Company Merger: Must Labour Contracts Be Re-signed?

Many businesses wonder: in a company merger re-sign labour contracts Vietnam — is re-signing mandatory, or do employment relations transfer automatically to the surviving company? This guide answers the full question: the succession principle, four to-dos, and common mistakes to avoid.

The short answer

No. In a merger, the surviving company succeeds to all rights and obligations of the merged company — including employment relations (Article 201, Law on Enterprises 2020). Existing labour contracts remain effective, with only the employer changing. This follows from the principle that a merger is a universal succession: the surviving company steps into every legal position of the merged company — not just its assets.

But "not required" does not mean "do nothing". In practice, getting the labour side wrong is one of the most expensive post-closing surprises in Vietnamese M&A: stalled SI migrations, allowance disputes and claims of unlawful dismissal. Practice shows four things businesses should do.

Table of contents

• The short answer
• The succession principle
• To-do 1: confirmatory annex/notice
• To-do 2: labour utilisation plan
• To-do 3: review special labour commitments
• To-do 4: handle post-merger benefit differentials
• Summary table
• Common mistakes to avoid
• FAQ
• When to work with a lawyer
• Legal bases
• Verification notes

The succession principle

A company merger differs from an asset purchase:

• Merger: the merged company ceases; the surviving company succeeds to all rights and obligations — employees automatically become its employees, with continuous seniority.
• Asset purchase: the buyer acquires assets only, not employees as a matter of course — rehire or separate agreement needed.

Confusing the two causes mistakes: asset buyers assuming employee "succession" (then sued), or merging companies forcing everyone to re-sign from scratch (wiping employees' seniority for allowances and leave — violating their rights).

Succession covers the full employment package: accrued wages, social insurance contribution obligations, training-cost commitments, collective agreements and pending labour disputes all pass to the surviving company. What it does not change is the agreed terms themselves — salary, position and benefits stay as written until lawfully renegotiated.

To-do 1: confirmatory annex/notice

Though re-signing is not required, businesses should issue an annex or written notice confirming:

• The new employer name (surviving company);
• New SI unit code, new representative;
• Confirmation that other terms stand; seniority counts continuously.

Why? SI, tax and banking authorities work on paper: without confirmation, SI unit-code migration and employees' PIT finalisation stall for weeks. A one-page annex saves weeks of explanation.

Timing and form: issue the annex or notice promptly after the merger is registered — delays create a gap period in which SI and tax filings still sit under the dissolved company's name. The annex typically runs one page: identify the parties, state the effective date of the employer change, and restate that all other contractual terms continue unchanged. Deliver it to each inherited employee individually and keep signed acknowledgements on file; a general notice on the company board is not a substitute.

To-do 2: labour utilisation plan

Mergers usually bring headcount restructuring (overlaps). Article 43 of the 2019 Labour Code (employer obligations on merger, consolidation, division, separation; transfer of ownership) requires the succeeding employer to build a labour utilisation plan, prioritising continued employment of existing staff… Contents:

• Lists of retained, retrained and redundant employees;
• Redundant employees' entitlements: job-loss allowance under Article 47 (one month's wage per year, minimum two months);
• Notification to labour authorities as regulated.

Note: a merger is not lawful grounds for unlawful unilateral termination. Employees dismissed without proper procedure and benefits are protected (reinstatement/compensation as applicable).

Sample framework of a labour utilisation plan in a merger (adjust to reality, with counsel's advice):

1. Preamble: legal basis (the merger agreement, Article 43 of the 2019 Labour Code), scope (all employees of the merged company at the merger date).
2. Employee classification: (a) retained in current positions; (b) retrained for new positions; (c) redundant for lack of suitable positions — with lists and clear classification criteria.
3. Entitlements for redundant employees: job-loss allowance under Article 47, payment deadlines and method; job-placement assistance where available.
4. Implementation timeline: notification period, consultation period with the employee representative organisation (if any), list finalisation date.
5. Responsibility and signatures: drafter, approver (the surviving company's representative), issuance date.

