A foreign specialist who has worked in Vietnam for six years is told the company will not renew his contract when the work permit expires. Human resources prepares a final settlement of salary to the last day plus unused annual leave, but the specialist claims severance allowance, a relocation package under the group’s global policy, and compensation for a verbal promise of renewal. The gap between the two calculations runs to several months of salary. Disputes of this kind rarely turn on a single article; they turn on which termination mechanism applies, because each mechanism carries a different basket of entitlements.
The legal framework: identify the termination mechanism before doing any maths
The Labour Code No. 45/2019/QH14 separates the exit routes clearly. Expiry without a new contract is one route; unilateral termination by the employer under Article 36 is another, valid only in statutory cases with proper notice; redundancy for structural, technological or economic reasons under Article 42 is a third, tied to the job-loss allowance in Article 47: employees with at least twelve months of service receive one month’s salary per year of work, with a floor of two months’ salary. For expiry or ordinary lawful termination, the corresponding item is severance allowance at half a month’s salary per year of service, after deducting periods covered by unemployment insurance.
Two points are specific to foreign workers. First, insurance history and the deductible periods must be checked against the compulsory social insurance regime for foreigners under the Law on Social Insurance No. 41/2024/QH15 and Decree No. 158/2025/ND-CP, because what can be deducted when computing allowances depends on that contribution history. Second, a foreign employee’s contract cannot run beyond the work permit, so a ‘non-renewal’ is often a legal necessity rather than a company choice, yet that does not erase allowances accrued from service already rendered.
Applying the framework: three friction points in almost every final settlement
The first friction point is the salary base. Employees compute on total actual income including fixed allowances and average bonuses; employers compute on the salary written in the latest contract. The law anchors the base to salary under the labour contract and its components, so contract and payroll records must be read together, and every undocumented salary change becomes contested ground. The second friction point is creditable service: whether probation, service under another group entity’s permit, or a period of contract suspension counts, each period needing its own evidence.
The third friction point is the beyond-statute basket: group-policy support, repatriation flights, relocation costs and unvested share awards. These are contractual obligations, not statutory allowances, and their value depends on the policy text in force at termination and its conditions. If negotiation fails, the foreign worker can involve a labour mediator and then sue before Vietnamese courts for both the statutory and the contractual parts. An employer that underpays statutory allowances also faces administrative penalties under Decree No. 283/2026/ND-CP and late-payment exposure while the dispute runs, so the final computation should be legally audited before it is locked, not left to an outdated HR template.
Checklist for closing out a foreign worker’s final settlement
- State the legal mechanism expressly in the termination document: expiry, mutual agreement, unilateral termination under Article 36, or redundancy under Article 42 of the Labour Code.
- Compute allowances by the correct mechanism: job-loss allowance under Article 47 for economic redundancy, severance at half a month per year otherwise, with a detailed computation sheet attached.
- Reconcile social and unemployment insurance contribution history to fix the periods deductible from creditable service.
- List contractual items separately from statutory ones, repatriation, relocation and group policy, each with its documentary basis, including refused items and the reasons.
- Pay and hand over documents within the statutory deadline after termination, keeping transfer records as proof of payment.
Frequently Asked Questions
How much compensation is owed when a foreign worker’s contract ends?
There is no single figure; the amount follows the termination mechanism. Redundancy for structural or economic reasons under Article 42 of the Labour Code carries the job-loss allowance in Article 47 at one month’s salary per year of service, with a two-month floor. Expiry or ordinary lawful termination carries severance at half a month’s salary per year after deducting unemployment-insurance periods. An unlawful termination adds salary for the period the employee was kept from work plus at least two months’ salary in compensation.
How is severance allowance calculated?
Severance equals half a month’s salary for each creditable year of service. Creditable service is the total time the employee worked for the employer minus periods already covered by unemployment insurance and periods for which severance was previously paid. The salary base is the average contractual salary of the six consecutive months before termination. For foreign workers, reconcile the computation with the insurance contribution history under the Law on Social Insurance No. 41/2024/QH15 and Decree No. 158/2025/ND-CP.
What happens if the employer refuses to pay allowances?
The foreign worker can seek labour mediation and then sue for the allowances together with late-payment amounts and interest, while the employer faces administrative penalties in the labour field under Decree No. 283/2026/ND-CP, which replaced Decree No. 12/2022/ND-CP from 10 September 2026. A lingering dispute also stains the compliance file when the company later applies for a work permit for a replacement, because local labour authorities usually know about unresolved allowance debts.
Where does a foreign worker sue for compensation?
The worker first applies for mediation by the local labour mediator where the work is based, then files at the competent Vietnamese people’s court if mediation fails; some categories of individual dispute may be filed directly. The statement of claim should separate statutory items, allowances and salary, from contractual items such as group policy support and repatriation, because the evidence for the two groups differs.
This article has been quality-reviewed by the FLAW AI Legal Council