Legal issues in labor restructuring during COVID-19 pandemic

1. The Current Situation of the Labor Market in Vietnam Affected by the Covid-19 Pandemic

The Covid-19 pandemic has had a severe impact on the labor and employment market worldwide. In Vietnam, the level of impact is no exception and has been on the rise from 2020 to now. According to data from the General Statistics Office, as of December 2020, the whole country had 32.1 million people aged 15 and over whose jobs were negatively affected by the Covid-19 epidemic, of which 69.2% had reduced income, 39.9% had to reduce working hours, take furlough, take alternate leave and about 14% were forced to take a temporary break or temporarily stop production and business activities.

In 2021, the epidemic broke out strongly in Vietnam, the rapid spread of the Delta variant and the shortage of vaccines made the epidemic situation difficult to control, especially in the southern region. In the second quarter of 2021, the whole country had 12.8 million people aged 15 and over negatively affected by COVID-19, including 557 thousand people who lost their jobs, accounting for 4.4%; 4.1 million people had to temporarily stop/suspend production and business, accounting for 31.8%; 4.3 million people had their working hours cut or were forced to take furlough, take alternate leave, accounting for 34.1% and 8.5 million workers had their income reduced, accounting for 66.4%. This number will certainly continue to increase in the third and fourth quarters of 2021.

Looking at the above situation, it can be seen that the change of income payment policies, labor use plans, restructuring and reorganizing labor is an urgent need of many businesses in the current period for many reasons: businesses have reduced revenue, no longer have the economic capacity to pay the salary and the number of personnel as before; businesses are forced to temporarily stop business due to the implementation of social distancing requirements; businesses need to arrange workers to work at home or work alternately to limit the spread of the epidemic, ensuring safety for workers; businesses cannot import raw materials or cannot export goods for a certain period of time; businesses have to implement the "three on the spot" plan; businesses in blockade and quarantine areas...

So, according to the provisions of Vietnamese law, how will the above-mentioned practical needs of enterprises be solved and what difficulties and obstacles will enterprises encounter in the process of implementation?

2. Current Legal Regulations Related to Labor Restructuring Due to the Impact of the Covid-19 Pandemic

2.1. Regulations on Unilateral Termination of Labor Contracts Ahead of Time

Point c, Clause 1, Article 36 of the 2019 Labor Code (LC 2019) stipulates:

"The employer has the right to unilaterally terminate the labor contract in the following cases:

c) Due to natural disasters, fires, dangerous epidemics, enemy attacks or relocation, narrowing of production and business as required by a competent state agency that the employer has taken all remedial measures but is still forced to reduce jobs."

Thus, with the above regulation, the employer has the right to unilaterally terminate the contract ahead of time with the employee when both of the following two conditions are met:

• A dangerous epidemic occurs and/or relocation, narrowing of production and business as required by a competent state agency;
• The employer has taken all remedial measures but is still forced to reduce jobs.

In addition, when unilaterally terminating a labor contract in this case, the employer must comply with the regulations on prior notice to the employee as prescribed in Clause 2, Article 36 of the LC 2019, specifically: at least 45 days for indefinite-term labor contracts; 30 days for definite-term labor contracts with a term of 12 months to 36 months; 03 working days for definite-term labor contracts with a term of less than 12 months.

Furthermore, the employer should also note that it is not allowed to unilaterally terminate labor contracts with certain special subjects specified in Article 37 of the LC 2019, specifically:

- Female employees who are pregnant; employees who are on maternity leave or nursing children under 12 months of age; employees who are sick or have suffered an accident or occupational disease and are undergoing treatment or recuperation as prescribed by a competent medical examination and treatment establishment; employees who are on annual leave, personal leave and other leave cases agreed by the employer.

2.2. Regulations on Changing Structure and Reorganizing Labor

Article 42 of the 2019 Labor Code (LC 2019) stipulates the obligations of employers in case of changes in structure, technology or for economic reasons. Accordingly, the cases considered "for economic reasons" are specifically defined as: economic crisis or recession; or implementing policies and laws of the State when restructuring the economy or implementing international commitments. Therefore, when the Covid-19 epidemic only leads to economic and financial difficulties for businesses, without creating an economic crisis or recession, it cannot be considered for economic reasons.

However, to cope with the negative impacts of the epidemic, businesses can choose to apply changes in structure and technology as prescribed in Clause 1, Article 42 of the LC 2019:

"1. The following cases are considered as changes in structure and technology:

a) Changes in organizational structure, labor reorganization;

b) Changes in processes, technology, machinery, production and business equipment associated with the production and business lines of the employer;

c) Changes in products or product structure."

Businesses can apply this option in any case they find it necessary to have one of the above changes, not necessarily due to the Covid-19 epidemic.

