Employer Duties to Workers in Suspension or Dissolution

Two situations, two different legal regimes

"Suspension" and "dissolution" are often lumped together, but an employer's duties to workers in the two cases differ fundamentally:

• Business suspension: the enterprise continues to exist; labour relations may be suspended and later restored — or terminated by mutual agreement.
• Dissolution: the enterprise ceases to exist; labour relations terminate entirely — every entitlement must be fully settled.

Confusing these two regimes is the source of most labour disputes when businesses run into difficulty.

Situation 1: business suspension

Option A — suspending labour contracts

Article 30 of the 2019 Labour Code allows suspension of labour contracts in statutory cases and in cases agreed by the two parties. During suspension:

• The employee does not work, and the parties agree on entitlements during the suspension period (they may agree on unpaid leave or on partial pay).
• When the suspension period ends, the employee returns to work. Whether suspension time counts toward the working period used to compute allowances depends on the type of suspension and the detailed rules — check Decree 145/2020/ND-CP for each specific case and do not assume it accumulates by default.
• There must be a written agreement — this is the point businesses most often overlook, leading to disputes over alleged "forced unpaid leave". A verbal understanding is not enough — in a dispute, the employer bears the burden of proving the suspension was genuinely agreed.

Option B — employees who keep working during the suspension

In practice, even while production and business are suspended, an enterprise still needs some staff: protecting assets, handling handovers, completing paperwork. For this group:

• Labour contracts continue to be performed normally; full wages must be paid.
• Wages may not be "frozen" on the ground that the company is suspended — that is wage arrears, and employees have the right to complain and sue. This holds even where the company's revenue has stopped: the duty to pay wages does not pause with operations.
• A note on the "core" staff kept on: give them a clear written assignment of duties during the suspension period, to avoid the "staying but with nothing defined to do" situation that later breeds disputes over workload and pay.

Option C — terminating labour contracts

If it is clear the business cannot recover, the two parties may mutually agree to terminate the labour contract (Article 34), with severance allowance. This is often the cleanest option when the future is uncertain.

A note on negotiated termination: the agreed allowance may not be lower than the statutory level (Article 46); the agreement must be put in writing, stating each payment and its payment deadline. In practice, many businesses offer slightly above the statutory level so that employees sign quickly and avoid drawn-out proceedings — the extra cost is usually cheaper than months of labour disputes.

Situation 2: enterprise dissolution

On dissolution, labour contracts terminate because the employer ceases operation (Article 34 of the 2019 Labour Code). The enterprise must discharge the full set of duties below:

1. Paying wages and all amounts due

All owed wages, bonuses and unused annual leave must be paid in full. Cross-check payroll records against actual payments — any gap becomes a liability that stalls the dissolution file. Wage arrears at the point of dissolution are a serious violation. Unused leave balances must be converted and paid as well; they cannot simply be written off in dissolution.

2. Allowance on dissolution: severance (Article 46)

• Severance allowance (Article 46): where a labour contract terminates on dissolution (Article 34), each year of service earns 1/2 month's wage (excluding time already covered by unemployment insurance).
• No job-loss allowance (Article 47) on dissolution: Article 47 applies only where an employee loses their job due to structural or technological change, merger, split or economic reasons (Articles 42–44). Dissolution per se is not one of those cases — treating "severance/job-loss" as the default dissolution package is incorrect.
• Calculate correctly: count qualifying service time and exclude unemployment-insurance-covered periods; under- or over-paying both lead to disputes.

3. Social insurance finalisation

Complete SI duties: pay contributions in full through the termination month and finalise the SI books for employees. SI arrears are a common reason dissolutions drag on (the process is linked with tax procedures).

A practical note on book finalisation: the SI authority only finalises a book once the enterprise has paid in full through the termination month — even one month of arrears blocks finalisation. For a dissolving enterprise, SI obligations must be completed before the business registration authority approves the dissolution. Do not leave SI arrears "hanging" until the last minute; review and pay in full as soon as the dissolution decision is made. Employees should also keep the labour-contract termination decision and the finalised SI book — these are the basis for claiming unemployment insurance and for resolving later disputes. Where an enterprise "disappears" without finalising books, employees may complain to the SI authority for guidance on finalisation in special cases.

4. Notification and the labour utilisation plan

Distinguish two situations clearly: (1) in structural or technological change, merger or consolidation (Articles 42–44 of the Labour Code), the enterprise must prepare a labour utilisation plan and complete procedures with the labour management authority; (2) in dissolution or cessation of operation (Article 34), labour contracts terminate — the enterprise must notify employees and fully settle every entitlement (wages, allowances, SI finalisation), and complete its notification duties to the labour management authority as regulated.

Quick comparison

Common FDI pitfalls

• Verbal "unpaid leave": with no written suspension agreement, employees sue to claim wages for the leave months — and adjudicators typically side with the employee where no written agreement exists.
• Forgetting the "stayers": keeping protection and handover staff working while owing them wages.
• Miscalculated allowances: failing to exclude unemployment-insurance-covered time, or wrongly applying Article 47 (job-loss allowance) where dissolution calls only for Article 46.
• Late SI finalisation: employees cannot claim unemployment insurance and come back to sue the enterprise even after dissolution is complete.

FAQ

1. Must wages be paid during business suspension? It depends on the option chosen: if labour contracts are suspended, the parties agree on the terms (which may include unpaid leave); employees who are still working — handover, asset protection — must be paid their wages in full.

2. How do labour contracts end on dissolution? Labour contracts terminate when the employer ceases operation (Article 34); the enterprise must fully settle all worker entitlements: severance allowance under Article 46 (the job-loss allowance of Article 47 does not apply to dissolution per se) and SI finalisation. The settlement must be completed as part of the dissolution process — outstanding entitlements can stall it.

3. What is the difference between severance and job-loss allowance? Severance (Article 46): 1/2 month's wage per year of service, excluding unemployment-insurance-covered time. Job-loss allowance (Article 47): 1 month's wage per year of service, minimum 2 months, for structural or technological redundancy, mergers, splits or economic reasons.

4. Must employees be notified in advance of dissolution? Distinguish two situations: in structural or technological change, or a merger (Articles 42–44), the enterprise must prepare a labour utilisation plan; in dissolution (Article 34), it completes termination procedures, fully settles all entitlements and notifies the labour management authority as regulated. Large-scale terminations may trigger additional reporting duties — check the regulations in force at the time.

5. How are SI arrears handled in dissolution? SI obligations must be completed during dissolution — pay in full and finalise the books for employees; SI arrears are a common cause of prolonged dissolution.

Foreign-invested enterprises considering business suspension or dissolution should carefully review their duties to workers in order to avoid disputes. Getting the classification right — suspension versus dissolution — at the outset is the single most effective way to prevent months of disputes later. FLAT Law Firm assists with building workforce utilisation plans, computing allowances and handling procedures with the labour management authorities. Call our hotline 0988424851.

Legal bases

• Labour Code 45/2019/QH14: Art. 30 (suspension), Art. 34 (termination), Art. 46 (severance), Art. 47 (job-loss allowance).
• Law on Social Insurance (instrument in force) — payment and finalisation duties.

Verification notes

Specific allowance amounts and reckonable periods (excluding UI-covered time) follow Arts. 46–47 — principles stated; check the instruments for each case. Mass-termination notification follows the regulations in force at the time of application.