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Terminating Employment Contracts Lawfully in Vietnam: Unilateral Termination, Mutual Agreement, and Dismissal

22 min readFLAT LAW FIRM
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Every year, thousands of employers in Vietnam — including a fair number of FDI companies — end up in labor disputes over a single hasty decision to let someone go: a dismissal announced verbally, a resignation letter extracted under pressure, or "forgotten" severance pay. The cost is not only compensation several times the original severance amount, but also reputational damage with regulators and in the hiring market. This guide explains how to terminate employment contracts lawfully under the 2019 Labor Code: the three main routes — unilateral termination, mutual agreement, and dismissal — plus severance calculation, mandatory procedures, and the mistakes that expose employers to counterclaims.

Table of Contents

1. What Is Employment Contract Termination? Who Should Care?

Terminating an employment contract ends the employment relationship between the employee and the employer: the contract ceases to have effect, and both sides must settle all related entitlements — salary, allowances, social insurance, documents. Article 34 of the 2019 Labor Code lists 13 termination cases, from expiry and mutual agreement to dismissal and the death of a party.

This guide focuses on the three grounds employers use most actively in HR practice: unilateral termination (one party decides to end the relationship), mutual agreement (both sides agree to end it), and dismissal (the heaviest form of labor discipline). Each route carries entirely different conditions, procedures, and financial consequences — choosing the wrong route or botching the procedure accounts for most labor lawsuits employers lose.

Who should read this? Business owners and foreign investors operating companies in Vietnam, HR directors, line managers — and employees who want to resign while preserving their entitlements. For FDI companies there is an extra layer of complexity: foreign employees bring work-permit consequences, and every personnel decision must sit within the group's global compliance framework.

The instruments in force governing employment contract termination as of this writing (September 2026):

  • Labor Code No. 45/2019/QH14, effective 01/01/2021 — the primary statute covering all termination grounds (Article 34), each party's right to terminate unilaterally (Articles 35, 36, 37), dismissal (Articles 122–126), severance and job-loss allowances (Articles 46, 47), and obligations on termination (Article 48).
  • Decree 145/2020/ND-CP, effective 01/02/2021 — detailed guidance on internal labor regulations, dialogue, collective bargaining, and labor relations.
  • Circular 10/2020/TT-BLĐTBXH, effective 01/01/2021 — guidance on labor contract contents, including how to determine the salary base for severance calculation (Article 12).
  • Decree 283/2026/ND-CP, effective 10/9/2026 — administrative sanctions in labor and social insurance (replacing Decree 12/2022/ND-CP). Specific fines for labor-contract termination violations must be checked against the current instrument at the time of application.
  • Decree 135/2020/ND-CP, effective 01/01/2021 — detailed rules on retirement age under Article 169 of the Labor Code.

A common source of confusion: the 2012 Labor Code expired on 01/01/2021 and was fully replaced by the 2019 Labor Code. Several rules changed fundamentally — for example, employees may now terminate unilaterally without giving any reason (proper notice suffices), which the old law did not allow. Any internal templates or procedures built before 2021 should be reviewed.

One note on state authorities: following the 2025 government restructuring, state management of labor now sits with the Ministry of Home Affairs (which absorbed the Ministry of Labor, Invalids and Social Affairs); at provincial level, the counterpart is the Department of Home Affairs. Where this guide refers to "the competent state labor authority," it means these bodies.

3. The Three Routes to Termination

3.1. Mutual Agreement — The Safest Route

Mutual termination (Clause 3, Article 34) is where the employee and the employer jointly agree to end the contract. Legally, it is the lowest-risk route because neither side acts "unilaterally," so no dispute arises over the lawfulness of the termination itself.

Why should employers prefer agreement? In a unilateral termination, the employer must prove it had statutory grounds and followed correct procedure; a single flawed step can render the whole decision unlawful. With mutual agreement, that burden disappears — provided the agreement is genuinely voluntary and properly documented in writing.

