Compensation for damages arising from unlawful dismissal: legal grounds, compensation amounts, and employees’ rights

In employment relationships, compensation for damages arising from unlawful dismissal becomes an issue when an employer imposes disciplinary dismissal without proper legal grounds or fails to comply with the statutory procedures. Understanding the legal grounds, the scope of compensation, and the statute of limitations for initiating legal proceedings enables employees to protect their lawful rights and interests while helping employers minimize legal risks.

I. Current situation concerning compensation for damages arising from unlawful dismissal

In practice, many labor disputes arise as employers impose dismissal as a disciplinary measure without proper legal grounds or fail to fully comply with the procedures prescribed by law. When a dismissal decision is determined to be unlawful, compensation for damages arising from such unlawful dismissal becomes the central issue of the dispute.

In many cases, employees are not fully aware of their right to claim compensation, while employers underestimate the financial and reputational risks associated with being required to reinstate employees, pay back wages, and provide statutory compensation. As a result, disputes are often prolonged, adversely affecting labor relations as well as business operations and production activities.

II. Concept of compensation for damages arising from unlawful dismissal

1. What is compensation for damages arising from unlawful dismissal?

Compensation for damages arising from unlawful dismissal refers to the legal liability of an employer to restore the employee's lawful rights and compensate for losses suffered if the dismissal is determined to be unlawful.

Based on Article 41 of the Labour Code 2019, if an employer unlawfully unilaterally terminates an employment contract (including unlawful dismissal), the employer is required to:

• Reinstate the employee to his or her previous position;
• Pay wages and make compulsory social insurance, health insurance, and unemployment insurance contributions for the period during which the employee was unable to work;
• Pay compensation equal to at least two (02) months' salary under the employment contract.

If the employee does not wish to continue working, in addition to the payments prescribed in Clause 1, Article 41, the employer must also pay severance allowance in accordance with Article 46 of the Labour Code 2019 in order to terminate the employment contract.

In case the employer does not wish to reinstate the employee and the employee agrees, then in addition to the payments required under Clause 1, Article 41 and the severance allowance prescribed in Article 46, the parties may agree on an additional compensation amount, provided that such amount is not less than two (02) months' salary under the employment contract, for the purpose of terminating the employment relationship in accordance with the law.

2. Who has the right to claim compensation for damages arising from unlawful dismissal?

Pursuant to Article 41 of the Labour Code 2019, if an employer unlawfully unilaterally terminates an employment contract or unlawfully dismisses an employee as a disciplinary measure, the employee is entitled to require the employer to:

• Reinstate the employee to work;
• Pay full wages and make compulsory insurance contributions for the period during which the employee was unable to work;
• Pay compensation equal to at least two (02) months' salary under the employment contract.

According to Articles 186 and 188 of the Labour Code 2019, employees are entitled to request mediation or initiate legal proceedings before a competent court to protect their lawful rights and interests when an individual labor dispute arises.

In addition, if an employee authorizes another person or a lawyer to represent him or her in accordance with procedural law, such lawful representative may exercise the right to claim compensation on the employee's behalf.

3. How does compensation for damages arising from unlawful dismissal differ from severance allowance?

Compensation for damages arising from unlawful dismissal and severance allowance are two entirely different legal institutions in terms of their legal basis, purpose, and method of calculation.

III. Legal provisions governing compensation for damages arising from unlawful dismissal

1. In which cases is an employee entitled to claim compensation for damages?

An employee is entitled to claim compensation for damages arising from unlawful dismissal where the dismissal decision is determined to be unlawful under Article 41 of the Labour Code 2019.

Specifically, the right to claim compensation arises in the following circumstances:

• Dismissal without lawful grounds: The employee's conduct does not fall within the circumstances permitting dismissal as a disciplinary measure under Article 125 of the Labour Code 2019.
• Dismissal in violation of disciplinary procedures: The employer fails to comply with the principles governing labor disciplinary measures under Article 122 of the Labour Code 2019 or fails to follow the procedures prescribed in Article 70 of Decree No. 145/2020/ND-CP.
• Dismissal during periods in which disciplinary action is prohibited: For example, if the employee is on sick leave, maternity leave, pregnant, or raising a child under 12 months of age in accordance with Clause 4 Article 122 of the Labour Code 2019.
• Dismissal after the expiry of the statutory limitation period for disciplinary action: The employer violates the limitation period prescribed in Article 123 of the Labour Code 2019.

2. How is the amount of compensation for damages arising from unlawful dismissal determined?

The amount of compensation for damages arising from unlawful dismissal is determined in accordance with Article 41 of the Labour Code 2019 and based on the employee's salary under the employment contract.

Accordingly, the minimum amount of compensation payable by the employer is at least two (02) months' salary under the employment contract. It constitutes mandatory compensation whenever the dismissal is determined to be unlawful.

In addition to this statutory minimum compensation, other financial obligations may arise in certain circumstances under applicable law or by agreement of the parties, such as additional compensation where the parties mutually agree to terminate the employment relationship instead of reinstating the employee.