When making changes that affect the employment of many employees, the employer must develop and implement a labor use plan as prescribed in Article 44 of the LC 2019. The plan includes the following contents:

• Number and list of employees who continue to be used, employees who are retrained to continue to be used, employees who are transferred to part-time work;
• Number and list of employees who retire;
• Number and list of employees who must terminate their labor contracts;
• Rights and obligations of employers, employees and related parties in implementing the labor use plan;
• Measures and financial sources to ensure the implementation of the plan.

In addition, during the development of this plan, the employer must consult with the employee representative organization at the grassroots level where there is an employee representative organization at the grassroots level. The labor use plan must be publicly announced to employees within 15 days from the date of approval.

The dismissal of employees in case of structural change shall only be carried out after consulting with the employee representative organization at the grassroots level where there is an employee representative organization at the grassroots level of which the employee is a member and notifying 30 days in advance to the provincial People's Committee and to the employee as prescribed in Clause 6, Article 42 of the LC 2019.

2.3. Suspension of Labor Contracts

Clause 1, Article 30 of the 2019 Labor Code stipulates the cases of temporary suspension of labor contract implementation, accordingly, most cases arise from personal reasons of the employee such as participating in military service, being temporarily detained or imprisoned, etc. However, point h also provides an open mechanism that is "Other cases as agreed by both parties."

Thus, the employer cannot unilaterally implement the suspension of the labor contract but only when the employee agrees, the labor contract can be suspended.

The suspension of the labor contract is not limited in time but is entirely agreed upon by both parties. When the labor contract is suspended, all the employee's benefits are not enjoyed, as prescribed in Clause 2, Article 30 of the LC 2019: "During the period of temporary suspension of the labor contract, the employee is not entitled to salary and rights and benefits that have been agreed upon in the labor contract, unless otherwise agreed by the two parties or otherwise provided by law." Because during the period of temporary suspension of the labor contract, the employee does not work and does not receive salary, therefore, does not pay social insurance as prescribed in Clause 4, Article 42 of Decision 595/QD-BHXH dated April 14, 2017: "Employees who do not work and do not receive wages for 14 working days or more in the month shall not pay social insurance for that month. This time is not counted for enjoying social insurance." Therefore, employees are also not entitled to sick leave, medical examination and treatment benefits from social insurance, health insurance during the suspension period, if the suspension period is more than 14 days/month.

2.4. Work Stoppage

If the suspension belongs to the agreement of both parties, then the work stoppage belongs to the case of forced leave, due to the fault of one party or due to objective reasons. As prescribed in Article 99 of the LC 2019:

If the work stoppage is due to objective reasons such as: due to incidents of electricity, water that are not caused by the fault of the employer or due to natural disasters, fires, dangerous epidemics, enemy attacks, relocation of operating locations as required by a competent state agency or for economic reasons, the two parties shall agree on the work stoppage salary as follows:

• In case of work stoppage for 14 working days or less, the work stoppage salary shall be agreed upon not lower than the minimum wage;
• In case of having to stop working for more than 14 working days, the work stoppage salary shall be agreed upon by the two parties but must ensure that the work stoppage salary in the first 14 days is not lower than the minimum wage.

Thus, with the above regulations, cases of having to stop working due to the impact of the epidemic (such as implementing the Directive on social distancing with non-essential businesses, blockaded working areas, etc.) are considered objective reasons and the payment of work stoppage salary will be carried out according to the above-mentioned principles from 14 days and over 14 days.

Regarding the issue of work stoppage, the Ministry of Labor, Invalids and Social Affairs has also issued a number of guiding documents such as:

• Official Letter No. 1064/LĐTBXH-QHLĐTL dated March 25, 2020 on guiding the payment of work stoppage salary and resolving regimes for employees during the work stoppage related to the Covid-19 epidemic, which includes the following: In case employees have to stop working due to the direct impact of the Covid-19 epidemic such as: (i) foreign workers during the time they have not been allowed to return to the business to work as required by a competent agency; (ii) employees who have to stop working during the quarantine period as required by a competent agency; (iii) employees who have to stop working because the business or business unit cannot operate because the employer or other employees of the same business or business unit are in the process of being quarantined or have not been allowed to return to the business to work, the salary of the employee during the work stoppage shall be implemented in accordance with Clause 3, Article 98 of the Labor Code (salary as agreed by the two parties but not lower than the regional minimum wage prescribed by the Government).
• Official Letter No. 2844/LĐTBXH-PC dated August 25, 2021 sent to the Department of Labor, Invalids and Social Affairs of Dong Nai Province on guiding some problems in the implementation of policies, which includes the following: According to local regulations, businesses are allowed to operate when they meet the conditions of "3 on the spot" and "businesses that do not meet the requirements must temporarily stop production." For businesses that organize production according to the "3 on the spot" plan but some employees do not agree with the "3 on the spot" accommodation plan required by the business, these cases the two parties, the employee and the business, agree to determine according to one of the following ways:
  • The business allows the employee to stop working and pays the work stoppage salary to the employee as prescribed in Clause 3, Article 99 of the Labor Code.
  • Agree with the employee to suspend the labor contract according to Point h, Clause 1, Article 30 of the Labor Code or the two parties agree to take unpaid leave according to Clause 3, Article 115 of the Labor Code.
  • Other cases as prescribed by labor law, such as: agreeing to terminate the labor contract according to Clause 3, Article 34 of the Labor Code; exercising the right to unilaterally terminate the labor contract with the employee according to Point c, Clause 1, Article 36 of the Labor Code.