A mutual termination agreement should cover:

  • The effective termination date;
  • All amounts payable to the employee: salary through the last working day, severance pay (mutual termination remains eligible for severance under Article 46 — see section 4), accrued but untaken annual leave, bonuses if any;
  • Handover of work, assets, equipment, and accounts;
  • Post-employment confidentiality obligations (cross-referencing any existing NDA);
  • A mutual confirmation that all agreed amounts have been settled and no further claims exist regarding the settled items.

Put the agreement in writing, with each party keeping a signed copy. One caution: the agreement must be genuinely voluntary. If the employee proves coercion or threats (e.g., "sign voluntarily or be dismissed"), the agreement may be declared void, leaving the employer facing the full consequences of an unlawful unilateral termination. As for "no further claims" or waiver clauses sometimes inserted into these agreements — their enforceability varies in court practice, so do not treat such a clause as an absolute shield; the safer course is to settle the financial entitlements thoroughly so the employee has no reason to sue.

3.2. Employee-Initiated Unilateral Termination

A key innovation of the 2019 Labor Code: employees may terminate unilaterally without stating any reason — proper advance notice is enough (Clause 1, Article 35):

  • At least 45 days for indefinite-term contracts;
  • At least 30 days for definite-term contracts of 12 to 36 months;
  • At least 3 working days for definite-term contracts under 12 months.

Note: for special occupations, trades, and jobs (e.g., ship masters, seafarers, flight crew), the employee's notice period follows the Government's separate rules under point d, Clause 1, Article 35 and Article 7 of Decree 145/2020 (it may exceed the periods above) — check carefully when hiring for these roles.

Seven cases allow the employee to resign without any notice (Clause 2, Article 35): not being assigned the agreed job, workplace, or working conditions; not being paid in full or on time; being mistreated, assaulted, humiliated, or subjected to forced labor; being sexually harassed at work; a pregnant employee who must quit under Clause 1, Article 138; having reached retirement age under Article 169; and the employer having provided dishonest information at hiring that affects performance of the contract. Note: pregnant employees have separate notice rules under Article 138 — check that provision carefully.

Before the notice period expires, either party may revoke the unilateral termination, but only by written notice accepted by the other party (Article 38). In practice, this lets an employer retain key talent even after a resignation letter has been submitted — as long as the notice period has not run out and both sides agree in writing.

An employee who resigns lawfully still receives severance pay (Clause 10, Article 34 falls under Article 46). By contrast, resigning in breach of the rules — for example walking out without notice and without qualifying for a no-notice case — is an unlawful unilateral termination (Article 39) with the consequences in Article 40: no severance, compensation of half a month's contractual salary plus salary for the days of notice not given, and reimbursement of training costs under Article 62 (if any).

3.3. Employer-Initiated Unilateral Termination

Unlike employees, employers cannot terminate at will — only in the seven cases listed in Clause 1, Article 36:

  1. The employee regularly fails to complete work under the contract, assessed against performance criteria in the employer's regulations. The critical point: the assessment regulation must be issued by the employer after consulting the grassroots-level employee representative organization (the grassroots trade union, where one exists). Without a valid assessment regulation, this ground rarely survives in court.
  2. Sickness or accident after treatment for 12 consecutive months (indefinite-term contract), 6 consecutive months (12–36-month contract), or more than half the contract term (under-12-month contract), where working capacity has not recovered. When the employee's health recovers, the employer must consider re-concluding a contract.
  3. Natural disaster, fire, dangerous epidemic, enemy sabotage, or relocation or downsizing of production/business as required by a competent state authority, where the employer has exhausted all remedies but must still cut jobs.
  4. The employee fails to show up at work after the deadline in Article 31 (expiry of a contract performance suspension).
  5. The employee reaches retirement age under Article 169, unless otherwise agreed. In 2026, the normal retirement age is 61 years and 6 months for men and 57 years for women (Article 4, Decree 135/2020/ND-CP).
  6. The employee takes unauthorized leave without a legitimate reason for 5 consecutive working days or more.
  7. The employee provided dishonest information when concluding the contract (Clause 2, Article 16), affecting recruitment.

