Companies operating in both Vietnam and China are often shocked to discover that the same "let someone go" decision carries completely different costs and legal risks in the two countries. This termination costs Vietnam China comparison covers both legal systems — so managers can budget correctly and avoid turning a lawful separation into an expensive lawsuit.
Terminology note: In Vietnamese labor law, "dismissal" (sa thải) is a specific disciplinary sanction (Article 125 of the 2019 Labor Code), not a general term for ending employment. This article uses precise terms for each case — unilateral termination, mutual termination, job-loss termination — and "disciplinary dismissal" only where disciplinary action is meant.
1. Vietnam: three payments to know
Severance allowance — half a month's salary per year
Under Article 46 of the Labor Code 2019, when a labor contract ends (expiry, completion of work, mutual agreement…), the employer pays severance: half a month's salary for each year of service, calculated on actual working time minus periods covered by unemployment insurance. The salary base is the average salary of the 6 months immediately before departure (see how severance is calculated under Vietnam's Labor Code 2019).
Job-loss allowance — one month's salary per year, minimum two months
Under Article 47, when employment ends for economic reasons (restructuring, technology change, merger…) or enterprise division/consolidation, the allowance is one month's salary per year of service, at least two months' salary. This is higher than severance — reflecting that the employee loses the job through no fault of their own.
Unlawful termination — the most expensive outcome
Under Article 41, an employer that unilaterally terminates unlawfully must:
- Reinstate the employee;
- Pay salary, social, health and unemployment insurance for the days the employee could not work;
- Compensate at least two months' salary.
If the employee does not want to return, severance is added on top. The total cost of an unlawful termination disputed over 1–2 years can be multiples of the employee's annual salary — before court fees and reputational damage. A real VND 2 billion unlawful-termination case in Vietnam shows how fast these costs escalate. For the procedure itself, see terminating employment contracts lawfully in Vietnam.
2. China: economic compensation and the "2N" rule
Economic compensation (经济补偿) — one month's salary per year of service
Under Articles 46–47 of China's Labor Contract Law, in statutory termination cases employees receive one month's salary per year of service (under 6 months counts as half a year; 6–12 months counts as one year). Two important caps — but they apply only to high earners:
- Salary cap: for employees earning more than 3 times the local average monthly wage, the compensation base is capped at 3 times that average wage.
- 12-year cap: likewise only for the high-earner group above — 20 years of service still counts as 12. For employees whose monthly wage does not exceed 3 times the local average, compensation follows actual years of service with no 12-year cap.
A common mistake is treating "maximum 12 years" as a universal ceiling — Article 47 ties it to the high-earner group.
Unlawful termination — double compensation ("2N")
Under Article 87, unlawful unilateral termination obliges the employer to pay double the economic compensation (called "2N"). The employee may alternatively demand continued performance of the contract. The 2N rule means every unilateral termination decision in China must be weighed carefully.
Mandatory procedure
Chinese law differentiates procedure by termination ground. For the three non-fault unilateral terminations under Article 40 (employee unable to work after the prescribed medical treatment period; incompetent even after training or reassignment; major change in objective circumstances making the contract unperformable), the employer must give 30 days' prior written notice or pay one extra month's salary in lieu. Other terminations (mutual agreement, expiry, disciplinary dismissal) do not use this "30 days or one month's pay" mechanism.
Additionally, under Article 43, when unilaterally terminating a contract the employer must notify the trade union of the reasons in advance; if the union considers the termination unlawful, it may demand correction, and the employer must consider the union's view. Skipping procedure is the shortest path to an "unlawful termination" ruling.