To-do 3: review special labour commitments

Succession also passes on labour "legacies":

• The merged company's collective labour agreement (effective until a new one);
• Training and training-cost reimbursement commitments;
• Ongoing labour disputes;
• Internal regimes (labour regulations) — to harmonise with the surviving company's system.

This is the labour DD no merger deal can skip.

Labour DD checklist in a merger:

1. [ ] Full employee roster of the merged company: contract type, remaining term, position, salary.
2. [ ] Outstanding labour debts: unpaid wages, unpaid SI contributions, unpaid allowances.
3. [ ] Collective labour agreement and labour regulations — compare against the surviving company's system and identify conflicts.
4. [ ] Training commitments: who is still bound, training costs already incurred, reimbursement conditions.
5. [ ] Ongoing labour disputes: matters, procedural stage, loss probability and expected financial exposure.
6. [ ] Key personnel: who must be retained, post-merger retention arrangements — post-merger brain drain is a standing risk.

To-do 4: handle post-merger benefit differentials

After the merger, employees from the two former companies sit under one roof but on different terms (salary, bonuses, benefits) — a ticking time bomb for internal discontent:

• Principle: the surviving company may not unilaterally cut entitlements already agreed in the inherited employees' labour contracts.
• Approach: build a unified new salary scale and benefits policy; for employees whose old terms were more generous, preserve them under the "more favourable to the employee" principle or negotiate bridging allowances for a transition period.
• Internal communication: announce post-merger terms clearly and transparently — rumours of "the new company cutting benefits" spread faster than any official document.

Summary table

Common mistakes to avoid

1. "Deal with labour after the merger": leaving labour issues until after closing — too late, since succession obligations arise at the merger moment. Labour DD must happen before signing the merger agreement, and labour costs (allowances, SI arrears) must be priced into the deal value.
2. Verbal notices instead of written ones: employees later dispute "never being notified" — every notice of the employer change must be in writing with acknowledged receipt.
3. Forgetting continuous seniority: job-loss and termination allowances must count time at the merged company too — cutting seniority short means underpaying allowances, the source of most post-merger allowance disputes.
4. Imposing new rules overnight: the surviving company's labour regulations do not automatically bind inherited employees unless notified and registered through proper procedures — plan a harmonisation timeline.

FAQ

1. Must all labour contracts be re-signed after a merger? No. The surviving company succeeds to employment relations; contracts remain effective. A confirmatory annex is recommended.

2. Why sign an annex if not required? To keep SI and PIT procedures smooth and avoid employer-identity disputes.

3. Employees not retained? Per the labour utilisation plan; job-loss allowance (Art. 47: one month's wage/year, minimum two months).

4. Can a merger be used to dismiss employees? No. Terminations must comply with the Labour Code; merger is no lawful ground for unlawful dismissal.

5. Is pre-merger seniority continuous? Yes — for allowances, leave and other entitlements.

When to work with a lawyer

Work with a lawyer from the deal-structuring stage of the merger — not after a labour dispute has erupted. A lawyer helps you: conduct labour due diligence before signing the merger agreement; build a labour utilisation plan compliant with Article 43 of the 2019 Labour Code; draft the annex confirming the employer change; calculate job-loss allowances and handle post-merger benefit differentials.

FLAT Law Firm accompanies businesses in M&A deals with complex labour elements. Contact hotline 0988424851 for advice on your specific deal.

Legal bases

• Law on Enterprises 59/2020/QH14, Art. 201 — merger; succession of rights and obligations.
• Labour Code 45/2019/QH14: Art. 43 (labour utilisation plan), Art. 47 (job-loss allowance).

Verification notes

Employer-change procedures in SI/tax dossiers follow SI and tax guidance at implementation. Labour utilisation plan contents follow Art. 43 and guiding regulations in force.