WHETHER OR NOT THERE IS SEVERANCE ALLOWANCE FOR FOREIGN WORKERS DUE TO TERMINATION OF LABOR CONTRACTS IN COVID 19

Currently, the Covid 19 epidemic is putting great pressure on enterprises in Vietnam. Many enterprises are forced to cut staff to reduce costs with a view to trying to survive  the pandemic season. According to the Labor Code, if the enterprises terminate the labor contracts with Vietnamese employees, they must pay the severance allowance. Therefore, if the enterprise terminates the labor contract with the foreign employee due to the epidemic, will the enterprise have to pay the severance allowance to foreign employee? 

1. The cases of termination of labor contracts due to the Covid 19 epidemic that the employees are entitled to severance allowance

During the time of Covid 19 epidemic in Vietnam, the employee is entitled to a severance allowance if the labor contract is terminated in the following cases: 

– The labor contract expires strictly at the time of epidemic;

– Having completed the work under the labor contract at the time of epidemic;

– The two parties agree to terminate the labor contract due to an epidemic;

– The employee is sentenced to imprisonment, death or prohibited from doing the work specified in the labor contract under an legally effective judgment or decision of the Court at the time of the epidemic;

– The employee dies, is declared incapable of civil acts by the Court, is missing or is dead at the time of the epidemic;

– The employer is an individual who dies, is declared incapable of civil acts by the Court, is missing or is dead; The employer who is not an individual terminates its operation at the time of the epidemic;

– The employee is disciplined by the dismissal at the time of the epidemic; 

– The employee unilaterally terminates the labor contract due to Covid 19 epidemic;

– The employer unilaterally terminates the labor contract due to the Covid 19 epidemic.

2. Are foreign employees entitled to severance allowance?

Pursuant to Clauses 1 and 3, Article 2 of the  Labor Code2012, the subjects of applying this law are:

“Article 2. Subjects of application

1. Vietnamese employees, apprentices, trainees, and other types of employee provided in this
Code.

2. Employers.“

Pursuant to Clause 1, Article 3 of the  Labor Code 2012, those who enjoy the rights and obligations under this Labor Code will be employees in general including Vietnamese employees and foreigners employees. 

“Article 3. Interpretation of terms

In this Code, the terms below are construed as follows:

1. Employee means a person who is full 15 years or older, has the ability to work, works under a labor contract, is paid with wage and is managed and controlled by an employer.“

Pursuant to Clause 1, Article 48 of the  Labor Code 2012, the person receiving the labor allowance from the employer will be the “employee” as defined in Clause 1, Article 3 of the Labor Code 2012:

” Article 48. Severance allowance
1. In case a labor contract terminates in accordance with Clause 1, 2, 3, 5, 6, 7, 9 or 10, Article 36 of this Code, the employer shall pay a severance allowance to the employee who has worked regularly for full 12 months or longer at the rate of half of a month’s wage for each working year.“

Accordingly, severance allowance is an amount that enterprises will have to pay to both Vietnamese employees and foreign employees who have worked 12 months or more. Therefore, enterprises must pay severance allowances for foreign employees who have worked for 12 full months or more if their labor contracts are terminated according to the cases in the Section I (above).

3. Working time and level of severance allowance

a. Do foreign workers have to pay voluntary insurance? 

Pursuant to Clause 3, Article 2 of the  Law on Social Insurance 2006, participants in unemployment insurance are as follows:  

“Article 2. Object application 

…

3. Employees entitled to participate in unemployment insurance include Vietnamese citizens working under labor contracts or working contracts of indefinite term or a term of between full
twelve months and thirty six months for employers specified in Clause 4 of this Article.“

At the same time, according Clause 1, Article 3 of the Law on Work No. 38/2013 / QH13 as follows: 

“Article 3. Interpretation of terms 

In this Law, the terms below are construed as follows:

1. The employee is a Vietnamese citizen aged full 15 years or older, capable of working and has a need to work.“

Therefore, foreigners are not subject to unemployment insurance while working in Vietnam.

b. Consider the working time in which the severance allowance can be paid

Pursuant to Clause 5, Article 1 of Decree 148/2018/ND-CP amending Decree 05/2015/ND-CP, the calculation of time is as follows:

