[Scenario] Mass Layoff of 30% of the Workforce After Business Losses: The Lawful Process in Vietnam

A mass layoff is among the most difficult and legally risky decisions a company can make: a single procedural misstep may cause the entire round of terminations to be declared unlawful, forcing the employer to reinstate workers, pay compensation, and face fines. This article analyzes a typical hypothetical — a loss-making company needing to cut 30% of its workforce — under the 2019 Labor Code of Vietnam (Articles 42, 44, 47, and 48) and its guiding instruments, covering the background, legal options, a 10-step lawful process, and an implementation checklist.

Table of Contents

• 1. The Scenario (Hypothetical)
• 2. Legal Issues
• 3. Analysis
• 3.1 Applicable Legal Framework
• 3.2 Option A: Termination for Economic Reasons (Articles 42 and 44)
• 3.3 Option B: Unilateral Termination of Labor Contracts
• 3.4 Option C: Mutual Agreement to Terminate
• 3.5 Comparison of Options
• 4. Solution: A 10-Step Lawful Process
• 5. Implementation Checklist
• 6. Five Common Mistakes Employers Make
• 7. Extended Questions
• Is Your Situation Different?
• Language Versions
• References

1. The Scenario (Hypothetical)

The scenario below is hypothetical and for illustration only. All figures, names, and details are invented by the author to analyze the legal framework; they do not reflect any real company or case.

• F1. Company X LLC is a manufacturing enterprise in an industrial park with approximately 500 employees working under labor contracts, most of them indefinite-term. The company has a grassroots trade union (the grassroots employees' representative organization).
• F2. The company has been loss-making for two consecutive years; revenue in the most recent year fell by about 40% from its peak, and several production lines have been shut down for lack of orders.
• F3. Management plans to terminate approximately 150 employees (about 30%) in the coming quarter to cut costs and keep the company afloat.
• F4. No labor utilization plan has been prepared; some managers propose issuing a "mass dismissal decision" immediately to save costs.
• F5. Among the employees slated for termination, many have worked for the company since before 2009 (when the unemployment insurance regime did not yet exist); most of the rest have fully participated in unemployment insurance since its introduction.

2. Legal Issues

• Q1. May the company terminate 150 employees en masse because of losses, and on what legal basis?
• Q2. What mandatory procedures must be followed before termination?
• Q3. How is each employee's job-loss allowance calculated?
• Q4. What are the legal consequences of taking shortcuts — dismissing everyone at once without following the procedures?

3. Analysis

3.1 Applicable Legal Framework

Starting point: "termination for economic reasons" is a standalone regime — it is not unilateral termination of a labor contract. Clause 11, Article 34 of the 2019 Labor Code lists "employees terminated under Articles 42 and 43" among the cases of labor contract termination — i.e., the law treats this as an independent ground for termination with its own procedures, distinct from the employer's unilateral termination under Article 36.

Article 42 of the 2019 Labor Code sets out the employer's obligations in cases of structural or technological change or economic reasons:

• Clause 2, Article 42 defines two cases constituting "economic reasons": (a) economic crisis or recession; (b) implementation of State policies or laws in restructuring the economy or fulfilling international commitments.
• Clause 4, Article 42: where economic reasons put many employees at risk of job loss or termination, the employer must formulate and implement a labor utilization plan in accordance with Article 44.
• Clause 5, Article 42: where employment cannot be arranged and employees must be terminated, the employer must pay job-loss allowances under Article 47.
• Clause 6, Article 42: termination may proceed only after consulting the grassroots employees' representative organization (where the employees are members) and giving 30 days' prior notice to the provincial People's Committee and to the employees.

Article 44 requires the labor utilization plan to contain five key contents: (a) the number and list of employees continuing to work, being retrained to continue working, or switching to part-time work; (b) the number and list of employees retiring; (c) the number and list of employees whose labor contracts must be terminated; (d) the rights and obligations of the employer, employees, and relevant parties; and (e) measures and financial resources to implement the plan. When formulating the plan, the employer must consult the grassroots employees' representative organization; the plan must be publicly announced to employees within 15 days of its adoption (Clause 2, Article 44).

Article 47 governs job-loss allowances:

• Clause 1: employees who have worked regularly for the employer for at least 12 months and lose their jobs under Clause 11, Article 34 receive one month's salary for each year of service, with a minimum of two months' salary.
• Clause 2: the service period equals total actual working time minus time covered by unemployment insurance minus time already compensated by severance or job-loss allowances. Detailed guidance is provided in Clause 3, Article 8 of Decree 145/2020/ND-CP, including the rounding rule: fractions of up to 6 months count as half a year; over 6 months count as one year.
• Clause 3: the salary base is the average salary of the 6 consecutive months under the labor contract immediately before the job loss.

