Retrenchment of Employees During the Covid Pandemic – Solution to Save Business or Risk of Lawsuit Later

(Bui Viet Anh – Phuoc & Partners)

According to Facebook’s report on state of small businesses in 2021 when surveying the continued impact of the COVID-19 on small and medium businesses, 40% of small and medium businesses in Vietnam underwent staff cuts, of which, 27% had to lay off all employees due to the impact of the pandemic.[1]

From the above figures, it can be seen that, under the impact of the COVID-19, the businesses are struggling and the “reluctant option” is to terminate labour contract (“LC”) with their employees. However, is this the salvage or are the businesses put themselves a legal risk? Let’s analyse below.

The right to unilaterally terminate the labour contracts due to pandemic – A high-stake “right”?

With the pandemic caused by the COVID-19, facing the worst situation of having to terminate the LC without the faults of employees, the businesses often consider three options: (i) negotiation with the employees to sign mutual agreements to terminate the LC; (ii) unilateral termination of the LC due to the pandemic; and (iii) termination of LC due to changes of structure and technology.

It would be great if the mutual agreements to terminate the LC are signed. At that time, the employees are aware of the difficulties of the businesses, then they will be able to sympathise to sign the mutual agreements to terminate the LC. With the signed mutual agreements, along with the full implementation of payment obligations to the employees, the businesses can confidently terminate the labour relationship legally, and the risk of litigation in the long term is minimal.

However, this pleasant scenario does not always happen. Some employees believe only what they want to believe. At that time, any explanation about the situation of the businesses would not make any sense to them. Moreover, there are some cases where even though the employees agree to sign the mutual agreements, their request for support package is too high as compared to the businesses’ budget or currently common practice of labour market. At that time, the businesses are forced to take another option, which is to unilaterally terminate the LC due to either the pandemic or changes of structure and technology. Although being regulated in the Labour Code 2019, it should be recognised that both options are not easy to implement.

As for the option of the LC termination because of the changes of structure, technology, it will include the following cases: (i) change of organisational structure, or labour restructuring; (ii) change of the production and business processes, technology, machinery, and equipment associated with the businesses’ production and business lines; or (iii) change of the product or product structure. While the COVID-19 is raging, which means the businesses face financial difficulties, changing production and business processes, technology, machinery, and equipment is not the desired option. In addition, the change of products or product structure rarely happens when there is such a pandemic or the businesses themselves have not had any plan to introduce new goods or services yet. Therefore, the businesses often choose the change of their organisational structure and labour restructuring (“Restructuring”). However, what the Restructuring is, the laws do not have specific instructions in this regard. Is this a merger/consolidation of a department/division/unit in the businesses? In this case, the businesses themselves must explain for such a reason and have a specific supporting plan for that explanation. However, if there is a labour dispute, the dispute settlement agencies may have different interpretations of “Restructuring”. And if unfortunately, the explanation of the businesses does not coincide with the point of view of the dispute settlement agencies, then it is illegal for the businesses to force the employees leave.

The risk of this option is also because the labour laws do not have any specific legal process for businesses to carry out the Restructuring. The labour laws only stipulate that the businesses must hold dialogues at the workplaces when establishing labour use plan (“LUP”) and when retrenching the employees due to the Restructuring, the businesses must notify the provincial People’s Committees and the employees 30 days before the LC termination. It sounds apparent, but the implementation thereof is difficult and there are many technical questions raised here.

First, on the issue of the dialogue at the workplaces when establishing the LUP, and when retrenching the employees due to the Restructuring, the procedure will be that firstly, the businesses send a document with the content that needs to be discussed with the employees’ representatives participating in the dialogues. The employees’ representatives participating in the dialogues will collect the opinions of the employees they represent and send them to the businesses. Next, based on the opinions of the representative organisation(s) of the employees at the grassroots level, the employees’ representative groups and the businesses will hold a dialogue to share information and exchange opinions on the content that the businesses provide.[2] So, during the time that the whole country is implementing social distancing in many localities, is it possible to hold a dialogue at the workplace? Direct consultation is not viable. The labour laws do not prohibit asking for the employees’ opinions via email, or by mail, but it should be noted that many businesses hire blue collar workers and the use of email is unfamiliar to them. Mail takes time, incurs costs, and can be lost. So, if the employees’ representatives participating in the dialogue do not collect enough opinions of the employees, are the businesses allowed to conduct the dialogue or do they have to wait until they have collected enough opinions of the employees?