3. Quick comparison table
| Criterion | Vietnam | China |
|---|---|---|
| Allowance on lawful termination | 1/2 month's salary per year (severance) | 1 month's salary per year (economic compensation) |
| Economic-cause termination | 1 month's salary per year, min. 2 months | 1 month's salary per year (12-year cap only for earners >3x local average) |
| Cap on years counted | No year cap | No cap for ordinary employees; 12-year cap only for high earners |
| Cap on salary base | No (6-month average salary) | 3x local average monthly wage (high earners) |
| Unlawful termination | Reinstatement + back pay + insurance + at least 2 months' salary | Double compensation (2N) or contract continuation |
| Special procedure | Based on registered internal rules, disciplinary process | 30 days' notice / 1 month in lieu (Art. 40 cases only); advance union notification of reasons (Art. 43) |
4. Common strategy for companies in both countries
Prefer negotiated termination. In both countries, negotiating a one-off package (mutual termination agreement) is usually cheaper and more certain than unilateral termination: no unlawfulness risk, no prolonged disputes, information stays confidential.
Budget before deciding. This termination costs Vietnam China comparison shows why: for highly-paid staff in China, the 12-year and 3x-average-wage caps bound the cost; for ordinary employees there is no 12-year cap. In Vietnam, with no year cap, 20 years of service means 10 months' severance — it accumulates fast.
Never botch procedure. In Vietnam: discipline must rest on registered internal rules with proper process. In China: for the three Article 40 cases give 30 days' notice or one month's pay in lieu, and notify the trade union of the reasons in advance for unilateral terminations. A procedural error turns cost "N" into "2N" — or into a reinstatement lawsuit. Our labor law guide for employers in Vietnam covers the broader compliance framework.
5. Quick Q&A
Q: How much does it cost to terminate an employee in Vietnam?
A: It depends on the form: severance allowance of half a month's salary per year of service (excluding periods covered by unemployment insurance); job-loss allowance of one month's salary per year (minimum two months) for economic terminations; unlawful termination means reinstatement, back pay plus at least two months' salary, and possible extra compensation.
Q: How much does it cost to terminate an employee in China?
A: Under China's Labor Contract Law, statutory economic compensation (经济补偿) is one month's salary per year of service; the 12-year cap and 3x-average-wage cap apply only to high earners (monthly wage above 3x the local average). Unlawful unilateral termination triggers double compensation (2N).
Q: Which country is more expensive for terminations?
A: No absolute answer — it depends on seniority, salary level, and the termination's legality. China's 12-year and 3x-average-wage caps apply only to high earners, but unlawful termination (2N) is punishing. Vietnam has no year cap on severance/job-loss allowances, and unlawful termination brings a reinstatement obligation — hidden costs can be enormous.
Q: Is a negotiated mutual termination cheaper than unilateral termination?
A: Usually yes, in both countries. A mutual termination agreement lets parties negotiate a one-off package, avoiding the risk of an unlawfulness finding and prolonged dispute costs. It is the recommended route when the employment relationship cannot continue.
Q: What must FDI companies watch when terminating in both countries?
A: Follow each country's own procedure: Vietnam requires — for employers with 10 or more employees — grounding in written, registered internal labor regulations and a strict disciplinary process; China requires, for the three Article 40 cases, 30 days' prior notice (or one month's pay in lieu), and advance notification of the reasons to the trade union (Article 43) for unilateral terminations. A procedural mistake in either country turns a lawful termination into a costly unlawful one.
6. When to work with a lawyer
Work with a lawyer before deciding: compute termination costs from actual seniority and salary, design the negotiated package, and review disciplinary/notice procedures per country. Once a dispute exists, counsel represents you in negotiation and litigation. For companies operating across Vietnam and China, a unified termination policy compliant with both systems is a mandatory investment. FLAT Law Firm advises on Vietnamese labor law and coordinates cross-border labor matters — hotline 0988424851.
References
- Labor Code 2019 of Vietnam, Arts. 41, 46–47 (effective 01/01/2021); Labor Contract Law of the PRC, Arts. 40 (30-day/in-lieu for three cases), 43 (advance union notification), 46–47 (12-year + 3x caps for high earners only), 87 (2N) (effective 2008, amended 2012).
- Cross-checked at time of writing (28/9/2026).
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