Vietnamese Probation Contracts - What employers need to know

Vietnamese Probation Contracts - What employers need to know
Vietnamese Probation Contracts - What employers need to know

In fact, the Probationary Contract is no longer uncommon to enterprises that generally deem that the probationary relationship is “not worrying or less risky” than the labor contract. However, this perspective has pushed some companies into a dilemma and to face many risks, such as disputes at labor agencies and courts. In order to ensure the recruitment of the appropriate personnel, the companies should consider the establishment of a probationary contract as well as the recording of job evaluation results, and the implementation of the notification process in accordance with regulations.

1. Contract of probation

As we all know, both previous and current labor codes recognize the provision that the company is only allowed to give employees a probationary period once for a job.

With the above regulation, many views now understand that for a certain position at the company, a probationary period can only be applied to an employee once, in case an employee stops working or terminate the labor relationship with the company, then return to work with that job position, the company is not allowed to ask the employee for probation again.

1.1 Form of probation contract

The company and the employee can agree on the probationary relationship in one of the following two forms:

  • Include provisions on probation to the official labor contract. Accordingly, the provisions of probation are part of the labor contract. In addition to the provisions during the probationary period, the parties also are subject to all the rights and obligations under the labor contract. In particular, the contents not required in the separate probationary agreement listed in section 2 of this article must be agreed upon according to the provisions on the content requirements of the labor contract.
  • Agreement on probation by a probationary contract. Accordingly, the employer and the employee do not need to agree on the contents listed in section 2 in case of a separate probationary contract. At the end of a successful probation period, the employer and the employee will enter into an official labor contract based on the employee’s probation results and company’s policy. Applying this method, the company will have to prepare two separate contracts for an employee: a probationary contract and a labor contract. In return, this form of agreement has the advantage that the labor code does not require the company to be obligated to pay for Social Insurance, Health Insurance and Unemployment Insurance and also does not require to agree about the promotion and salary increases for employees during the probationary period.

1.2 Contents not required to be agreed upon when entering into a probationary contract

The contents listed below are not required to be agreed upon when the company enters into a probationary contract with the employee:

  • Term of the labor contract
  • Mode for raising grades, raising wages
  • Social insurance, health insurance and unemployment insurance
  • Training, fostering and improving vocational qualifications and skills

Some of the required contents when entering into a probationary contract with the employee are:

  • Company and its legal representative’s information
  • Employee’s information: Full name, date of birth, gender, place of residence, ID card number, identity card or passport of the person entering into the contract on the employee’s side
  • Work and place of work
  • Salary according to job position or title, form of payment, date of payment, salary allowance and other additional payments
  • Working time, rest time
  • Labor protection equipment for employees.

1.3 Cases where probation is not applicable

Clause 3, Article 24 of the Labor Code 2019 stipulates that the company is not allowed to apply a probationary period to employees who enter into contracts with a term of less than 1 month. Thus, the requirement not to apply the probationary period of this regulation only applies to short-term labor contracts with a term of less than 1 month. Thus, only the company that intends to sign a contract with a term of 1 month or more with the employee has the right to agree on a probationary period with the employee and it is subject to the conditions mentioned in section 2. of this article.

2. Probationary period

The employer and the employee can freely agree on a probationary period based on the nature and complexity of the job, but must ensure the following conditions:

  • No more than 180 days of probation for the job of an enterprise manager in accordance with the Law on Enterprises, the Law on Management and use of state capital invested in production and business in enterprises. Specifically, enterprise managers according to the provisions of the current Law on Enterprise include: Owners of private enterprises, partners, Chairman of the Members’ Council, members of the Members’ Council, President of the company, Chairman of the Board of Directors, members of the Board of Directors, Director or General Director and individuals holding other managerial positions as prescribed in the company’s charter.
  • No more than 60 days of probation for jobs with professional titles that require professional and technical qualifications from college or higher.
  • No more than 30 days of probation for jobs with professional titles that require intermediate technical qualifications, technical workers, and professional staff.
  • No more than 06 working days of probation for other jobs.

Thus, the new regulations eliminate the probationary period according to the term of the labor contract expected to be signed. Moreover, the Labor Code 2019 is restructuring the probationary period as well as supplementing the probationary period up to 180 days for the managerial position, people with high positions and powers in the company.

3. Probationary salary

The employee’s salary during the probationary period shall be agreed upon by both parties but must be at least 85% of the official salary of that job.

In addition, the minimum wage during the probationary period (85% of the salary of the official job) must not be lower than the regional minimum wage for employees working under labor contracts issued by the government, determined by the administrative location where the employee works from time to time.

However, there are cases where the company recruits workers in senior management positions with very high salaries. Accordingly, the company needs to agree with the employee to pay a salary lower than 85% of the official salary as prescribed during the probationary period so that the employees can get used to the job, and the company also has time to assess the capacity of employees before giving official salaries and benefits. In fact, it is not difficult for us to see that many companies are applying the salary payment method on the basis of encouraging a higher salary when employees meet certain criteria, specifically:

  • Signing a separate probationary contract without mentioning the official salary. This salary will be agreed upon when the employee passes the probationary period; or
  • Implementing specific regulations on the following 03 salary levels:
    • Salary paid to employees during the probationary period (meet at least 85% of the salary after probation).
    • Salary after probation period (100%).
    • A higher salary after the probationary period in case the employee completes the assigned target during the probationary period (>100%)

For example:

    • A company has an agreement on a 30,000 USD official salary of employees whereas the salary during the probationary period is 20,000 USD – The above agreement is not in accordance with the provisions of the law.
    • A company agrees with the employee that the salary of the employee during the probationary period is 100% of the official salary equivalent to 20,000 USD. In addition, the company and the employee also have an agreement stipulating that, if the employee meets the sales target requirements, after the probationary period, the company and the employee will negotiate to enter into an official contract with a salary of 30,000 USD. – This agreement does not contravene current labor regulations.

4. End of probation

4.1 End of probation during probation period

During the probationary period, each party has the right to terminate the signed probationary contract or labor contract without prior notice and without compensation.

4.2 At the end of the probationary period

At the end of the probationary period, the company must notify the employees of the probation results, specifically:

  • In case the probationary period is satisfactory, the company shall (i) continues to perform the signed labor contract in the case of probationary agreement was mentioned in the labor contract; or (ii) enter into a labor contract in the case of entered into a separate probationary contract.
  • In case of unsatisfactory probation, the signed labor contract or probationary contract shall be terminated.

Some related notes in the probationary relationship:

  • The probationary period is also considered the working time to calculate the number of annual leave days of the employee if he/she passed the probationary period.
  • The probationary period is considered as the working time for calculating severance pay or unemployment allowance.
  • In case the employees on probation are working under the labor contract which is subject to compulsory social insurance, the company and the employee must pay it for the whole probationary period.

The article is based on applicable law at the time noted as above and may no longer be appropriate at the time the reader approaches this article as the applicable law has changed and the specific case that the reader wishes to apply. Therefore, the article is only for reference.