Notice periods for employers mirror the employee's: at least 45 days (indefinite-term), 30 days (12–36-month term), 3 working days (under-12-month term) — Clause 2, Article 36. Exception: when the employee fails to show up at work after the deadline in Article 31 (point d) or takes unauthorized leave without a legitimate reason for 5 consecutive working days or more (point e), the employer is not required to give any prior notice (Clause 3, Article 36).

And there are three situations where the employer must not terminate unilaterally (Article 37): an employee suffering sickness, labor accident, or occupational disease and under treatment; an employee on maternity leave or nursing a child under 12 months; an employee on annual leave, personal leave, or other leave approved by the employer. Breaching Article 37 not only renders the termination unlawful but can attract heavier administrative sanctions.

Procedurally: the termination decision must state its grounds clearly (citing the correct point and clause of Article 36), respect the notice period, and the employer must notify the employee in writing of the contract termination (Article 45) — failure to give written notice may draw administrative sanctions under Decree 283/2026/ND-CP (effective 10/9/2026; specific fines must be checked against the current instrument).

3.4. Dismissal — The Heaviest Disciplinary Sanction

Many employers confuse "dismissal" with firing at will. Under the law, dismissal is a form of labor discipline (Clause 4, Article 124), applicable only in the four cases in Article 125:

  1. The employee commits theft, embezzlement, gambling, intentional injury, or drug use at the workplace;
  2. Discloses business or technological secrets, infringes the employer's intellectual property, causes serious damage or threatens to cause especially serious damage to the employer's assets or interests, or commits sexual harassment at the workplace as defined in the internal labor regulations;
  3. Has been disciplined by extension of the salary-increase period or demotion and reoffends while the discipline has not yet been expunged (expungement periods: 3 months for reprimand, 6 months for salary-increase extension, 3 years for demotion — Article 126);
  4. Takes unauthorized leave totaling 5 days within 30 days or 20 days within 365 days, without a legitimate reason (legitimate reasons include natural disaster, fire, the employee's or a relative's sickness certified by a competent medical facility, and other cases in the internal labor regulations).

The fundamental difference between dismissal and unilateral termination: dismissal must go through the disciplinary procedure in Article 122. The employer must prove the employee's fault; the grassroots-level employee representative organization of which the employee is a member must participate; the employee must be present and has the right to defend themselves or be defended by counsel or the representative organization; and the proceedings must be recorded in minutes. The violation must be defined in the internal labor regulations as registered (enterprises with 10 or more employees must register their regulations) — without registered regulations, or if the act is not covered, a lawful dismissal is impossible. The statute of limitations for discipline is 6 months from the violation, or 12 months for violations directly involving finance, assets, or disclosure of technological or business secrets (Article 123).

Discipline — including dismissal — may not be imposed on employees on sick leave, on leave approved by the employer, in temporary detention or custody, awaiting a competent authority's conclusion on the alleged violation, pregnant employees or those on maternity leave or nursing children under 12 months, or persons who committed the violation while suffering mental illness or another disease depriving them of awareness or control of their conduct (Clauses 4 and 5, Article 122).

One point that surprises many employers: a dismissed employee still receives severance pay if they have worked regularly for at least 12 months, because dismissal falls under Clause 9, Article 34 — covered by the severance regime in Article 46.

3.5. Other Termination Grounds Employers Should Know

  • Contract expiry (Clause 1, Article 34): a definite-term contract ends on expiry, except where the employee is a leader of the grassroots-level employee representative organization, in which case the contract is extended to the end of their term. Related warning in Article 20: a definite-term contract may be concluded at most twice; continued employment after that requires an indefinite-term contract — FDI companies that keep "renewing" one-year contracts should pay special attention.
  • Job loss from structural or technological changes or economic reasons (Articles 42, 43): when multiple employees must be let go, the employer must prepare a labor utilization plan (Article 44) — prioritizing retraining and reassignment — consult the grassroots trade union, and notify the provincial People's Committee and the employees 30 days in advance. Skipping the labor utilization plan is a common procedural flaw that renders mass layoffs unlawful.
  • Reaching retirement age (Clause 12, Article 34; Article 169): the contract ends when the employee reaches retirement age, unless the parties agree to continue. As noted, in 2026 this means 61 years and 6 months for men and 57 years for women under normal working conditions.