One point often overlooked: losses at a single company do not automatically constitute an "economic crisis or recession" under point (a), Clause 2, Article 42. The law sets no quantitative threshold — two years of losses and a 40% revenue decline (F2) are business facts, not a legal conclusion. In practice, the competent State authority may question the "economic reasons" basis when reviewing the company's plan and notices. For this scenario, the company should therefore prepare convincing financial and business evidence (financial statements, order data, management minutes recording the inability to sustain employment) rather than treating "losses" as an automatic ticket. This is an open point on which counsel should be consulted before implementation.

3.2 Option A: Termination for Economic Reasons (Articles 42 and 44)

What it involves. The company completes the full Article 42/44 process: consulting the union, formulating and announcing the labor utilization plan, giving 30 days' notice to the provincial People's Committee and the employees, then terminating and paying job-loss allowances under Article 47.

Legal basis. Clause 11, Article 34 (ground for contract termination); Article 42 (conditions and procedures); Article 44 (plan contents); Article 47 and Clause 3, Article 8 of Decree 145/2020/ND-CP (job-loss allowance); Article 48 (payment deadlines).

Advantages. This is the only regular route the law designs for workforce reductions driven by economic hardship. Done properly, the terminations rest on solid legal footing and the risk of being declared unlawful — and of reinstatement orders — is minimized. The statutory job-loss allowance (one month's salary per year, minimum two months) is also typically cheaper than the total exposure from an unlawful termination finding.

Risks and limits. The procedure takes time: at least 30 days' notice before termination, plus the time to formulate, consult on, and announce the plan — in practice a well-run round takes about 2–3 months. The company must publicly disclose numbers, lists, and the financing of the payouts, and may face questions from the authorities on the "economic reasons" basis. Moreover, during the procedure the company must maintain the employment relationships and payroll for the employees slated for termination.

3.3 Option B: Unilateral Termination of Labor Contracts

What it involves. The company issues a "mass dismissal decision" as proposed in F4, citing losses to unilaterally terminate the contracts of 150 employees.

Legal basis. None. "Losses" or "the need to cut costs" are not among the cases in Clause 1, Article 36 of the 2019 Labor Code in which an employer may unilaterally terminate a labor contract. This would be an unlawful unilateral termination.

Consequences. Under Article 41 of the 2019 Labor Code, the company must: reinstate the employees under their existing contracts; pay salaries and social, health, and unemployment insurance contributions for the days the employees were not allowed to work; and pay an additional amount of at least two months' salary under the labor contract. If an employee does not wish to return, the company must still pay the above plus severance allowance under Article 46; if the company does not wish to reinstate and the employee agrees to end the contract, the parties negotiate additional compensation of at least two months' salary. In short, cutting corners does not save money — it costs far more than doing it properly, in compensation, litigation time, and reputational damage.

In addition, procedurally defective terminations attract administrative penalties under Article 18 of Decree 283/2026/ND-CP (effective 10 September 2026, replacing Decree 12/2022/ND-CP): a fine of VND 5,000,000 to VND 10,000,000 for an individual employer (a corporate employer, as an organization, is fined twice that under Clause 1, Article 7) for terminating employees without consulting the employees' representative organization or without 30 days' prior notice to the provincial People's Committee or the employees (point (a), Clause 3, Article 18); the same fine applies for failing to prepare a labor utilization plan, preparing one lacking the key statutory contents, or failing to consult when preparing the plan (point (b), Clause 3, Article 18). A remedial measure also applies: payment to the employee of an amount equal to the contractual salary for the days of notice not given (point (c), Clause 4, Article 18).

3.4 Option C: Mutual Agreement to Terminate

What it involves. The company negotiates with each employee (or group) to terminate the labor contract by mutual agreement under Clause 3, Article 34 of the 2019 Labor Code, with a financial support package agreed by the parties.

Legal basis. Clause 3, Article 34 (mutual agreement to terminate); Article 46 (severance allowance: employees who have worked regularly for at least 12 months receive half a month's salary per year of service; the service period excludes time covered by unemployment insurance — the same principle as Article 47).

Advantages. Fast, flexible, and free of administrative procedures; the company may offer a package above the statutory level to secure voluntary signatures and reduce conflict. No labor utilization plan or 30-day notice to the provincial People's Committee is required.

Risks and limits. It requires the genuine consent of each employee — negotiating with 150 people takes time and money, and any sign of coercion may expose the agreement to challenges over its validity. Note the distinction: on mutual termination, employees receive severance allowance (Article 46, half a month's salary per year), not the job-loss allowance (Article 47) — the company may not "relabel" a mutual deal to dodge the obligations of Option A, nor apply job-loss rates to mutual terminations absent a separate agreement.

