implementation of the plan.

The establishment of the employment plans requires the participation of organizations representing the local labor union.
Employment plans which are built in strict accordance with legal procedures will play a very important role in dispute resolution between the employees and employers. In such case, the Court will base on the employment plans to identify the acts of violation of the labor regulations commited by any enterprises implementing the labor cuts.
In case of retrenchment, the enterprise must pay a severance allowance for the employees who lost their job and have been regularly at work for 12 months or more. The working time calculated for the severance allowance is the total time that the employees has actually worked for the enterprises minus the time that employees joined the unemployment insurance under the provisions of the Law on Social Insurance and the working time that employees have already been paid for severance allowances.
Enterprises can only proceed to cut the number of employees from 2 or more after discussing with the representatives of local labor union and filing a 30 days prior written notice to the provincial labor authorities.
Written notice to the provincial labor authority should include the following major contents:

  • Name and address of the enterprise and legal representatives of the enterprise;
  • Total number of employees; the number of employees to be retrenched;
  • The reasons for the employee retrenchment; the time that the employees will be retrenched;
  • Expected expenses to pay for the severance allowance for the job loss.

In cases of the labor cuts, within 07 working days commencing from the date of terminating the labor contract, both parties are responsible for the full payment of amounts related to the interests of each party; under special circumstances, the term may extend but no more than 30 days. Enterprises shall have to complete certification procedures and return to the employees other documents that enterprises have retained. Besides, it should be noted that enterprises should implement the procedure of informing the reduction of social insurance and completing the social insurance books for the employees.

PLF Law Firm 

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