A Vietnamese Court Precedent on Wrongful Dismissal: The Risks of Terminating Employment Contracts Through Organizational Restructuring, and How to Respond
Vietnamese labor law imposes strict rules on wrongful (unlawful) dismissal, and terminating an employment contract on the grounds of organizational restructuring likewise calls for a cautious approach. This article examines a judgment of the Ho Chi Minh City People's Court to explain the legal risks a company may face, and introduces key points for avoiding wrongful dismissal. It also discusses restrictions on the practice of foreign law firms and the exit-ban measures imposed on the legal representatives of the company that lost the case. This is essential reading for any company considering HR management and labor risk mitigation in Vietnam.
01 - Summary of the Judgment
1.1. Background of the Case
Mr. H, a resident of Binh Thanh District, Ho Chi Minh City, entered into an indefinite-term employment contract with Company D, a limited liability company, in 2008 and began working as Chief Financial Officer. His initial monthly salary was over VND 80 million; he was later also appointed Chief Accountant, and after many years of service his monthly salary eventually reached approximately VND 200 million.
However, on May 12, 2020, Mr. H received notice from the company that it intended to proceed with terminating his employment contract. Two days later, on May 14, the company, citing an operational review, required him to take leave from May 15 until further notice, with full salary continuing to be paid. He was subsequently barred from entering the company premises and from contacting other employees, and his access to internal systems was revoked.
On September 10, 2020, the company issued a formal decision terminating Mr. H's employment contract, citing "organizational restructuring." Mr. H objected, but the company refused to accept his objection.
1.2. The Parties' Claims
Plaintiff (Mr. H)
He argued that the company's organizational restructuring did not comply with the law — the Chief Accountant position still existed, and the company had registered a new Chief Accountant with the tax authorities.
On this basis, he sued the company seeking:
Invalidation of the unilateral decision to terminate his employment contract
Reinstatement to his position
Payment of unpaid wages, bonuses, and accrued annual leave, plus damages, totaling more than VND 8 billion
Defendant (Company D)
The company argued that termination of the employment contract had been carried out lawfully and in accordance with the law.
It contended that it had already fulfilled all financial obligations relating to the termination.
1.3. Course of the Proceedings
First instance (September 2023 — People's Court of District 10, Ho Chi Minh City)
Dismissed the plaintiff's claims in their entirety.
Found that the company's procedure for terminating the employment contract was lawful.
Mr. H appealed the judgment in full.
Appeal (Ho Chi Minh City People's Court)
Found that the company's workforce-restructuring plan was one-sided and subjective toward Mr. H, and lacked reasonable justification.
Held that terminating the employment contract on the ground of "organizational restructuring" was unwarranted and constituted a violation of the law.
Found that the first-instance judgment had failed to adequately examine the substance of the case.
As a result, the appellate court fully upheld Mr. H's claims and ordered the company to pay more than VND 9 billion.
02 - Analysis of the Judgment
As under Japan's Labor Standards Act, Vietnamese labor law also imposes strict requirements where an employer unilaterally terminates an employment contract or dismisses an employee. However, these requirements can pose a significant obstacle or burden for companies that wish to end — or are unable to maintain — an employment relationship, particularly with employees in important, highly compensated positions. In such cases, many companies attempt to rely on the provisions allowing termination of employment contracts due to "organizational restructuring." However, applying this ground purely as a matter of form, while in substance using it as a means of dismissal, carries substantial risk.
This section explains the key points concerning "termination of employment contracts through organizational restructuring" as illustrated by this judgment.
2.1. Whether the Necessity of the Restructuring Can Be Proven
Where a company terminates an employment contract on the ground of organizational restructuring, it must clearly demonstrate the necessity for doing so. For example:
A downsizing of operations due to deteriorating business conditions
A merger, consolidation, or division of the company
A business reorganization driven by technological change or shifts in the market
Where a company asserts organizational restructuring without reasonable grounds and, in substance, carries out an unnecessary dismissal, the courts are likely to find the restructuring unlawful.
2.2. The Content of the Restructuring Must Be Clear and Transparent
The substance of the restructuring must be based on objective and clear criteria. Where the process lacks transparency, or the stated reasons are vague or lack any real substance, there is a heightened risk that the employee will raise an objection.
The following are examples that may constitute an unlawful termination of employment disguised as organizational restructuring.
Abolishing a department and subsequently establishing a new department with the same functions and duties
For example, dissolving Department A and dismissing its employees, only to later establish Department B carrying out essentially the same work.
Citing financial difficulty to justify labor cost reductions, where the financial data does not support that claim
Where a company undertakes workforce reductions on the ground of "deteriorating business conditions," it must substantiate that justification with financial and HR data.
Recruiting new employees for a similar role after the dismissal
Where a company dismisses an employee citing "organizational restructuring" and subsequently posts a job opening for a similar role, this casts doubt on the legitimacy of the termination.
