Labor Law for Businesses
Restructuring — merging departments, automating production lines, downsizing underperforming business segments — is a normal part of corporate life, but each such decision directly touches employees’ jobs. The Labor Code 2019 demands a strict sequence: correctly identify the ground of structural, technological change or economic reasons; build a labor utilization plan; discuss with the employee representative organization; notify the state authority and the employees in advance; and only then proceed with redundancy and job-loss allowance payments. This article systematizes that entire sequence from a practical perspective.
When May a Company Make Employees Redundant for Structural, Technological Change or Economic Reasons?
Not every headcount cut falls into the “structural, technological change or economic reasons” group. Article 42 of the Labor Code 2019 lists three groups of cases deemed structural or technological change: changes in organizational structure or labor reorganization; changes in processes, technology, machinery or production/business equipment; and changes in products or product structure. Two groups of cases are deemed economic reasons: economic crisis or recession, and implementation of State policies and laws when restructuring the economy or implementing international commitments.
Correctly identifying the ground is decisive because it triggers the entire subsequent procedure. A vague “business difficulties” reason rarely protects a mass dismissal decision: dispute resolution bodies usually demand documents proving the change is real, such as the restructuring decision, new machinery investment dossiers or financial reports. So as soon as a reduction plan emerges, the company should gather and preserve complete evidence of the ground.
The Labor Utilization Plan: Mandatory Contents and How to Build a Feasible One
When structural or technological change affects the jobs of many employees, or economic reasons put many employees at risk of job loss, the employer must build and implement a labor utilization plan under Article 44 of the Labor Code 2019. A proper plan must answer: how many employees are affected, in which positions; who continues to be employed, who is retrained; who moves to part-time work; who must be made redundant or retire; the rights and obligations of each group; and the funding source and implementation roadmap.
The running principle is to prioritize retraining employees for continued employment when new jobs exist — redundancy is only the last resort. The dossier should show this consideration process, for example minutes of meetings assessing retraining feasibility. Detailed contents are guided by Decree 145/2020/ND-CP; for unclear points, the company should consult a lawyer before issuance.
Implementation Sequence: Discussion, 30-Day Notice and Milestones Not to Miss
Article 42 of the Labor Code 2019 provides that redundancy may only proceed after discussing with the grassroots employee representative organization — for places with a representative organization of which the employees are members — and giving 30 days’ prior notice to the provincial People’s Committee and to the employees. Missing either of these procedural conditions puts the redundancy decision at risk of being deemed unlawful.
Many companies stumble at the “discussion” step by misunderstanding its nature: discussion does not mean obtaining the representative organization’s approval, but it requires a substantive discussion, with minutes, in which the company presents the grounds and the labor utilization plan and listens to feedback. The 30-day mark is counted before the redundancy date, so the entire reduction timeline must be planned backward from this mark to avoid schedule pressure.
Job-Loss Allowance and Amounts Payable upon Redundancy
When jobs cannot be arranged and employees must be made redundant under Article 42, the employer must pay job-loss allowance under Article 47: one month’s wage per working year but at least two months’ wages; the calculation period is the total actual working time, minus time already covered by unemployment insurance and time already paid severance or job-loss allowance. The calculation wage is the average of the 06 consecutive months before redundancy.
Beyond job-loss allowance, the company must fully pay outstanding wages, untaken annual leave pay and other amounts under agreements or the collective labor agreement; and complete procedures confirming social insurance contribution periods and return papers kept from employees. Practice shows post-reduction disputes usually erupt from overlooked “small” amounts — annual leave pay, bonuses under regulations, late insurance book finalization — rather than the formula-based allowance. A detailed settlement statement signed by each employee is the simplest way to close a reduction cleanly.
Distinguishing Redundancy under Articles 42–43 from Unilateral Termination
Many companies confuse “redundancy” under Articles 42–43 with “unilateral termination of employment contracts” under Article 36 of the Labor Code 2019. Redundancy under Articles 42–43 attaches to the company’s structural, technological or economic changes and requires a labor utilization plan plus discussion and notification procedures; unilateral termination under Article 36 rests on individual grounds such as regularly failing to complete work or prolonged sickness. Consequences also differ: redundancy under Article 42 triggers job-loss allowance, while ordinary termination applies severance allowance if eligible.
“Mislabeling” — substantively a restructuring-driven cut but processed as performance-based unilateral termination — does not avoid procedures and only adds grounds for employees to challenge the honesty of the reason. When planning headcount, the company should clearly classify each employee group under the correct legal ground.
