Vietnam Probationary Period and Labor Contract Practice Guide: Key Legal Points for Japanese Companies
This article systematically explains the key matters Japanese companies must grasp in practice under Vietnam's Labor Code: the overview of the probationary system, the maximum probationary period, the rules on wages during probation, how to handle the end of the probationary period, when the official labor contract must be signed, its mandatory contents and language, and practical points on contract renewal. It is a practical guide for preventing labor disputes before they arise. NEXORA LAW FIRM has extensive experience providing one-stop support to Japanese-affiliated companies in Vietnam, covering drafting and review of labor contracts, designing probationary agreements, social insurance compliance, support for termination and dismissal, and consulting on labor dispute prevention. Reflecting the latest legal amendments, we support the building of a labor compliance system tailored to practical needs.
01 - Overview of Labor Contracts in Vietnam
In Vietnam, an employment contract (labor contract) is a written agreement under the Labor Code that sets out wage payment, working conditions, and the rights and obligations of the parties. As a general rule, where an employee will work for one month or more, a written contract must be concluded before work begins.
There are two types of labor contract: an "indefinite-term contract" and a "definite-term contract," with the latter required to have a term of no more than 36 months.
A labor contract must specify key matters such as the names, addresses, and identification numbers of the contracting parties; job duties and workplace; contract term; wage amount, payment method, payment date, and allowances; the salary increase/promotion system; working hours, rest periods, and holidays; provision of necessary protective equipment; the social insurance, health insurance, and unemployment insurance regime; and training and skills-development programs. These are mandatory items required under the Labor Code to protect employees' rights. The contract must be drawn up in Vietnamese, and where a foreign employee is hired, it is common practice to also provide a translation into that employee's native language.
02 - The Probationary System
2.1. Contract Format
Probation may be arranged prior to the official employment contract, and Article 24 of Vietnam's 2019 Labor Code permits either "including a probationary clause in the labor contract" or "concluding a separate probationary contract." In either case, the contract must clearly set out matters such as the job duties and working conditions to apply during the probationary period.
2.2. Probationary Period
The probationary period is set according to the specialization and complexity of the role, and may not be set more than once for the same position. The general upper limits are as follows:
Managerial positions (e.g., corporate officers or senior executives as defined under the Law on Enterprises): a maximum probationary period of 180 days
Roles requiring specialized expertise at university-graduate level or above: a maximum of 60 days
Technical/specialized roles at vocational-school level or below: a maximum of 30 days
Other roles: a maximum of 6 working days
In addition, as a general rule, no probationary period may be set where the term of the employment contract is less than one month.
2.3. Wages During the Probationary Period
Wages during the probationary period are set by agreement between the parties, but must be at least 85% of the wage expected to be paid after formal hiring. Companies must therefore take care to ensure that the probationary wage is not set below this threshold relative to the wage level upon formal hiring.
2.4. End of the Probationary Period
At the end of the probationary period, the employer is obligated to notify the employee of the evaluation result. If the evaluation is satisfactory, the employee is formally hired, either by continuing the existing labor contract or by concluding a new, official labor contract. If the evaluation is unsatisfactory, the employer may terminate the existing labor contract or the probationary contract. Note that, during the probationary period, both the employer and the employee have the right to terminate the contract without prior notice or compensation.
03 - Concluding the Official Employment Contract
3.1. Timing of Conclusion
As a general rule, the official labor contract must be concluded before the employee begins work. Even where the probationary period was arranged under a separate contract, the official labor contract must be executed promptly after the probationary period ends.
3.2. Mandatory Contents
The labor contract must include the key items described above (party information, job duties, contract term, wages and allowances, working hours and holidays, social/health/unemployment insurance, etc.). In particular, the wage amount, payment method, payment date, rules on salary increases and promotions, various allowances and benefits, and training programs must be accurately specified to prevent disputes after employment begins. These constitute the basic elements of a labor contract enumerated under the law.
In addition to these statutory mandatory items, the parties may, by agreement, add other clauses to the labor contract.