4. Severance and Financial Obligations on Termination

4.1. Severance Pay (Article 46)

When a contract ends under Clauses 1, 2, 3, 4, 6, 7, 9, or 10 of Article 34 — covering expiry, completion of work, mutual agreement, dismissal, and lawful employee-initiated termination — the employer must pay severance to employees who have worked regularly for at least 12 months. The rate: half a month's salary per year of service. Two exclusions: employees eligible for a pension, and termination for unauthorized leave of 5 consecutive working days or more without legitimate reason (Point e, Clause 1, Article 36).

The calculation must get each component right:

  • Service period = total actual working time minus time covered by unemployment insurance (UI) contributions and time for which severance or job-loss allowance was already paid (Clause 2, Article 46). This is the most commonly miscalculated element: for employees with full UI coverage since 2009, the severance service period usually covers only the pre-UI years.
  • Salary base = the average salary of the 6 consecutive months under the labor contract immediately before termination (Clause 3, Article 46), comprising the job-based salary, salary allowances, and other regular, specifically quantified supplements paid each pay period (Clause 3, Article 12, Circular 10/2020/TT-BLĐTBXH). It is neither the bare social-insurance contribution salary nor total income including irregular bonuses.

Example: an employee with 5 years of service, 4 of them covered by UI contributions → severance service period is 1 year → half a month's average salary of the last 6 months. With no UI coverage at all (e.g., a foreign employee — see 4.4), the full 5 years count → 2.5 months' salary.

4.2. Job-Loss Allowance (Article 47)

When employees lose their jobs due to structural or technological changes or for economic reasons (Clause 11, Article 34) and the employer cannot arrange new employment, a higher allowance applies: one month's salary per year of service, minimum two months' salary, for employees who have worked regularly for at least 12 months. The service period and salary base are determined the same way as severance (excluding UI-covered time and previously paid allowances).

Keeping these two allowances distinct is a basic HR duty: paying "severance" for a restructuring-related job loss means underpaying by half — and gives the employee grounds to sue for the difference.

4.3. Final Settlement, Insurance Closure, and Document Return (Article 48)

Within 14 working days of contract termination, both parties must fully settle all amounts related to each party's entitlements. The deadline may be extended but not beyond 30 days in four cases: the employer (non-individual) ceases operation; structural or technological changes or economic reasons; division, separation, merger, consolidation, sale, lease, conversion, or asset transfer; natural disaster, fire, enemy sabotage, or dangerous epidemic.

At the same time, the employer must complete procedures confirming social insurance and UI contribution periods and return the originals of any documents kept from the employee; it must provide copies of work-related documents at the employee's request (copying and delivery costs borne by the employer). Withholding the social insurance book or documents as leverage is a violation — and may be punished with administrative sanctions under Decree 283/2026/ND-CP (effective 10/9/2026).

4.4. Special Notes for Foreign Employees

Foreign employees working in Vietnam are equally entitled to severance if they meet the general conditions — but with one material difference: they do not participate in unemployment insurance (they join compulsory social insurance under Decree 143/2018/ND-CP only), so the severance service period is the entire actual working time, with no deduction. For long-serving expatriates, this amount can be substantial — factor it into workforce planning.

Additionally, a work permit expires when the labor contract terminates (Clause 2, Article 156). Employers must handle the permit's revocation/closure under Decree 219/2025/ND-CP (effective 7/8/2025, replacing the foreign-worker provisions of Decree 152/2020/ND-CP); leaving a permit "hanging" after the employee has left is an avoidable compliance risk.

On unemployment insurance for Vietnamese employees: after termination, employees file for unemployment benefits under the Law on Employment. As a new Law on Employment took effect on 01/01/2026, employers and employees should check the latest guiding documents on filing deadlines and eligibility before acting.

5. Unlawful Unilateral Termination: The Price

An unlawful unilateral termination is one that does not comply with Articles 35, 36, and 37 (Article 39) — i.e., no statutory grounds, breach of the notice period, or termination during a protected period.

