Fixed-term labor contracts under current labour law regulations

In the context of an increasingly flexible labour market, fixed-term labor contracts are widely utilized to meet employers’ employment needs for specific periods of time. The following article clarifies the concept, legal characteristics, applicable regulations, and frequently asked questions relating to fixed-term labor contracts, thereby assisting both employees and employers in understanding and properly complying with the law.

I. In which industries are fixed-term labor contracts commonly used today?

In practice, fixed-term labor contracts are widely applied across various sectors characterized by flexible workforce requirements and time-sensitive employment needs, including:

• Manufacturing, processing, and garment industries: Employment based on production orders or seasonal manufacturing demands.
• Construction and engineering projects: Contracts executed for the duration of project implementation or construction schedules.
• Service, restaurant, hotel, and tourism industries: Workforce recruitment to meet peak seasonal demands.
• Retail and commercial sectors: Hiring for specific business periods, promotional campaigns, or sales programs.
• Education and training sector: Contracts entered into for academic years, training courses, or educational programs.
• Information technology industry: Employment for software development projects or system implementation assignments.
• Media, event management, and entertainment industry: Short-term employment associated with particular events or programs.

Accordingly, fixed-term labor contracts serve as an important legal instrument that is particularly suitable for industries characterized by fluctuating, seasonal, or project-based employment demands. The proper use of such a contract not only enables enterprises to maintain flexibility in workforce management but also ensures the lawful rights and interests of employees in accordance with current legal regulations.

II. Concept of a fixed-term labor contract

1. What is a fixed-term labor contract?

Pursuant to Point b, Clause 1, Article 20 of the Labour Code 2019: A fixed-term labor contract is an employment contract in which the parties determine the duration and the time of termination of the contract, provided that such duration does not exceed 36 months from the effective date of the contract.

Accordingly, a fixed-term labor contract may be generally understood as an agreement between an employee and an employer that specifically stipulates the period of employment from the commencement date to the expiration date. Under the law, the duration of such a contract must not exceed 36 months. Such a form of contract is commonly used where an enterprise requires labour for a specific period corresponding to the nature of the work or its production and business plans.

2. What are the fundamental legal conditions of a fixed-term labor contract?

Pursuant to the provisions of the 2019 Labour Code, a fixed-term labor contract possesses the following fundamental legal conditions:

• Definite duration: The commencement date and termination date are clearly specified, and the contract term must not exceed 36 months (Point b, Clause 1, Article 20).
• Maximum of two consecutive fixed-term contracts: Upon expiration of the contract, if the employee continues working, the parties may execute only one additional fixed-term labor contract. Thereafter, the employment relationship must be converted into an indefinite-term labor contract (Clause 2, Article 20).
• Stability with a defined limitation: The employment relationship is secured for the agreed contractual period but will terminate upon expiration unless renewed or replaced by a new contract.
• Strict regulations on contract termination: Any unilateral termination must comply with the conditions and notice requirements prescribed under Articles 35 and 36 of the Labour Code.
• Legal protection of rights and obligations: During the validity period of the contract, both the employee and the employer are obligated to fully perform their respective rights and obligations under the contract and applicable laws.

3. How does a fixed-term labor contract differ from an indefinite-term labor contract?

Pursuant to Articles 20 and 21 of the Labour Code 2019 (as guided by Chapter II of Circular No. 10/2020/TT-BLDTBXH), the main distinctions between these two types of labor contracts are as follows:

• Contract duration: A fixed-term labor contract specifies a termination date and may not exceed 36 months, whereas an indefinite-term labor contract does not specify a termination date.
• Renewal upon expiration: If a fixed-term labor contract expires and the employee continues working, the parties must execute a new contract within 30 days. If not, the contract automatically converts into an indefinite-term labor contract. In addition, only one additional fixed-term contract may be signed before conversion to an indefinite-term contract becomes mandatory (Clause 2, Article 20).
• Contract termination: A fixed-term labor contract automatically terminates upon expiration unless renewed, whereas an indefinite-term labor contract may only terminate on grounds prescribed by law.
• Employment stability: Indefinite-term labor contracts generally provide employees with greater job security and protection of rights compared to fixed-term labor contracts.

III. Legal regulations governing fixed-term labor contracts

1. How is the form of a fixed-term labor contract regulated by law?

Pursuant to Article 14 of the Labour Code 2019, the form of a fixed-term labor contract is regulated as follows:

• Written form as the general principle: Labor contracts must be made in writing and prepared in two originals, with each party retaining one copy.
• Electronic form permitted: Labor contracts concluded through electronic means in the form of data messages possess the same legal validity as written contracts.
• Verbal agreements in limited cases: Oral labor contracts are permitted only for contracts with a term of less than one month, except in certain special cases prescribed by law involving specific categories of employees.

2. Rights and obligations of employees and employers under fixed-term labor contracts

Pursuant to Articles 5 and 6 of the Labour Code 2019, the rights and obligations of the parties under a fixed-term labor contract are prescribed as follows:

- Rights and obligations of employees

Employees’ rights:

• To work and freely choose employment and workplace without discrimination or forced labour.
• To receive appropriate wages and enjoy safe and hygienic working conditions and statutory rest periods.
• To participate in employee representative organizations, workplace dialogue, and collective bargaining.
• To refuse work if there is a threat to life or health.
• To unilaterally terminate the labor contract and engage in lawful strikes in accordance with legal regulations.

Employees’ obligations:

• To perform the labor contract and lawful agreements faithfully.
• To comply with labour discipline and workplace regulations.
• To follow the lawful management and direction of the employer.
• To comply with regulations relating to insurance, occupational safety, and other relevant legal requirements.