2.5. Job Rotation (50% working, 50% leave)

Vietnamese law does not have specific regulations related to job rotation. The specific job rotation time is entirely decided by the enterprise, which can be rotated by day, group of days, or it can be rotated by week. However, in essence, the time the employee has to take leave due to job rotation is also the time of work stoppage. Therefore, the regulations on salary related to the days off in job rotation apply according to the regulations on work stoppage salary as analyzed in Section 4 of Part II.

2.6. Reducing Working Hours, Reducing Salary, Arranging Work at Home

According to the provisions of Article 21 of the 2019 Labor Code, the contents related to working hours, workplace, salary level, salary payment period are the main contents that must be included in the labor contract. Accordingly, any changes related to one of the above contents must comply with the regulations on amending and supplementing labor contracts in Article 33 of the 2019 Labor Code:

"1. During the performance of the labor contract, if either party requests to amend or supplement the contents of the labor contract, it must notify the other party at least 03 working days in advance of the contents to be amended or supplemented.

2. If the two parties agree, the amendment and supplementation of the contents of the labor contract shall be carried out by signing a labor contract appendix or concluding a new labor contract.

3. If the two parties fail to reach an agreement on amending or supplementing the contents of the labor contract, the signed labor contract shall continue to be performed."

Accordingly, reducing working hours or arranging work at home is not a basis for the employer to arbitrarily reduce the employee's salary but must still go through an agreement with the employee. Even in the case of the employee's productivity and quality when working at home not meeting the requirements as working at the company, this is not a basis to directly reduce the employee's salary. In this case, the employer needs to apply the regulations related to "failure to complete the work as contracted" to handle the employee according to the company's internal regulations or as a basis for unilaterally terminating the labor contract as prescribed in Point a, Clause 1, Article 36 of the 2019 Labor Code.

3. Difficulties and Obstacles in Implementing Labor Restructuring Due to the Epidemic

3.1. Problems with Unilateral Termination of Labor Contracts

As analyzed in Section 1 of Part I, the second condition for the employer to unilaterally terminate a labor contract is "having taken all remedial measures but still being forced to reduce jobs." This regulation is very general and has not yet been specifically guided. This leads to many different understandings, many different views, so the practical application may not be uniform and there is a very high risk for businesses when the Court determines that they have not "taken all remedial measures" and are considered to have unilaterally terminated the contract illegally.

The 2019 Labor Code uses the term "all measures" - meaning all, absolute, therefore, making it difficult for employers to unilaterally terminate contracts legally for reasons of epidemics. In case of being considered unilaterally terminating the contract illegally, the employer will have to compensate the employee as prescribed in Article 41 of the 2019 Labor Code: including salary, payment of social insurance, health insurance, unemployment insurance for the days the employee is not allowed to work and pay the employee an additional amount equal to at least 02 months' salary under the labor contract; in which the salary for the days not worked is very large because a case of dispute resolution at the Court through two stages of first instance and appellate often lasts from 01-02 years.

3.2. Problems in Paying Work Stoppage Salary

The law stipulates that the work stoppage salary in case of objective reasons is entirely "agreed upon" by both parties and only sets a minimum level in some cases. This does not mean that if an agreement cannot be reached, the minimum level will automatically apply or if an agreement cannot be reached, the employer has the right to impose the amount of salary to be paid. Even in the guidance documents of the Ministry of Labor, Invalids and Social Affairs, the requirement for "unanimity" of both parties is always set, except for the case of unilateral termination of the contract, which originates from the will of one party.

Therefore, problems will arise in case the employer and the employee cannot agree on the work stoppage salary. In addition to the case where unilateral termination of the contract can be applied, the employer will encounter difficulties and confusion when not knowing how much salary to pay in these cases.

3.3. Difficulties in Reaching Agreement with Employees

Obviously, the policy changes related to labor have seriously affected the economic life and interests of employees. Therefore, reaching the consensus of employees is not easy in some cases. Meanwhile, most of the above-mentioned policy changes must be through agreement with employees. Therefore, the change plans not only need to ensure compliance with legal regulations but also must be "reasonable", consistent with the practical situation, on the basis of sharing difficulties.

