Handling employees when closing an FDI enterprise — job-loss allowances

When an FDI enterprise closes in Vietnam — whether through dissolution, downsizing, or project transfer — obligations to employees are among the first and most strictly regulated items to settle. The key point many enterprises get wrong: job-loss allowances (Article 47 of the Labor Code 2019) and severance allowances (Article 46) apply to entirely different situations.

1. Legal basis

• Labor Code 2019 (45/2019/QH14, in force):
  • Article 47 — Job-loss allowance: paid to employees who worked regularly for 12 months or more and lost their jobs under Article 34(11) — 1 month’s salary per year of work, minimum 2 months’ salary.
  • Article 46 — Severance allowance: when the labor contract ends under Article 34(1), (2), (3), (4), (6), (7), (9), (10) — half a month’s salary per year.
• Decree 145/2020/ND-CP: details the countable working time (actual working time minus time covered by unemployment insurance and time already compensated with severance/job-loss allowances) and the reference salary (average of the 6 consecutive months under the labor contract before job loss).

2. The decisive boundary: when does the job-loss allowance apply?

Job-loss allowance (Article 47) applies only when employees lose jobs due to:

• Structural or technological changes, or economic reasons;
• Division, split, consolidation, or merger; sale, lease, or conversion of the enterprise;
• Transfer of ownership or use rights over the enterprise’s assets.

In these cases, the employer must consult the employee representative organization and prepare a labor utilization plan before termination.

Severance allowance (Article 46) applies when the enterprise is dissolved and ceases to exist — the employment relationship ends because the employer no longer exists. Many FDI enterprises wrongly call this a “job-loss allowance.”

3. Job-loss allowance formula

• Countable time: actual working time − time covered by unemployment insurance − time already compensated;
• Reference salary: average of the 6 consecutive months under the labor contract before job loss;
• Entitlement: 1 month’s salary per year, minimum 2 months’ salary (an employee with 1 year of service still receives 2 months).

4. Employee-handling checklist when closing an FDI enterprise

1. Identify the correct allowance by closure cause (restructuring → Article 47; dissolution → Article 46);
2. Prepare the labor utilization plan and consult the employee representative organization (for Article 47 cases);
3. Pay wages for unused annual leave;
4. Finalize social insurance records;
5. Pay severance/job-loss allowances on time;
6. Support employees in claiming unemployment benefits (if eligible);
7. For foreign employees: handle labor contracts and work permits together (see Decree 219/2025/ND-CP);
8. Include the plan for labor-contract obligations in the dissolution resolution (mandatory under Article 208 of the Law on Enterprises 2020).

5. Common pitfalls

• Calling it a “job-loss allowance” in a dissolution (it is severance);
• Forgetting to deduct unemployment-insurance-covered time → overpayment and disputes on audit;
• Skipping the labor utilization plan for economic-reason layoffs;
• Late social insurance finalization blocking unemployment benefit claims;
• Overlooking foreign employees in the handling plan.

Content drafted by the FLAW AI Legal Council, pending QA Council review before approval. This article is for general information only and does not replace legal advice for any specific case.