If the employer terminates unlawfully (Article 41), the obligations are heavy:

  1. Reinstate the employee under the concluded contract; pay salary and social, health, and unemployment insurance contributions for the days the employee was not allowed to work; plus at least two months' contractual salary. The reinstated employee must return any severance or job-loss allowance already received. If the original position no longer exists, the parties negotiate amendments to the contract. Breach of the notice period triggers additional compensation of salary for the days of notice not given.
  2. If the employee does not wish to return, the employer pays the above amounts plus severance pay under Article 46 to end the contract.
  3. If the employer does not wish to reinstate and the employee agrees, the parties negotiate additional compensation of at least two months' contractual salary — on top of the amounts in point 1 and the severance pay.

If the employee terminates unlawfully (Article 40): no severance; compensation of half a month's contractual salary plus salary for the days of notice not given; reimbursement of training costs under Article 62.

Beyond civil compensation, employers face administrative sanctions in labor under Decree 283/2026/ND-CP (effective 10/9/2026, replacing Decree 12/2022/ND-CP): acts such as failure to notify termination in writing, failure to pay or underpaying severance or job-loss allowances, late settlement, or failure to close social insurance procedures and return documents may all draw fines that scale with the number of affected employees. Specific fine levels must be checked against the current instrument at the time of the violation; where exact figures are needed for a specific case, seek legal advice before deciding.

On procedure, employees dismissed or unilaterally terminated may sue directly in court without mandatory conciliation by a labor conciliator (Point a, Clause 1, Article 188) — meaning the employer can receive a lawsuit immediately after the termination decision, with no mandatory conciliation buffer.

6. Seven Mistakes That Invite Counterclaims

1. Dismissing by a one-page decision, skipping the Article 122 procedure. No proof of fault, no union participation, no right of defense, no minutes — the dismissal will almost certainly be declared unlawful, forcing reinstatement plus Article 41 compensation.

2. Terminating for "poor performance" without an assessment regulation. Article 36(1)(a) requires performance criteria in the employer's regulation, issued after consulting the grassroots union. A line manager's subjective assessment is no substitute.

3. Miscalculating severance. The two classic errors: forgetting to deduct UI-covered time (overpayment — or disputes when discovered), and using the base salary instead of the 6-month average including allowances and regular supplements under Circular 10/2020.

4. Forgetting written notice of termination (Article 45). Many employers issue only an internal decision without notifying the employee in writing — a procedural breach that may draw administrative sanctions under Decree 283/2026/ND-CP.

5. Terminating employees during protected periods (Article 37). Under medical treatment for sickness, on maternity leave, or nursing a child under 12 months — an absolute no-go zone for unilateral termination.

6. "Agreement" that is really coercion. Pressuring employees to "resign voluntarily or be dismissed" to dodge severance is a tactic courts know well. Once coercion is proven, the agreement is void and the employer faces the full consequences of unlawful unilateral termination.

7. Forgetting social insurance closure and document return — and, for foreign employees, work-permit handling. The duties under Article 48(3) and Article 156 do not vanish when the contract ends — delays invite fines and damages claims (e.g., an employee unable to claim UI benefits because the book was never closed).

7. Quick Checklist

  • [ ] Identify the correct termination ground (Article 34) and route: agreement, unilateral, or dismissal
  • [ ] If unilateral: confirm one of the seven Article 36 cases applies, and none of the three Article 37 prohibitions
  • [ ] Respect notice periods: 45 days / 30 days / 3 working days (Articles 35, 36); note that the employer is not required to give any prior notice in the point d and point e, Clause 1, Article 36 cases (Clause 3, Article 36)
  • [ ] If dismissing: registered internal labor regulations, proven fault, union participation, employee's right of defense, written minutes (Articles 122, 123, 125)
  • [ ] If restructuring layoffs: labor utilization plan, union consultation, 30 days' advance notice to the provincial People's Committee and employees (Article 44)
  • [ ] Notify the employee in writing of the contract termination (Article 45)
  • [ ] Calculate severance/job-loss allowance correctly: 12-month threshold, deduct UI-covered time, 6-month average salary (Articles 46, 47; Article 12, Circular 10/2020)
  • [ ] Settle in full within 14 working days (max 30 days in special cases), close social insurance, return original documents (Article 48)
  • [ ] For foreign employees: handle the work permit expiring on contract termination (Article 156)
  • [ ] Archive the full file (decisions, minutes, notices, payment records) at least until the limitation period for lawsuits expires