Moreover, can the businesses hold dialogues at the same time both about “LUP”, and “retrenchment due to the Restructuring”? One of the contents of the LUP is “the number and list of employees whose  LC shall be terminated” and many businesses find that this content is also synonymous with “retrenchment due to Restructuring”. Therefore, they want to combine the two issues into one and will hold only one negotiation session. However, the question is whether the dispute resolution agencies have the same view?

However, the number of difficulties can also be multiplied if in the list of the employees whose LC shall be terminated are members of the executive committee of the grassroots trade union (“GTU’s EC”). According to Article 177.3 of the Labour Code 2019, and Article 25 of the Law on Trade Union 2012, the businesses are not allowed to unilaterally terminate the LC with part-time trade union officers without the consent of the GTU’s EC or the EC of the Trade Union at the immediately superior level. If no agreement is reached, the two parties must report to the competent agency or organisation. After 30 days from the reporting date, the businesses will have the right to make a decision and take responsibility for that decision. So when carrying out the Restructuring, at what stage do the businesses have to negotiate with the GTU’s EC? Prior to, following, or at the same time as the dialogue on the LUP/retrenchment due to Restructuring? Moreover, the businesses must notify the unsuccessful agreement to a specialized labour agency under provincial People’s Committee and then have to wait 30 days before the businesses can continue to notify the termination of the LC due to restructuring to the provincial People’s Committee or can notify at the same time? And what will happen if the redundant members of the GTU’s EC are uncooperative by not attending the meeting, or refusing to sign the meeting minutes. In such a scenario, even though it is not the businesses’ fault, the businesses have tried to get the opinion of the CCP but failed, will the businesses be considered to illegally carry out the Restructuring?

Regarding the option of unilateral termination of the LC due to the pandemic, according to the labour laws, the employers have the right to unilaterally terminate the LC of employees due to a dangerous pandemic when the employers have sought for all remedies but are still forced to reduce the workforce.[3] The COVID-19 has been added to the list of particularly dangerous infectious pandemics with the potential for very rapid transmission, being widespread and causing high mortality, or unknown pathogens.[4] In addition, based on the Prime Minister’s Decision No. 447/QD-TTg, the COVID-19 has been declared an infectious pandemic and there is no decision to declare the end of the pandemic in accordance with the laws. Therefore, the COVID-19 is considered a dangerous pandemic at this time and will be considered a dangerous pandemic according to Article 36.1 (c) of the 2019 Labour Code. However, in order to be able to unilaterally terminate the LC, for this reason, the businesses must further satisfy the following conditions:

• The businesses have tried all measures to overcome the consequences caused by the COVID-19 but are still forced to reduce their workforce. However, there is currently no guidance on necessary measures for businesses to overcome the consequences;
• The Ministry of Labour, War Invalids and Social Affairs issued Official Letter No. 1064/LDTBXH-QHLDTL dated 25 March 2020, guiding the payment of salary for work stoppage and settlement of benefits for employees during the period of a work stoppage due to the COVID-19 pandemic. Accordingly, if the businesses face difficulties in the source of raw materials and the market, leading to insufficient job placement, they can temporarily transfer the employees to other jobs; if the prolonged work stoppage affects the ability to pay, the businesses and the employees can agree to suspend the LC; if the businesses have to reduce production, leading to a reduction in workforce, the LC shall be terminated due to the changes of structure, technology or economic reasons, or unilaterally terminated due to the pandemic.

