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What will the new labour code bring to enterprises?

The article written by lawyer Duong Tieng Thu – Senior Associate and lawyer Nguyen Phuong Thao from Phuoc & Partners is published on Saigon Economic Times dated 28/06/2012.

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On 18 June 2012, the National Assembly passed the new Labor Code.

The new Labor Code has settled many important shortcomings in the current Labor Code such as labor contract, maternity leaves, wage in probation time, working hours, extra work, extending the traditional Tet holiday, leaves for foreign workers, duration of foreigner’s work permit, statute of limitation for labor litigation. Besides, the new Labor Code also added new provisions which have not been prescribed in the current Labor Code, regarding re-hiring labors, cases of void labor contract,industry collective labor agreement. With these changes in the Code, from the viewpoint of the employers, a question should be raised that would the employers who hire Vietnamese laborers be protected more when the new Labor Code takes effect?

  1. Six months of maternity leaves for female workers: would it cause a big hole in human resources or discrimination in recruitment?

According to the new Labor Code, the female workers will be entitled to have six months for maternity leaves instead of four months as currently.

This issue attracts the most attention even when only the draft of the new Code was issued to collect comments from experts and involved bodies.

Following the proposal submitted to National Assembly, the provision of six months for maternity leave is consistent with UNICEF’s recommendation for encouraging mothers to fully breastfeed their babies in six first months as well as protecting health for female workers after giving birth. However, this provision also causes disadvantages for employers in managing and arranging  jobs for female workers after maternity time. With enterprises mainly using the female workforce as the industries of manufacturing leather shoes, garments, agricultural-seafood processing, the shortage in human resources may be an alarming issue to the managers of enterprises operating in such labor-intensive industries. The deficiency of workforce may decrease productive capacity, reduce the quantity of production and competitiveness of enterprises in the market.

As for the enterprises which are hiring female laborers to keep key positions, the personnel arrangement for replacing such female laborers’ roles may cause many difficulties to enterprises, incur more recruitment and training costs while the problem in dismissing the replacement staff when the female laborer comes back to work after maternity leave has not been mentioned. Psychologically, no worker wants to work only for a few months then leave.

Not to mention that from this provision, enterprises may prioritize to recruit male laborers to have stable staff. It may cause the discrimination (publicly or implicitly) in recruitment and increase the unemployment rate of female laborers.

  1. Increasing business cost?

When the new Labor Code takes effect, the costs of business activities will increase. The new Labor Code prescribes that the minimum salary and remuneration payable for the laborer in probation time or during the time the laborer is temporarily transferred to another job different from the labor contract, must be increased from 75 to 85% according to the new Code; increase the wage for laborers who have to work overtime at night with an increase of 20%  compared with provision in current Labor Code.

The increase of salary and remuneration as above seems to put a great financial pressure on enterprises and make employers hesitate to recruit labor in huge number.

  1. Enterprises need to amend internal labor regulations and other documents?

According to the current Labor Code, enterprises are entilted to determine the number of working hours in a day or a week, and it could not exceed 8 hours per day, 48 hours per week. In addtion, enterprises are able to make agreement on working overtime for not over 50% of normal working hours per day, 16 hours per week and 200 hours per month.

With the provisions in new Labor Code, enterprises has the right to determine number of working hours per day or per week, similar to the provision in current Labor Code. However, if enterprises are willing to prescribe working hours per week, enterprise would not be allowed to regulate the normal working hour over 10 hours per day. Moreover, the number of normal working hours and the overtime hours cannot exceed 12 hours per day, overtime hours cannot exceed 30 hours per month and total hours cannot be over 200 hours per year.

Comparing the two above provisions, enterprises, according the new regulation, may have to reduce the working hours per day if they stipulate working hours for a week or overtime hour for a  month. In practices, some enterprises operating in seasonal industries have the focused time of production only in a few months in a year.  Instead of being able to request laborers to work overtime for 56 hours per month (14 hours per week), now enterprises are only entitled to request laborers to work overtime for not over 30 hous per month. It can lead to the stagnation of business activities for manufacturing enterprises that always have to use overtime working hours of laborers to keep up the production of goods, or it can impede the operation of seasonal enterprises.

Besides the decrease of overtime hours as mentioned above, new Labor Code allows laborers to have a longer traditional Tet holiday of 5 days (currently 4 days according to the applicable Labor Code) and the foreigner workers working in Vietnam, besides the holiday stated in current Labor Code applying for Vietnamese labors, will also be entitled to leave on their traditional vacations and Independent day. It can bring difficuties similar to the problems above to enterprises.

The new provisions forces enterprises to carry out a lot of administration procedures and incur the cost of adjustment for internal labor regulations, Collective Labor agreements and even labor contracts signed with laborers as well as other labor regulations when the new Labor Code is effective.

In our opinion, a new law should be promulgated based on the harmony in benefit of both two subjects, laborers and employers, to avoid the “overprotection” for the laborer as well as to reduce the practice that employers may dodge the law to exploit the laborers. With the new provisions above, the new Labor Code inclines to protect the rights and benefits of laborers more than employers.