Enterprises can make labor cuts under certain circumstances, such as structural and technological changes or for economic reasons. However, enterprises should consider their obligations to avoid violating labor regulations.

Cases in which labor cuts are allowed

Article 42 of the Labor Code (2019) (effective from January 1st, 2021), enterprises can reduce labor in the following cases:

  • Structural and technological changes lead to an impact on work or lead to the risk of losing two or more employees. In this case, the enterprise has the right to dismiss the employee. However, the enterprise still can solve the new jobs for the above-mentioned employee after developing and implementing the labor utilization plan and discussing with the grassroots trade union about the employees’ dismissal.

     The change of structure and technology includes: Changing the organizational structure, reorganizing labor; changes in product or product structure; changing processes, technologies, machinery, production and business equipment associated with the production as well as the business lines of the enterprise.

  • For economic reasons, as many employees are at risk of losing their jobs and resigning. Enterprises must develop and implement employment plans in line of the legal provisions. In case the job loss issue is not resolved, the enterprise can lay off an employee. “Economic reasons” here are understood as crises or recessions; the implementation of the State’s policy in restructuring the economy or the implementation of international commitments, etc.

Obligations of the enterprises

Making a labor utilization plan

Requires the following main contents:

  • The number and list of workers continue to be employed, workers are retrained to continue using, workers are transferred to part-time work;
  • Number and list of retired employees;
  • The number and list of employees subject to termination of labor contracts;
  • Rights and obligations of employers, employees, and related parties in the implementation of the labor utilization plan;
  • Methods and financial resources to ensure the implementation of the plan.

The formulation of labor utilization plans requires the participation of the representative organization of employees at the grassroots level for the place where there is the representative organization of employees at the grassroots level. Employment plans developed in accordance with legal procedures will play a very important role in resolving disputes between employees and employers. In this case, the Court will base on the recruitment plan to determine the violations of labor rules by any enterprise that implements labor cuts.

Pay severance allowance to employees

In case of severance, the enterprise must pay severance allowance to employees who have lost their jobs and have a regular working period of full 12 months or more. The working time calculated for severance allowance is the total time the employee has worked for the enterprise minus the time the employee has participated in unemployment insurance in accordance with the Law on Social Insurance. It is also the working time during which the employee has been paid severance allowance, and job loss benefits.

Discuss with the Representative organization of employees

Enterprises can only reduce the number of employees by 2 or more people after discussing with the representative organization of employees at the grassroots level the place where there is a representative organization of employees at the grassroots level of which the employee is a member and notifying the provincial People’s Committee 30 days in advance of the employee.

Written notices to provincial-level state management agencies of labor should include the following principal contents:

  • Name and address of the enterprise and the legal representative of the enterprise;
  • Total number of employees; the number of employees laid off;
  • Reasons for the employee’s resignation; the time when the employee quits his/her job;
  • Funding is expected to cover job loss benefits.

The enterprise performs the responsibilities of the employer when terminating the labor contract as prescribed in Article 48 of the Labor Contract in 2019, within 14 working days from the date of termination of the labor contract, the two parties are responsible for paying in full the amounts related to the interests of each party, which includes paying job loss allowances as prescribed in Article 47 of the Labor Code in 2019 and Article 8 of Decree 145/2020/ND-CP; in special cases, the term may be extended but not exceeding 30 days.

The enterprise is responsible for completing the confirmation procedure, returning to the employee other documents that the enterprise has kept, and issuing copies of documents related to the employee’s working process if requested by the employee. In addition, enterprises need to carry out procedures for notifying social insurance reduction and completing social insurance books for employees.

The article is based on laws applicable at the time noted as above and may no longer be appropriate at the time the reader approaches this article as the applicable laws and the specific cases that the reader may wish to apply may have changed. Therefore, the article is for referencing only.


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