8. Frequently Asked Questions

Does an employee get severance pay when the contract ends by mutual agreement in Vietnam? Yes. Mutual termination falls under Clause 3, Article 34 and is among the cases eligible for severance under Article 46. The conditions are regular work of at least 12 months; the rate is half a month's salary per year of service, based on the average salary of the 6 consecutive months before termination, minus UI-covered time.

Does an employee who quits without notice lose severance pay? Yes, unless the resignation qualifies as one of the seven no-notice cases in Clause 2, Article 35 (e.g., unpaid wages, mistreatment, sexual harassment at work). Walking out without legitimate reason is an unlawful unilateral termination (Article 39): no severance, compensation of half a month's salary plus salary for the days of notice not given, and reimbursement of training costs (Article 40).

What redundancy pay applies when a company restructures in Vietnam? Job-loss allowance under Article 47: one month's salary per year of service, minimum two months' salary, when employees lose their jobs due to structural or technological changes or for economic reasons (Articles 42, 43; Clause 11, Article 34). The procedural prerequisites: a labor utilization plan, consultation with the grassroots trade union, and 30 days' advance notice to the provincial People's Committee and the employees (Article 44).

Is a dismissed employee entitled to severance pay in Vietnam? Yes, if they have worked regularly for at least 12 months. Dismissal is a termination case under Clause 9, Article 34, covered by the severance regime in Article 46 — with the same conditions and calculation as other lawful terminations. The only relevant exclusion is not the dismissal itself but service of under 12 months.

What can an employee do if terminated unlawfully in Vietnam? The employee may demand reinstatement, salary and insurance contributions for the days not allowed to work, plus at least two months' salary; if unwilling to return, these amounts plus severance pay apply (Article 41). Disputes over dismissal or unilateral termination may be filed directly with the court without mandatory conciliation (Point a, Clause 1, Article 188). A complaint may also be lodged with the Department of Home Affairs or the labor inspectorate for administrative sanctions.

9. When to Work with Counsel

Consult labor counsel before acting in these situations:

  • Planning mass layoffs from restructuring, M&A, or technology change — you will need an Article 44 labor utilization plan and per-group job-loss allowance calculations;
  • Dismissing senior executives or foreign employees — one procedural misstep under Article 122 can force reinstatement plus months of compensation;
  • The employee belongs to a specially protected group (pregnant, nursing, under medical treatment, a union official) — the line between lawful and unlawful is thin;
  • You have received a lawsuit or sanction decision over a termination — assess settlement, negotiation, or litigation strategy immediately;
  • Drafting mutual termination agreements with confidentiality, non-compete, and no-claim clauses — so the document holds up if challenged.

FLAT Law Firm regularly advises FDI companies on workforce management and labor dispute resolution in Vietnam — from reviewing internal regulations to representing clients in disputes. Contact our hotline at 0988424851 for case-specific advice.

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References

  • Labor Code No. 45/2019/QH14 passed by the National Assembly on 20/11/2019, effective 01/01/2021
  • Decree No. 145/2020/ND-CP of the Government dated 14/12/2020, effective 01/02/2021
  • Circular No. 10/2020/TT-BLĐTBXH of the Ministry of Labor, Invalids and Social Affairs dated 12/11/2020, effective 01/01/2021
  • Decree No. 283/2026/ND-CP of the Government dated 15/7/2026 on administrative sanctions in labor, social insurance and Vietnamese workers working abroad under contract, effective 10/9/2026 (replacing Decree No. 12/2022/ND-CP)
  • Decree No. 135/2020/ND-CP of the Government dated 18/11/2020, effective 01/01/2021
  • Decree No. 219/2025/ND-CP on foreign employees working in Vietnam, effective 7/8/2025 (replacing the foreign-worker provisions of Decree No. 152/2020/ND-CP, as amended by Decree 70/2023/ND-CP)