2.3. Fulfilling the Employer's Obligations upon Dismissal Due to Restructuring
Vietnamese labor law sets out the following compensation obligations for dismissal arising from organizational restructuring.
① Payment of severance/job-loss allowance
A company must pay an employee who has been continuously employed for 12 months or more one month's salary for each year of employment (with a minimum of two months' salary) (Article 34(11) of the Labor Code).
② Calculation of the period of employment
The following periods are taken into account when calculating the severance allowance:
The actual period worked at the company
Less the period during which the employee was covered by unemployment insurance
Excluding any period for which a severance allowance has already been paid
③ Basis for the salary calculation
The salary used to calculate the severance allowance is based on the average salary over the six months immediately preceding the dismissal.
2.4. Procedure for Terminating Employment Contracts Due to Organizational Restructuring
Terminating employment contracts due to organizational restructuring requires the following procedure.
① First round of consultation (consultation with the employee representative organization)
The company must formulate a restructuring plan and consult with the employee representative organization on that basis.
Under Article 46 of the Labor Code, the employee representative organization must gather employees' opinions in advance and submit them to the company in writing.
② Notice to employees (within 15 days)
The company must publish and notify employees of the labor-utilization plan prepared based on the outcome of the consultation.
③ Second round of consultation (consultation on the dismissal procedure)
The company consults with the employee representative organization on the criteria and conditions for selecting employees to be dismissed.
④ Notice of dismissal (30 days in advance)
The company must notify the provincial People's Committee and the employee concerned no later than 30 days before carrying out the dismissal.
⑤ Issuance of the dismissal decision and payment of compensation
The company issues an individual dismissal notice and communicates it directly to the employee.
It then completes payment of compensation and the resignation/termination procedures.
03 - Other Information Related to the Judgment
3.1．Suit Against the Law Firm That Advised on the Restructuring Policy
After winning the labor case, Mr. H went on to sue Law Firm B. Law Firm B is a major global (foreign) law firm that had acted as Company D's counsel in structuring the termination of Mr. H's employment relationship.
Mr. H's allegations were as follows:
Two staff members (lawyers) of Law Firm B conducted an investigation without proper authority to act as representatives and seized Mr. H's computer and mobile phone.
Staff without a Vietnamese lawyer's license provided legal advice to Company D on its labor policy.
Two lawyers from Law Firm B appeared as Company D's representatives in the labor litigation, which constitutes an unlawful act exceeding the permitted scope of practice for a foreign law firm.
In this suit, Mr. H sought an order requiring Law Firm B to issue a public apology acknowledging that it had damaged his lawful rights and interests through activities outside the permitted scope of legal practice, and further sought VND 18 million in damages for emotional distress.
What Companies and Legal Service Providers Should Bear in Mind
When a company engages legal services, it is essential to properly verify the scope of practice, qualifications, and responsibilities of the law firm or lawyer involved. Vietnam's Law on Lawyers imposes restrictions such as the following:
Providing legal services without a lawyer's license is prohibited.
Foreign lawyers are prohibited from giving legal advice on matters of Vietnamese law.
Foreign law firms are prohibited from engaging in litigation activities within Vietnam.
In addition, a considerable number of consulting firms and accounting firms — beyond law firms — currently provide legal services such as handling administrative procedures, contract-related legal work, and labor law consultations. However, providing such services requires formal registration as a law firm, and it may be unlawful for unqualified persons or entities to engage in the practice of law.
Confirming the legality of a legal service provider is therefore extremely important for a company seeking to properly manage its legal risk.
3.2. Exit Ban on the Company's Legal Representatives
After Mr. H won the labor case, on July 3, 2024, the Civil Judgment Enforcement Department of District 10, Ho Chi Minh City, issued a decision to commence enforcement of the judgment against Company D, based on Mr. H's petition.
Under this decision, Company D became responsible for paying Mr. H more than VND 9 billion.
Furthermore, on July 4, 2024, the Civil Judgment Enforcement Department issued a decision imposing an exit ban on two of Company D's legal representatives.
As this shows, where a company loses a lawsuit, it may face not only the financial liability imposed by the judgment but also restrictions on its executives' ability to leave the country. This is a particular concern where a company's representatives travel abroad frequently, as such restrictions can significantly disrupt the company's ordinary business operations.
Summary
This judgment offers important lessons regarding the risk of wrongful dismissal in Vietnam and how companies should respond. Where a company terminates an employment contract on the ground of "organizational restructuring," it must objectively and clearly demonstrate the necessity for doing so; using this ground merely as a means of dismissal significantly increases the risk of losing in court. This case also raised concerns about a foreign law firm handling a labor matter in violation of Vietnamese law, highlighting the importance of confirming the legality of any legal service provider a company engages.
It is also notable that the legal representatives of the losing company may be subject to an exit ban. Properly understanding legal risk and following lawful procedures in labor management is essential to the stable operation of a business in Vietnam. Companies operating in Vietnam going forward should exercise greater care both in complying with the law governing termination of employment contracts and in carefully selecting appropriate legal advisers.