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Setting Up Shop in Vietnam

Two scholars discuss the Labour Code in one of tomorrow’s hottest markets.

May 1, 1998
Related Topics: Managing International Operations, Global Employment Law
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The Pacific Rim has long been viewed as an area with significant opportunities for economic development. With the lifting of the U.S. embargo of Vietnam in 1994 and, more recently, the normalization of relations and Vietnam’s acceptance into ASEAN [Association of South East Asian Nations], U.S.-based businesses can now explore more freely the same opportunities in Vietnam that most other developed nations have enjoyed for the past 10 years. The result: Vietnam is now viewed by many American companies as a hot market.

As U.S. companies begin to conduct business in Vietnam, they will employ Vietnamese citizens. If your company is considering this option, it’s important for you to understand the basic provisions of the 1994 Labour Code of the Socialist Republic of Vietnam.

The Labour Code includes many of the provisions of the United States’ Fair Labor Standards Act, Americans With Disabilities Act, Occupational Safety and Health Administration and Equal Employment Opportunity laws. The Labour Code institutionalizes the doi moi (renovation) policy established in 1986 by the Vietnamese Communist party to address the economic problems of inflation, shortage of goods and lack of foreign investments. The code also protects the rights of workers and employers. A manifest purpose of the Labour Code “is to make Vietnam a wealthy and strong country, and its society fair and civilized.” Short descriptions of several pertinent sections of the code follow.

Discrimination. The code prohibits discrimination on the basis of gender, race and religion. The code specifically establishes preferential treatment for women and other workers traditionally considered protected groups. For example, employers must provide special facilities, paid rest periods, leave and child-care assistance for female employees. Incentives are provided for employing or otherwise preferentially treating such protected groups.

Recruiting. Vietnamese workers can be recruited through various sources. Employment agencies are either government owned (as the U.S. Bureau of Employment Security) or private enterprises. Employers use help-wanted advertising and search for university students through schools’ placement offices.

Employers generally are allowed to select employees on the basis of merit and good business sense. As in the United States, there are laws prohibiting discrimination based on protected status. When employers can’t locate suitable talent and must therefore hire foreign labor (expatriates or third-country nationals), employers are expected to establish training programs for Vietnamese employees who would eventually assume such positions. This practice mainly applies to technical, specialized or managerial positions. Foreign workers must obtain a work permit issued by the Ministry of Labour and are entitled to all rights and benefits and subject to all provisions of the Labour Code. Final selection decisions are made by the plant or company manager, with the HR manager having significant input into the decision.

Employment contracts.Employers must plan to enter into contractual relationships with employees individually or as a collective labor group via agreement. Individual contracts may be signed as indefinite contracts, definite contracts (one to three years) or labor contracts (less than one year). The written contract is a combination of what might equate in the States to the job description and a policy manual designed to promote the safety and security of the Vietnamese worker.

In addition to the nature of work, duration of contract, salary, benefits and issues of safety, the contract specifies a probationary period. During this trial period, not to exceed 60 days in specialized/technical fields (30 days otherwise), employees are paid at least 70 percent of their normal job rate. (To advance from the training rate, employees usually have to pass written and performance tests.) The code also allows for amendments and termination of this contractual relationship.

Labor collective. Acceptance of the negotiated agreement requires a simple majority vote of the labor collective (bargaining unit). The agreement is generally in effect for one to three years after signing by both a representative of the labor collective and the employer. Provisions of the collective labor agreement include issues of job security, pay practices, benefits, work rules and safety. Renegotiation of the labor agreement begins prior to contract expiration. Upon expiration, the existing contract remains in effect while negotiations continue.

Businesses established in accordance with the Law on Foreign Investment are required by the Labour Code to recognize trade unions six months from the date of operation.

All laws and regulations impacting traditional human resources management activities are developed only after involving the Trade Union Federation of Vietnam and employer representatives.

Wages. As in the United States, minimum wage legislation is adjusted periodically for inflation. The legislation, however, is specific to regions and industries. The employer has the right to select the method of wage payment (hourly, daily, production or other) as long as it’s applied for a fixed period of time. Employees normally receive their wages in cash, in full, in a timely manner at the work location. Managers have substantial discretion to adjust wages as necessary to attract and retain valued employees.

Holiday pay is double the standard rate. Shift premiums must be at least 30 percent of the standard rate. Compensatory time is at straight time. Incentives and other compensation arrangements may be designated in the labor contract. The code includes provisions for profit sharing as well.

Sick leave. Ill employees, in order to collect sick-leave benefits, must provide employers with a doctor’s certificate. According to amended Labour Code regulations, a worker should receive 75 percent of his or her salary for the number of days sick leave he or she is entitled to. The number of sick days per year received by each employee is calculated according to that employee’s contributions to the social insurance program.

Health and safety. The Labour Code includes a set of laws on occupational safety, hygiene and environmental protection. Employers have several responsibilities in this regard. During our visit to a battery manufacturer, we noted that the company provided safety equipment to all plant workers. The manager assured us that the safety laws were strictly enforced. He noted that employees must pass a safety test to receive a bonus.

Government ministries provide lists of materials requiring special standards. They also issue lists of all occupational diseases. Employers may be required to conduct feasibility studies in start-up situations, and permits are required.

The code requires compliance with regulations regarding employee safety, including a social insurance system of work-related accident or illness compensation. Essentially, many of the same employer obligations in the United States apply in Vietnam regarding employee safety and health, including reporting requirements.

Social insurance and pensions. The Vietnamese social insurance system is a combination of unemployment compensation, workers’ compensation, some aspects of health insurance and what we know as Social Security. Social insurance payments can be either compulsory or voluntary depending on the size and nature of the enterprise. Employers should expect to contribute 15 percent of payroll; employees contribute 5 percent of wages.

Men aged 60 and women aged 55 who have contributed to the social insurance system for a minimum of 20 years are entitled to receive full retirement pensions. Provisions exist within the system allowing for reduced age/full pension, partial pension payments for those with 15 to 20 years of service, and lump-sum payments for those employees who don’t meet age or years-of-service requirements. Lump-sum amounts are payable on retirement “equal to one month’s salary for each year they made contributions to the fund.” In the event of the employee or the retiree’s death, the Labour Code allows for payment of funeral expenses and perhaps monthly survivor benefits to relatives who were dependent on the deceased.

Dispute resolution. The code provides for the resolution of disputes according to the following principles: negotiation, arbitration, objectivity and timeliness. An interesting aspect of the Labour Code calls for disputes to be resolved publicly. Disputes can be resolved in a binding decision, by either a labor dispute resolution body or by the court.

Conclusion. You should keep in mind that Vietnam is sincere in its attempt to move to a market economy. Its people recognize the need to maintain an employer and labor-friendly environment.

As U.S companies become economically involved with Vietnam and employ Vietnamese, they’ll find the Labour Code more of a help than a hindrance in meeting their HR management responsibilities. The code provides a sound structure and seeks a balance between worker and employer needs. Indeed, our own maze of laws and regulations governing HR practices may well prove to be more complicated and frustrating to manage than the Vietnamese Labour Code.

Global Workforce, May 1998, Vol. 3, No. 3, pp. 24-27.

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