4. Some Notes When Implementing Labor Restructuring Due to the Covid-19 Pandemic

Based on the above analysis, in order for labor restructuring due to the Covid-19 pandemic to be carried out effectively and in accordance with the law, businesses should pay attention to the following solutions and implementation processes:

Step 1. Notify and Discuss with Employees About Difficulties and Impacts of the Pandemic

First of all, to gain the consent of employees, the employer needs to be transparent about the relevant information about being affected, the status of revenue, customer sources, raw material sources, etc. of the business. The employer needs to organize meetings with employees to clearly inform about the above situation, forecast bad situations that may occur and promote the spirit of companionship and sharing.

Step 2. Agree with Employees on Plans to Amend Labor Contracts, Suspend Labor Contracts or Stop Work

In all cases, agreement and negotiation are always the first priority. For businesses with employee representative organizations at the grassroots level, this agreement is first with the representatives of the organization. Then, in all cases where contracts must be amended, suspended, etc., the employer needs to have separate agreements with the employees.

The agreement is not difficult because the labor market in general is affected, employees who lose their jobs will find it difficult to find a replacement job in a short time and it will not be difficult when employees truly feel the problems and risks that the entire business has been and is facing. Employees are almost only difficult to accept changes if they feel that the business is not really facing difficulties (the amount of work is still a lot, it is still necessary to increase overtime, etc.) and believe that it is only a measure to terminate the contract with one/a certain number of subjects.

The agreement with the employee must be specifically expressed by notices, meeting minutes, and opinion polls. Even if this agreement does not achieve the results that the employer wants, this is also one of the bases to prove that the employer has used the necessary measures but is still forced to reduce jobs, which is the basis for unilaterally terminating the labor contract legally.

In case the agreement with the employee is effective, the employer needs to amend and sign specific documents with the employee: Appendix amending the Labor Contract; Decision amending the Internal Labor Regulations, collective labor agreement, other internal regulations; Agreement to suspend the labor contract; Work stoppage agreement.

Step 3. Choose a Labor Restructuring Plan in Accordance with the Law

In case the agreement fails, at this time, the employer will consider the actual situation of the business to choose one of the options that the law allows: (1) compulsory work stoppage, self-determining the work stoppage salary (not violating the minimum level in the case of regulations); (2) unilaterally terminating the labor contract; (3) restructuring and reorganizing labor. Among them, each option has its own advantages and disadvantages and is not suitable in all cases.

Specifically, with the option of restructuring and reorganizing labor, it should only be applied to medium and large-sized enterprises with major changes related to personnel. The application of the plan requires the preparation of many types of documents, many working sessions and must be notified and supervised by competent state agencies. In particular, this plan will take at least more than 01 month, which is not suitable for some urgent cases that require immediate suspension of business.

When implementing the compulsory work stoppage plan, although the law does not stipulate the obligation to notify, however, due to the remaining problems in the regulations on salary agreement, therefore, businesses should still ensure a certain level in case of disagreement and make a written notice, requesting opinions from the provincial labor management agency.

5. Legal Consulting Services of Brandco Law Firm Related to Labor Restructuring Issues Due to the Epidemic

As analyzed above, there are many legal issues arising and difficulties in the process of implementing labor restructuring activities due to the impact of the Covid-19 epidemic. Therefore, to support businesses in labor restructuring activities, Brandco Law Firm is currently providing consulting services in this area, specifically as follows:

• Consulting on labor restructuring solutions for businesses affected by the Covid-19 epidemic related to solutions for implementing work stoppages, suspending contract implementation; implementing job rotation regimes; implementing work-from-home regimes... to ensure service of social distancing activities in accordance with the law;
• Reviewing forms and internal documents on labor in enterprises (including Labor Contracts, Internal Labor Regulations, Collective Labor Agreements, Regulations on Evaluating Work Completion, other Internal Regulations). In which, special attention is paid to anticipating cases where disputes are likely to occur and problems related to the Covid-19 epidemic, thereby amending and supplementing appropriate regulations within the scope of the law allows.
• Providing legal advice and participating in conciliation and litigation to resolve disputes related to the termination of labor contracts due to the Covid-19 epidemic (clients can be businesses or employees).

To carry out the above tasks, Brandco Law Firm will provide advice on relevant legal regulations, advise on how, order, and procedures for implementation; support the development and drafting of notices, plans, decisions; propose appropriate solutions with minimal risk for businesses, contributing to maximizing the rights and interests of businesses as well as the rights and interests of employees in accordance with the provisions of Vietnamese law.

Author: Legal Service Department - Brandco Law Firm