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Forced resignation to employees due to the restructuring changes – Lessons from a lawsuit

The article with the title: “Forced resignation to employees due to the restructuring changes – Lessons from a lawsuit” written by Lawyer Vo Dinh Duc & Lawyer Pham Quoc Tuan – Phuoc & Partners is published on Saigon Economic Times date 13/06/2013.


The Rights of Employers

 Pursuant to Article 17 of Labour Code 1994 and its amendment in 2002 (“Article 17”)[1], due to organizational restructuring changes in divisions, offices, the employers are entitled to apply the retrenchment to the employees. However, the matter of how to apply the Article 17 in Labour Code to legally dismiss employees and avoid disputes is really a headache problem to human resources directors and enterprise managers. The application which is improper and inappropriate to the procedures and substance of the matter may lead to a lawsuit at courts and more seriously, if the employers are charged by the Court that it illegally dismissed the employees, the consequences to be suffered by the employers would be not only simple as being forced to reinstate the employees under the signed contract but far more severe.

Lesson from a real lawsuit

Currently, a Court in Danang City opened a hearing to settle a dispute for the case of unilateral termination of Labour Contract and thereby, the Court made a verdict for the cancellation of an unlawful decision on employment termination of a 17-working-year employee pursuant to Article 17 in the Labour Code issued by a leading foreign invested company operating in Vietnam. The competent Court decided to force the company to reinstate the terminated employee and compensate in accordance with the applicable laws. However, at the hearing, the representative of the company gave the arguments that the Company did strictly comply with Article 17 in Labour Code by accomplishing the necessary step[2] and even taking some more preventive steps.[3] Concurrently, to facilitate the employee to have jobs, the Company also introduced some jobs with the similar contents with their old jobs. In details, the Company gave the employee several options: (i) in case the employee still desires to work in the Branch Office in Danang City, he will have to work at the position of a normal staff instead of a management officer; or (ii) move to Ho Chi Minh City for long term working.

Thus, why does the Court still judge that the dismissal decision of the Company is illegal?

The shortcoming in the steps of the Employer

Despite the fact that the Company has taken almost fully the steps required by law, the employee was successful in persuading the Court that this Company had no actual need of restructure because in the end of the year before the employee’s department was dissolved, the Company itself certified that the department the employee worked in has still been working efficiently and during the following time up to its dissolution around April, this employee was still achieving monthly bonus wage due to the good performance at work and sufficient revenue achievement. Moreover, in the Plan for the restructure on the departments and divisions, the Company showed its decision that the whole department shall be dissolved, however it only displayed the name of such employee to be dismissed and it did not mention other employees who worked in the same department of such employee. The employee also showed that the employer did not hold the re-training session for the employees and they just introduced the similar job with the old one in a different workplace or at a lower position before giving the Decision on labour contract termination to the employee and it is a clear violation to the labour law of the Company. This issue has been construed by the employer that perhaps, from their point of view, the restructure due to the merger or dissolution shall not require the Company to hold the re-training sessions for employees as the restructuration due to the technological changes and the employer only needs to introduce another jobs for the employee. Therefore, the Court agreed with the employee that the Company violated the provision of re-training the employee under Article 17 in the Labour Code. In addition, the contradiction between the Plan for the restructure on the departments and divisions of the Company and the real facts (the Plan indicated that the Company would dissolve the department of 50 staffs but dismiss only one employee and it failed to explain the status or other 49 remaining people) and the employee succeeded in proving that the other employees have been working for the Company doing the same jobs although they have moved to other departments and it caused the Court judged that the Company’s restructuring process was arranged to hide the real  purpose as to intentionally terminate this employee.

 And the experiential lesson to be achieved

 There are many lessons to learn from this case. Firstly, the Labour Code entitles the employers to restructure its internal organization and retrench the concerned employees but it also forces the employers to fully comply with the necessary steps[4] for restructure. The skip of any step can raise the risk for the employer leading to a labour lawsuit. Secondly, in case the employer desires to create a Plan for the use of labour, the solution for all the employees affected by the restructure should be detailed in the Plan to avoid the inconsistency in fact. Another important point is that there are many unclear arguments on whether the employers are forced to re-train the employees due to the restructuring changes by merger or dissolution or not. Even the Supreme Court also had a similar judgment for the similar case[5], in which the employers are required to hold re-training sessions under the Article 17 in Labour Code, but it should be noted that following the Article 44.1 in Labour Code 2012, the enterprise shall not need to retrain its employees in case there is no more jobs available in the enterprise. If the employees deny to attend or may not cooperate in the re-training, it should be recorded in a minutes with confirmation of the trade union committee in the enterprise.

It is a judgment giving much thoughts as well as experiences to learn not only for insiders. After all, the requirements of strict procedures when applying forced steps for the employment termination of the employees is completely reasonable in order to protect the legitimate rights of employees, who are the undeniable weak in this “game”.

[1] In the new Labour Code of 2012, the similar provision to this Article is numbered Article 44.1.

[2]The Company complied with the following steps: (i) Establishing a restructuring plan with a list of employees forcedly resigned, (ii) Notifying the concerned employees and making the decision to terminate the labour contract and (iii) Paying retrenchment allowance to the terminated employees.

[3] (i) Consulting with the Executive Committee of the trade union of the enterprise and reaching agreement on the list of the employees forcedly resigned due to organizational restructuring changes, (ii) Notifying the local labour management authority on the restructuring plan and the list of the employees forcedly resigned.

[4](i) The Company will issue the decision to change the structure and organization of the company concerned to divisions, departments merged or dissolved, (ii) the Company shall notify in writing to the employees affected by the decision on structural change, (iii) the Company establishes plans to use labour force, only when the structural, organizational changes influence many employees, (iv) the Company consults with the Executive Committee of the trade union of the Company about structural, organizational changes of the company and notifies the local labour management authority, in case of retrenching many employees, (v) the Company issues decision to terminate the labour contract of the employees.

[5]Decision of the Court for the case No. 03/2006/LD-GDT dated 04 April 2006 on “The Dispute in regard to unilateral termination of the labour contract” case between Coca-Cola Vietnam Company Limited and Mr. Vo Van Dao.