3. What is the statute of limitations for filing a claim for compensation arising from unlawful dismissal?

The statute of limitations for filing a claim for compensation arising from unlawful dismissal is prescribed in Clause 2, Article 190 of the Labour Code 2019. Specifically, the statute of limitations for initiating an individual labor dispute is one (01) year from the date on which the employee discovers that his or her lawful rights and interests have been infringed.

In cases of unlawful dismissal, the limitation period is generally calculated from the date on which the employee receives the dismissal decision or becomes aware that the dismissal has infringed upon his or her lawful rights and interests.

It should be noted that:

• Certain labor disputes are exempt from the mandatory mediation procedure before submission to a competent authority. In particular, disputes relating to disciplinary dismissal are not required to undergo mediation prior to initiating court proceedings, under Clause 1, Article 188 of the Labour Code 2019.
• If the employee fails to initiate legal proceedings within the one-year limitation period, the court may refuse to accept the case in accordance with the laws governing civil procedure.

IV. Questions regarding compensation for damages arising from unlawful dismissal

1. Is an employee who has been unlawfully dismissed required to return to work?

Pursuant to Clause 1, Article 41 of the Labour Code 2019, if a dismissal is determined to be unlawful, the employer is obligated to reinstate the employee. However, the employee is not obliged to return to work.

In case the employee does not wish to continue the employment relationship, in addition to the statutory compensation of at least two (02) months' salary and the wages payable for the period during which the employee was unable to work, the parties may agree on an additional compensation amount, provided that such amount is not less than two (02) months' salary under the employment contract.

2. How is an enterprise dealt with if it delays payment of compensation?

Once a dismissal has been determined to be unlawful by a legally effective judgment or decision, the employer must fully perform its obligations under Article 41 of the Labour Code 2019. If the employer delays or fails to make the required compensation payments, the following legal consequences may arise:

• Compulsory enforcement of the judgment: Pursuant to Article 71 of the Law on Civil Judgment Enforcement 2025, the employee is entitled to request the civil judgment enforcement authority to enforce the judgment. The enforcement authority may apply compulsory enforcement measures to compel the employer to fulfill its compensation obligations.
• Liability for interest on late payment: Pursuant to Article 357 of the Civil Code 2015, if a party obligated to make a monetary payment fails to do so on time, it must pay interest on the overdue amount corresponding to the period of delay. In addition, under Article 468 of the Civil Code 2015, the interest rate for late payment shall be determined according to the parties' agreement but must not exceed 20% per annum of the outstanding amount. If there is no agreement or the agreement is unclear, the applicable interest rate shall be equal to 50% of the statutory maximum interest rate, i.e., up to approximately 10% per annum at the time of payment.
• Potential criminal liability: If the person responsible has the ability to comply with the judgment but deliberately refuses to do so, he or she may be prosecuted for the Offence of Failure to Comply with a Judgment under Article 380 of the Criminal Code 2015, as amended and supplemented in 2017 and 2025. The applicable penalty ranges from three (03) months to two (02) years' imprisonment, or from two (02) to five (05) years' imprisonment where aggravating circumstances exist, such as resisting law enforcement officers, employing sophisticated methods to evade enforcement, or concealing or dissipating assets. In addition, a fine ranging from 5,000,000 VND to 50,000,000 VND may also be imposed.

3. Does the unlawful dismissal of a pregnant employee lead to a higher level of compensation?

The law does not prescribe a higher level of compensation specifically for this circumstance. However, according to Clause 4, Article 122 of the Labour Code 2019, an employer is prohibited from imposing disciplinary measures against an employee who is pregnant, on maternity leave, or raising a child under twelve (12) months of age.

If the employer dismisses the employee during this protected period, the dismissal decision will almost certainly be deemed unlawful. Consequently, the employer must provide full compensation in accordance with Article 41 of the Labour Code 2019 and may also be subject to administrative sanctions for the violation.

4. Does the unlawful dismissal of multiple employees at the same time affect the method of calculating compensation?

Pursuant to Article 41 of the Labour Code 2019, compensation obligations for each unlawfully dismissed employee are determined independently based on factors including:

• The period during which the employee was unable to work;
• The salary specified in the employee's employment contract;
• The employer's obligation to make corresponding compulsory insurance contributions; and
• Compensation of at least two (02) months' salary under the employment contract.

The law does not provide any mechanism for aggregating or reducing compensation merely as multiple employees were dismissed at the same time. Accordingly, compensation must be calculated separately for each employee based on his or her respective salary and the actual period during which he or she was unable to work.

V. Why should you seek legal advice from NPLaw regarding compensation for damages arising from unlawful dismissal?

Where disputes arise in connection with unlawful dismissal, accurately determining the applicable legal grounds, the amount of compensation, and the appropriate legal procedures is essential to safeguarding the lawful rights and interests of the parties involved. With a team of lawyers experienced in labour and employment law, NPLaw is well positioned to assist clients by:

• Assessing the legality of dismissal decisions and determining the employer's compensation obligations under applicable laws;
• Advising on appropriate dispute resolution strategies, including negotiation, settlement, or litigation;
• Representing clients before competent authorities and protecting their lawful rights and interests throughout the dispute resolution process.

The above information is provided for reference purposes only. Should you require detailed legal advice regarding your specific circumstances, please contact NPLaw Firm for prompt professional assistance.