3.5 Comparison of Options

4. Solution: A 10-Step Lawful Process

For the given facts (F1–F5), Option A is the regular choice; Option C may run in parallel for selected key positions where the company wishes to preserve goodwill (e.g., mid-level managers who could be referred to new jobs). The 10 steps for Option A are:

Step 1 — Establish and document the "economic reasons" basis. Compile the two years of loss-making financial statements, the 40% revenue decline, cancelled orders, and shutdown production lines; record management's assessment that employment for 500 workers can no longer be sustained. Note: this is internal preparation, but the file must be persuasive if the authorities question it (see the open point in section 3.1).

Step 2 — Review alternatives before terminating. The law prioritizes keeping people employed: retraining to continue work, reassignment, switching to part-time, agreed early retirement. Only where these are unfeasible should termination proceed — and the review should be recorded in writing for inclusion in the plan.

Step 3 — Consult the grassroots employees' representative organization. Under Clause 6, Article 42 and Clause 2, Article 44, the company must consult the grassroots union on the terminations and on the plan's contents. Keep signed minutes — critical evidence in any later dispute.

Step 4 — Formulate the labor utilization plan. The plan must contain all five key contents under Clause 1, Article 44: the list of employees continuing/being retrained/switching to part-time; the list of retirees; the list of employees whose contracts will be terminated; the rights and obligations of the parties; and the measures and financial resources to implement the plan (a budget for the job-loss allowances of the 150 employees).

Step 5 — Publicly announce the plan within 15 days. Under Clause 2, Article 44, the adopted plan must be publicly announced to employees within 15 days of adoption (posted at the workplace, sent by internal email, announced at meetings — keep proof of announcement).

Step 6 — Give 30 days' prior notice to the provincial People's Committee and to the employees. Under Clause 6, Article 42, termination may proceed only after 30 days' prior notice to both the provincial People's Committee (where the company is headquartered) and each listed employee. Both 30-day periods must be calculated without conflicting with production schedules.

Step 7 — Issue written termination notices to each employee. On termination, the employer must notify each employee in writing. The decision should state the basis (termination under Article 42 for economic reasons), the termination date, and the benefits due.

Step 8 — Calculate and pay the job-loss allowance. Apply Article 47 and Clause 3, Article 8 of Decree 145/2020/ND-CP to each person:

• Determine total actual working time (including probation, sick/maternity leave, work stoppages not attributable to the employee, etc.).
• Deduct time covered by unemployment insurance and time already compensated by severance/job-loss allowances. Note on F5: employees working since before 2009 have periods not covered by unemployment insurance — those periods count toward the allowance, so this group's payouts are typically materially higher.
• Round fractions: up to 6 months counts as half a year; over 6 months counts as one year; then multiply by the average salary of the 6 consecutive months under the labor contract, with a floor of two months' salary.

Step 9 — Settle all entitlements and complete termination formalities. Under Article 48 of the 2019 Labor Code, within 14 working days of contract termination the parties must fully settle all amounts related to each party's rights; where the employer changes its structure or technology or acts for economic reasons, the period may be extended but not beyond 30 days. At the same time, the company must complete the procedures confirming social and unemployment insurance participation periods and return the original documents it has kept; provide copies of work-history documents if the employee requests (copying and delivery costs borne by the company).

Step 10 — Archive the file and run a compliance check. Keep the complete round file (plan, union consultation minutes, proof of announcement, 30-day notices, signed payout lists) at least through the complaint and litigation limitation periods; re-run the checklist in section 5 before closing the round. A complete file is the best shield against a later labor inspection or dispute.

5. Implementation Checklist

• [ ] "Economic reasons" basis documented with financial and business records (financial statements, order data, management assessment minutes).
• [ ] Alternatives to termination reviewed and recorded in writing (retraining, reassignment, part-time, retirement).
• [ ] Grassroots union consulted with signed minutes (Clause 6, Article 42; Clause 2, Article 44).
• [ ] Labor utilization plan contains all five key contents (Clause 1, Article 44), including the list of 150 employees to be terminated and the financing budget.
• [ ] Plan publicly announced to employees within 15 days of adoption, with proof of announcement (Clause 2, Article 44).
• [ ] 30 days' prior notice given to the provincial People's Committee and to each employee (Clause 6, Article 42).
• [ ] Written termination decisions stating the Article 42 basis and termination date.
• [ ] Job-loss allowance correctly calculated: at least 12 months of service; unemployment-insurance periods deducted; rounding per Clause 3, Article 8 of Decree 145/2020/ND-CP; 6-month average salary; minimum two months' salary (Article 47).
• [ ] All entitlements settled within 14 working days (up to 30 days for economic-reasons cases); social/unemployment insurance books finalized; original documents returned (Article 48).
• [ ] Round file archived in full, with employees' signed acknowledgments of amounts received.