According to Official Letter 1064, if the businesses face difficulties in the source of raw materials, the market and have to reduce production, leading to a reduction in workforce, it must be understood that the businesses need to carry out the procedure for transferring the employees to another job first, then temporarily suspending their assigned work, then suspending the LC, and then finally unilaterally terminating the LC due to the pandemic, or the businesses can directly take the step of unilateral termination of the LC due to the pandemic? Obviously, if the businesses have to go through all the above steps in such a sequence, it will take round about 4 to 5 months for the termination of the LC because of the pandemic and it is absolutely not what the businesses expected. However, if there is a labour dispute, the dispute settlement agencies usually protect the interests of the employees as the weak party in the labour relationship and think that the business needs to take enough steps in order to unilaterally terminate the LC. Because of the pandemic, the businesses’ omission of the above steps may be considered as having not fully complied with the order and procedures when unilaterally terminating the LC and from there, the unilateral termination of the LC may be judged unlawful.

Moreover, the businesses must also prepare evidence to prove that they “have sought for all remedies” but still have to reduce the workforce. The remedy is a vague concept because depending on the type of business of each business, etc., the businesses can come up with appropriate remedial measures by themselves. However, the difficulty is that when there is such an “open” regulation, the businesses must prove that the actions taken by the businesses must be considered as a “remedial measure”. And of course, the businesses’ evidence needs to be convincing to minmise disputes in the future. The employees may ask “Why do the businesses not implement measure A?”, or “This measure is not a remed!?”, etc. Therefore, with such an open regulation, even though the businesses have rooms to act, but it is accompanied by a high “risk” due to different perceptions of each subject.

What is reasonable solution for the businesses?

After all, in the situation that the labour laws are still vague on the issue of the LC termination as above, it is difficult to come up with a solution that is low-risk and easy to implement. However, the author has a few suggestions that the businesses can consider to minmise the negative legal consequences of the LC termination with the employees during the COVID-19 pandemic.

In some cases, the businesses regularly discuss with the employees on the LC termination, then only after being rejected by the employees, the businesses will then carry out the Restructuring. At that time, the employees can sue the businesses for the reason that because the businesses cannot agree to terminate the LC with the employees, the businesses seek another lawful option i.e. through the Restructuring to terminate the LC with them. This means the Restructuring is not a real need but just a lawful reason for the businesses to unilaterally terminate the LC with the employees. Therefore, if the businesses intend to make agreements with the employees in advance, and if the negotiation fails then the Restructuring will be implemented, the plan should be for the the businesses to carry out internal procedures to approve the Restructuring plan first, for example, issue a resolution or decision of the owner, including a list of redundant employees after the Restructuring. With such a resolutions and decision, together with the list of the redundant employees, the businesses can frankly discuss with the employees that the Restructuring is an ongoing plan. However, in order to support the redundant employees, the businesses want to actively propose to sign the mutual agreements to terminate the LC so that the employees can receive a better payment package than that of the Restructuring plan.

Or, the business can negotiate with the employees so that the two parties sign appendixes to the LC, in which the parties agree to reduce the number of working hours/salary for a certain period, after which the working hours/salaries will be according to the LC. This solution helps the businesses maintain the personnel of each department, both retaining talents after the pandemic is controlled and the economy recovers, and showing respect for the employees in difficult circumstances.

Epilogue

“Human Resources” is always a sensitive issue in any organisation. There have been many painful “breakups” between the businesses and their employees because of disputes, or because the employees feel “not respected”, and they accept to lose their time and effort to go to courts because they feel that the businesses are punishing them due to personal feelings. During the COVID-19 pandemic, such stories often happen. Therefore, even if they comply with the laws, the businesses should be flexible and pliable when communicating with the employees, showing respect for the contributions of the employees, so that reluctant “breakups” (if any) can go smoothly, minimising risks for the businesses.

[1] https://dataforgood.fb.com/wp-content/uploads/2021/04/Global-State-of-Small-Business-Report-April-2021.pdf

[2] Article 41.1 of Decree 145/2020/ND-CP

[3] Article 36.1. (c) of the Labour Code 2019

[4] Decision No. 219/QD-BYT