Risks of Improper Reduction: Disputes and Sanctions
The cost of an improperly executed reduction is usually far higher than the cost of compliance from the start. Employees unlawfully made redundant may demand the decision be declared invalid, demand reinstatement and compensation; even when neither side wants to continue the relationship, the company must still compensate wages for the days the employee was not allowed to work plus other prescribed amounts. Administratively, violating redundancy procedures and labor utilization plan obligations can be penalized under Decree 283/2026/ND-CP. Notably, a non-transparent reduction also erodes the trust of remaining employees, easily triggering a wave of key-personnel resignations — exactly when the company needs them most to run the new organization.
Restructuring via Division, Split-Off, Merger: Labor Specifics
When restructuring takes the form of division, split-off, consolidation, merger or change of company type, labor issues are more complex because they involve transferring employment relationships between legal entities. Article 43 requires building a labor utilization plan when these transactions affect the jobs of many employees. Employees do not automatically “follow” the transferred assets or capital; each employment contract must be reviewed to determine the successor of rights and obligations.
In M&A transactions, experienced buyers typically include labor obligations in the due diligence list: the seller’s labor utilization plan, allowances paid or unpaid, existing disputes and outstanding insurance obligations. Skipping this step, the buyer may “inherit” labor complaints arising from the previous owner’s decisions. You may also refer to relations with employee representative organizations during restructuring, as this is the mandatory discussion counterpart before any redundancy decision.
What Should FDI Companies Prepare before a Headcount Reduction?
For foreign-invested companies, a reduction round usually faces additional pressure from the parent group on timelines and allowance budgets. Practical advice is to “translate” the global plan into the language of Vietnamese law from the start. Three points need careful preparation: the evidence of the ground must attach to actual operations in Vietnam; discussion documents with the employee representative organization should be bilingual so foreign leadership can follow, but only the Vietnamese version has legal value when working with state authorities; and the 30-day notification schedule needs careful calculation as it is usually longer than the parent group’s expected timeline.
The reduction round should also be synchronized with insurance obligations: finalize social insurance books promptly and reconcile outstanding contributions to avoid reassessment during inspections. See also our labor law advisory page.
Frequently Asked Questions
How far in advance must the company notify the state authority of a mass redundancy?
Under Article 42 of the Labor Code 2019, redundancy may only proceed after discussing with the grassroots employee representative organization and giving 30 days’ prior notice to the provincial People’s Committee and to the employees.
How is job-loss allowance calculated?
Under Article 47, one month’s wage per working year but at least two months’ wages; the calculation period is the total actual working time minus time already covered by unemployment insurance and time already paid severance or job-loss allowance.
Must the company discuss with the trade union before redundancy?
Article 42 requires discussion with the grassroots employee representative organization where one exists and the employees are members. Discussion does not mean approval is required, but it must be a substantive discussion with minutes.
May the company hire new people into just-reduced positions?
The law does not absolutely prohibit it, but hiring immediately into just-reduced positions seriously weakens the legitimacy of the redundancy ground if a dispute arises.
What is different for foreign employees made redundant during restructuring?
Procedurally, the same rules apply as for Vietnamese workers. The difference lies in accompanying procedures: the work permit expires when the employment contract terminates and the company must handle its retrieval and return; social insurance obligations must also be fully settled.
Useful Links
- Labor Law Advisory – our dedicated labor law page for businesses.
- Relations with Employee Representative Organizations – the role of unions and representative organizations in discussion and negotiation.
- Social Insurance and Payroll Compliance for FDI Companies – book finalization and insurance settlement in mass terminations.
- Company Wage Policies – salary scales, payroll regulations and allowance payments.
Talk to a FLAT LAW FIRM Lawyer
A legally well-prepared reduction round closes quickly with few disputes. Send us your planned restructuring so we can review the legal grounds and assess the labor utilization plan.
- Preparing restructuring, mergers, production downsizing and needing an HR plan assessment.
- Needing to draft the labor utilization plan and discussion documents with the employee representative organization.
- Facing complaints or disputes arising from a redundancy round.
The content on this website is for general information purposes only and does not substitute legal advice for any specific matter.
Laws and regulations, the jurisdiction of state authorities and administrative procedures may change over time, vary by locality and depend on each specific file. You should consult a lawyer before making decisions or carrying out transactions.