6. Five Common Mistakes Employers Make

1. Treating "losses" as an automatic basis. Losses are business facts; "economic reasons" under Clause 2, Article 42 is a narrower legal concept. Without convincing evidence, the company may be challenged when the authorities review the notices and the plan.
2. Skipping the labor utilization plan. Many employers think a dismissal decision plus payment is enough. In fact, failing to prepare the plan (or preparing one lacking the five key contents, or not consulting the union when preparing it) both undermines the terminations procedurally and attracts administrative fines under point (b), Clause 3, Article 18 of Decree 283/2026/ND-CP.
3. Forgetting the 30-day notice to the provincial People's Committee. This is an independent obligation, parallel to the notice to employees (Clause 6, Article 42). Missing either is a violation.
4. Miscalculating allowances for long-serving employees. The pre-2009 group (F5) has periods not covered by unemployment insurance that count toward the allowance — omitting them underpays and invites claims. Conversely, failing to deduct unemployment-insurance-covered periods overpays and wastes the cash of a company already in difficulty.
5. Using "unilateral termination" to cut fast. As analyzed under Option B: there is no basis in Article 36, and the consequence is unlawful unilateral termination under Article 41 — total compensation exposure and litigation risk far exceed the cost of doing it properly under Article 42.

7. Extended Questions

If the company cuts only 5–10 people, is a labor utilization plan still required? In principle, Articles 42 and 44 apply where structural/technological change or economic reasons "affect the employment of many employees" — the law sets no specific number for "many." With 150 of 500 (30%) as in this scenario, the requirement is clear. For small numbers, the company should still assess carefully and seek counsel, as interpretations of "many employees" may differ among applying authorities.

What rights do employees have if they disagree with the plan? Employees may complain or sue if they consider the terminations unfounded or procedurally defective; if eligible under employment legislation, they may claim unemployment benefits. The company should maintain an internal grievance channel during implementation.

May pregnant employees or those nursing children under 12 months be included in the round? The law restricts disciplinary action and provides special protections for pregnant employees, those on maternity leave, and those nursing children under 12 months. When finalizing the list of 150, the company must carefully screen specially protected groups to avoid violations — the actual list should be reviewed by counsel separately.

Is the job-loss allowance subject to personal income tax? This article does not go into tax matters. In principle, statutory-level allowances and additional support payments may be treated differently under tax law — the company should consult a tax specialist before payment, especially where packages exceed the statutory level.

After the layoff, may the company hire new people into the eliminated positions? Hiring immediately into the very positions just eliminated for "economic reasons" would seriously undermine the credibility of the layoff basis in any dispute. New hiring should occur only for genuinely different needs, with clear supporting documentation.

Is Your Situation Different?

Every workforce reduction has its own details — workforce composition, union status, the economic basis, specially protected employees — and a single different fact can change the right legal approach. If your company faces a similar decision, contact FLAT Law Firm – hotline 0988424851 for a case-specific assessment before signing any termination decision.

Language Versions

References

• Labor Code No. 45/2019/QH14 (effective 01/01/2021): Clause 11, Article 34; Clause 1, Article 36; Article 41; Article 42; Article 44; Article 46; Article 47; Article 48.
• Decree No. 145/2020/ND-CP dated 14/12/2020 (effective 01/02/2021): Clause 3, Article 8.
• Decree No. 283/2026/ND-CP (effective 10/09/2026, replacing Decree 12/2022/ND-CP): Clause 1, Article 7; Clauses 3 and 4, Article 18.

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V1 REVIEW SLIP — 2026-09-27 (Team Lot 4, V1 cycle)

• Reviewer: Team Lot 4 — independent reviewer (file-level; maker notes not used as evidence).
• Verdict: PASS (A)
• Independent legal cross-check: Full file read; cross-checked Labor Code 2019 (Articles 34, 36, 41, 42, 44, 46, 47, 48) and Clause 3 Article 8 of Decree 145/2020/ND-CP — matches article content. Decree 283/2026/ND-CP citations (Clause 1 Article 7; points (a)/(b) Clause 3 and point (c) Clause 4 of Article 18) independently cross-checked against two independent secondary sources reproducing the full decree text (nhansu.vn, luatvietnam.vn) — VND 5,000,000–10,000,000 individual fine, ×2 for organizations, remedial salary payment for days of notice not given: ALL MATCH.
• "Economic reasons" hotspot: article correctly uses open language (single-company losses ≠ automatically an economic crisis/recession under Clause 2 Article 42; no threshold invented) — uncertain point 1 handled per standard.
• Dedup: cross-links to T-298/T-297 are planned-only in frontmatter, not hard-coded in body — compliant.
• Pre-publish note: final verification of Decree 283/2026/ND-CP Article 18 against the signed official PDF before publish (maker holds the signed PDF; reviewer cross-checked two independent sources — sufficient basis to publish after confirming the official PDF file).

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