“Clause 3 of Article 14 is amended as follows:

3. Working duration as the basis for calculation of severance pay or redundancy pay is the
total period of time the employee has worked for the employer minus (-) the unemployment insurance period and the period over which severance pay or redundancy pay is paid by the employer (if any). Where:

…

c) The working period shall be rounded up to the next half year to calculate severance pay or redundancy pay (a period of from 1 month to under six month will be rounded up to 1/2  year; a period of 6 months or longer will be rounded up to 1 year)“

Therefore, with a foreign employee, the time to calculate the severance allowance is the total time the employee has worked at the enterprise (minus the time that the severance allowance has been paid before if any). the UI payment area as specified in Section III.1. If there are odd months of more than 1 month and less than 6 months during the work process, it is counted as half a working year, and even from full 06 months or more, it shall be counted as 01 working year. We have two formulas:

Formula1: severance allowance for foreign employees

            Total working time (y) = y1 + 0.5 (Condition 01 = <m <06)

Formula 2: 

Total working time (y) = y1 + 1 (Condition m> = 06)

With: severance allowance for foreign employees

y1: is the total number of even working years of employees at the Enterprise

m: is the odd number of working months of the employee at the Enterprise

c. Rate of severance allowance payable

Pursuant to Clause 3, Article 48 of the Labor Code, the salary used to calculate the severance allowance is specified as follows:

“Article 48. Severance allowance

1. In case a labor contract terminates in accordance with Clause 1, 2, 3, 5, 6, 7, 9 or 10, Article 36 of this Code, the employer shall pay a severance allowance to the employee who has worked regularly for full 12 months or longer at the rate of half of a month’s wage for each working year.

2. The wage used for the calculation of severance allowance is the average wage in accordance with the labor contract during 6 months preceding the time the employee loses his/her work.

Therefore, we have the formula:

Severance allowance = (x1+x2+…+x6)/6 x Y/2

With:

x1, x2, … x6: Is the employee’s most recent 6-month salary;

y: Total working time of the employee (According to the formula in Section III.1).

4. Term of severance allowance 

Pursuant to Clause 8, Article 1 of Decree 148/2018 / ND-CP amending and supplementing Decree 05/2015 / ND-CP we have: To supplement the Article 14a after Article 14 as follows: 

“To supplement the Article 14a after Article 14 as follows:

Article 14a. Time limit for settlement of the employer’s and employee’s benefits after employment contract termination

Within 07 working days from the date of employment contract termination, the employer and employee shall settle each other benefits. This time limit may be extended to up to 30 days in the following cases:

1. The business operation is terminated by the employer that is not a natural person;

2. The employer or employee suffers from a natural disaster, conflagration, enemy-inflicted destruction or infectious disease;

3. The termination is caused by the employer’s changes in organizational structure or technology; economic causes specified in Article 44 of the Labor Code; division, merger or consolidation of the enterprise or cooperative; transfer of the right to ownership or right to enjoyment of assets specified in Article 45 of the Labor Code.“

Therefore, the time limit for payment of severance allowance to the foreign employee upon termination of the labor contract is 07. In case of termination due to a dangerous infectious disease, Covid 19, the maximum payment period for foreign employees is only 37 days.

5. The level of sanction and measures to overcome the consequences of administrative violations

a. Administrative penalty

Pursuant to Article 11 of Decree 28/2020 / ND-CP, the enterprise may be fined from 1,000,000 VND – 20,000,000 VND for failure to pay or not pay the severance allowance to the employee within the prescribed time.

b. Remedy 

Being compelled to pay the full severance allowance to the employee plus the interest of the unpaid amount calculated at the highest interest rate on demand deposits announced by state commercial banks at the time of sanctioning with the act of not paying or paying in full the severance pay, job loss allowance for the employee.

>> THE RIGHT TO UNILATERALLY TERMINATE THE CONTRACT “DUE TO A FUNDAMENTAL CHANGE IN CIRCUMSTANCES” DURING THE COVID-19 PANDEMIC https://linconlaw.vn/the-right-to-unilaterally-terminate-the-contract-due-to-a-fundamental-change-in-circumstances-during-the-covid-19-pandemic/