Termination of employment agreement ahead of time

Termination of employment agreements is one of the common problems in enterprises. Labor Law stipulates how the responsibility of the employers and employees to unilaterally terminate the illegal employment agreement is adjusted. However, in the case of premature termination of the employment agreement, there is still no specific law.

As a law firm specializing in providing consulting services, resolving issues in the labor field, we will summarize several basic provisions on the responsibility of the employer when agreeing to terminate the labor contract ahead of time with the employee. Accordingly, the employer can avoid legal consequences after the employment agreement is terminated, as well as the labor relationship between the parties will be terminated in accordance with the law. However, depending on the different situations, issues are not mentioned in the consultation below. Therefore, clients can contact us directly for quick response and effective situation resolution.

Under Article 34 of the Labor Code in 2019, the employers (“Employers“) and employees (“Employees“) agree to terminate the employment agreement (“Employment Agreement “) ahead of time is one of the termination cases of the Employment Agreement. Therefore, how are the Employers responsible for the Employees? What financial obligations do the Employers have to fulfill to the Employees?

A. Which amounts of money must the Employers pay to the Employees upon agreeing to terminate the Employment Agreement?

Pursuant to Article 48.1 of the Labor Code 2019 ” Within 14 working days from the date of termination of the employment agreement, the two parties are responsible for fully paying the sums related to each party’s interests 

Amounts that Employers must pay to the Employees include:

(i) Salary according to the Employment Agreement signed between the Employers and the Employees;

(ii) Salary corresponds to the days that have not yet been taken off the number of annual holidays under Article 113 of the Labor Code 2019;

(iv) Pay severance allowance to the Employees who have worked regularly for a full 12 months or more. Each working year is entitled to half a month’s salary for the working period of the Employers in case the Employees do not pay unemployment insurance according to Article 46 of the Labor Code 2019.

In addition to the above amounts, the Employers will pay the Employees an additional amount of money which is considered as a support for the Employees to find a job. The condition is that the Employees must agree to terminate the Employment Agreement and exempt the Employers from obligations and liabilities relating to the employment relationship under the Employment Agreement signed.

B. What do the Employers have financial obligations?

When agreeing to terminate the Employment Agreement, the Employers will deduct and retain before paying the Employees the following amounts:

1. Personal income tax (PIT) of the Employees

Article 3 of the Law on Personal Income Tax as amended by the Law on Personal Income Tax 2012 (“Law on PIT”) stipulates personal income tax including the following types:

  1. Incomes from salaries and wages, including:
  2. a) Salaries, wages and amounts of salary and wage nature;
  3. b) Allowances except for: […] severance allowances, job loss allowances under the provisions of the Labor Code […]

Article 24 of the Law on PIT stipulates the responsibilities of organizations and individuals paying income and the responsibilities of taxpayers being resident individuals.

“1. The responsibility for tax declaration, deduction, payment and finalization is prescribed as follows:

  1. a) Organizations and individuals paying income shall declare, deduct and pay taxes into the State budget and settle taxes on taxable incomes paid to taxpayers;”

Therefore, the Employers are obliged to withhold the amount of PIT that the Employees are obliged to pay under the Law on PIT.

2. Compulsory social insurance, health insurance and unemployment insurance

Article 31.1.2 (a) Decision No. 595/QD-BHXH stipulates payment of social insurance, health insurance, unemployment insurance, occupational accident and occupational disease insurance as follows: “Monthly or every 3 months or 6 months according to the payment method of the unit or unit deducted from the employee’s salary according to the prescribed rate to transfer the payment to the collection account of the social insurance agency“.

Therefore, when the Employment Agreement is terminated, the Employers will deduct from the Employee’s salary the payment of compulsory social insurance, health insurance and unemployment insurance contributions to pay the social insurance agency.

3. Other Responsibilities

Pursuant to Article 48.3 of the Labor Code 2019 stipulates that the Employers have the following responsibilities:

“a) Complete the procedures for verification of duration of participation in social insurance and unemployment insurance, return them and original copies of the employee’s other documents (if any);

  1. b) Provide copies of the documents relevant to the employee’s work if requested by the employee. The employer shall pay the cost of copying and sending the documents.”

Accordingly, the Employers must hand over the papers and documents related to the employee.

Note: The content presented above is for reference only. Depending on different times and audiences, the above content may no longer be relevant. For detailed advice, please contact LMP Lawyers. 

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