For example, where an employee is engaged in work directly involving the company's trade secrets or technical secrets, the employer may agree in writing with the employee on matters such as the protection of trade secrets and technical secrets, the scope and duration of such protection, the rights and obligations involved, and liability for damages in the event of a breach.
3.3. Language of the Contract
Under Vietnamese law, the labor contract must be drawn up in Vietnamese. When hiring a foreign employee, it is common practice to also attach a translation into the employee's native language or English so that the employee can understand its content. Preparing the contract in multiple languages facilitates communication between employer and employee and helps avoid disputes arising from misunderstanding.
04 - Common Practical Mistakes (Failures That Frequently Occur in Practice)
(i) Cases where no probationary contract is concluded
Particularly among small and mid-sized companies or those hiring a small number of employees, it is not uncommon for the conclusion of a probationary contract to be omitted. However, failing to conclude a probationary contract creates the following practical and legal risks:
Management of the probationary period becomes ambiguous
Working conditions and treatment during probation (wages, benefits, etc.) become unclear
The evaluation method at the end of probation and the criteria for formal hiring or non-hiring are left unorganized
Disputes are more likely to arise over termination during or at the end of the probationary period
It is essential to recognize that a probationary contract is not a mere formality, but an important management tool for organizing the rights and obligations during the probationary period and preventing disputes.
(ii) Cases involving errors in "signing authority" for the probationary or labor contract
A probationary contract is a type of labor contract, so whether the signatory has the authority to conclude it is extremely important. As a general rule, both the labor contract and the probationary contract must be signed and concluded by the company's legal representative. Where the legal representative delegates signing authority to another person (such as an HR director or general affairs manager), a clear written power of attorney is required.
In practice, at large companies, it is not uncommon for an HR staff member to sign the contract on behalf of the representative. However, if the authority to conclude a probationary contract has not been explicitly delegated, there is a risk that the contract will be found invalid.
(iii) Cases involving errors in setting the probationary period
Vietnam's Labor Code clearly sets an upper limit on the probationary period for each position and type of work. A probationary period may not be set more than once for the same position, and even if it were set multiple times, exceeding the statutory limit is not permitted.
In practice, it is often seen that companies mistakenly believe the probationary period can be set flexibly, resulting in the statutory limit being exceeded. When setting a probationary period, the statutory maximum must always be confirmed.
(iv) Cases of misunderstanding the relationship between the probationary period and the obligation to enroll in social insurance
One point that is particularly prone to confusion in practice is the relationship between the probationary period and the obligation to enroll in social insurance.
Many companies conclude the labor contract from the outset and include a clause such as "probationary period: 2 months" within it. In this case, however, because the labor contract has already come into effect even during the probationary period, the obligation to enroll in social insurance arises if the contract term exceeds three months.
By contrast, where a probationary contract is concluded separately from the labor contract, there is, in principle, no obligation to enroll in social insurance during the probationary period.
Choosing a contract format without understanding this distinction carries the risk of a retroactive social insurance assessment or an administrative directive, so caution is required.
(v) Cases where the wage clause for the probationary period is unclear
Wages during the probationary period must be at least 85% of the wage upon formal hiring. In practice, even where the probationary wage is set lower than the post-hiring wage, clearly distinguishing the basic salary from various allowances can help avoid a violation of the law.
However, if the wage clause is left vague, or simply states that "wages during probation are lower," an interpretation favorable to the employee may be adopted, and this may be found to violate the wage rules.
(vi) Cases of misunderstanding how to handle a failed (unsuitable) probationary evaluation
Many companies mistakenly believe that "the probationary period must always continue until it expires." However, Vietnam's Labor Code clearly provides that, during the probationary period, either the employer or the employee may terminate the contract without prior notice or compensation. In other words, even partway through the probationary period, if the employer determines the employee is unsuited to the role, it may terminate the contract.
A question frequently raised by Japanese companies is "to what extent should the reasons for failing probation be explained?" In practice, while it is desirable to share a summary of the evaluation result and explain which criteria were not met, the employer is not obligated to convince the employee or to prove the fairness of the evaluation. The probationary evaluation is, in essence, a matter of the employer's discretion, and as long as it is based on evaluation criteria shared in advance, the legal risk is limited.