- Rights and obligations of employers

Employers’ Rights:

• To recruit, assign, manage, direct, and supervise employees.
• To reward employees and handle violations of labour discipline.
• To participate in workplace dialogue, collective bargaining, and labour dispute resolution.
• To temporarily close the workplace in circumstances permitted by law.

Employers’ obligations:

• To properly perform the labor contract and agreed commitments while respecting the dignity and honour of employees.
• To organize workplace dialogue and implement workplace democracy regulations.
• To provide vocational training and professional development opportunities for employees.
• To fulfill obligations relating to wages, insurance, and occupational safety and hygiene.
• To establish a safe working environment and implement measures to prevent sexual harassment in the workplace.

3. Mandatory contents of a fixed-term labor contract

Pursuant to Clause 1, Article 21 of the Labour Code 2019, a fixed-term labor contract must contain the following essential terms:

• Name and address of the employer, and the full name and position of the person representing the employer in concluding the contract.
• Full name, date of birth, gender, residential address, and ID card/passport of the employee.
• Job description and workplace.
• Duration of the labor contract.
• Salary corresponding to the job or position; method of salary payment; salary payment schedule; allowances and other supplementary benefits.
• Salary increment and promotion mechanisms.
• Working hours and rest periods.
• Occupational protective equipment provided to the employee.
• Social insurance, health insurance, and unemployment insurance.
• Training, professional development, and vocational skill enhancement.

4. What are the notice requirements for unilateral termination of a fixed-term labor contract?

Pursuant to Articles 35 and 36 of the Labour Code 2019, the notice periods applicable to unilateral termination of a fixed-term labor contract are as follows:

• For Employees: Employees must provide at least 30 days’ prior notice for contracts with a duration of between 12 and 36 months and at least 03 working days’ prior notice for contracts with a duration of less than 12 months. Certain specialized occupations and sectors may be subject to separate regulations. Employees are not required to provide prior notice in cases such as being assigned work inconsistent with the contract, not being paid fully or on time, being subjected to maltreatment or sexual harassment, or where the employer has provided false information affecting the performance of the contract.
• For Employers: Employers must provide at least 30 days’ prior notice for contracts with a duration of between 12 and 36 months and at least 03 working days’ prior notice for contracts with a duration of less than 12 months or where an employee suffers from a prolonged illness. Employers are not required to provide prior notice in circumstances where an employee is absent from work without justification for at least five consecutive working days or fails to be present at the workplace as required by law.

IV. Questions relating to fixed-term labor contracts

1. How many fixed-term labor contracts may an enterprise execute with the same employee?

Pursuant to Clause 2, Article 20 of the Labour Code 2019, an enterprise may enter into a maximum of two fixed-term labor contracts with the same employee. Specifically, where a fixed-term labor contract expires and the employee continues working:

• The parties must execute a new labor contract within 30 days from the expiration date of the previous contract.
• If a subsequent contract is entered into, only one additional fixed-term labor contract may be executed.
• Thereafter, if the employee continues working, the employment relationship must be converted into an indefinite-term labor contract.

If more than 30 days have elapsed since the expiration of the contract and the parties have not entered into a new labor contract, the existing contract shall automatically be converted into an indefinite-term labor contract.

2. Can a fixed-term labor contract be converted into an indefinite-term labor contract?

Pursuant to Clause 2, Article 20 of the Labour Code 2019, a fixed-term labor contract may be converted into an indefinite-term labor contract in the following circumstances:

• By mutual agreement: The employee and the employer may voluntarily enter into an indefinite-term labor contract to replace the existing fixed-term labor contract at any time.
• By the Law:
  + If a fixed-term labor contract expires and the employee continues working, but the parties fail to execute a new contract within 30 days, the existing contract shall automatically become an indefinite-term labor contract.
  + In case the parties have already entered into two fixed-term labor contracts and the employer continues to employ the employee, the employment relationship must be converted into an indefinite-term labor contract.

3. Is an enterprise required to give prior notice before terminating a fixed-term labor contract?

Pursuant to Article 36 of the Labour Code 2019, an enterprise (employer) that unilaterally terminates a fixed-term labor contract is generally required to provide prior notice to the employee, except in certain special circumstances.

Notice requirements:

• At least 30 days’ prior notice for contracts with a term of between 12 and 36 months.
• At least 03 working days’ prior notice for contracts with a term of less than 12 months or where the employee suffers from a prolonged illness.

Cases where prior notice is not required:

• The employee has voluntarily abandoned work for at least five consecutive working days without a legitimate reason.
• The employee fails to be present at the workplace after the statutory period prescribed by law.

4. Will a fixed-term labor contract be terminated when an enterprise undergoes organizational restructuring?

Pursuant to Article 42 of the Labour Code 2019, changes in organizational structure, technology, or economic conditions do not automatically result in the termination of a fixed-term labor contract. Instead, employers must comply with the procedures and requirements prescribed by law.

Specifically:

• The employer is required to formulate a labour utilization plan when implementing organizational or structural changes.
• If continued employment cannot be arranged, the employer may terminate the employment relationship, provided that it:
• Consults with the employee representative organization (if any);
• Provides advance notice to the employee;
• Fully fulfills all statutory obligations, including payment of job-loss allowances and other applicable benefits.

5. Does a fixed-term labor contract remain effective when an employee takes maternity leave or extended sick leave?

Pursuant to Clause 1, Article 34; Clause 1, Article 36; and Clause 3, Article 137 of the Labour Code 2019, an employee’s maternity leave or extended sick leave does not automatically terminate a fixed-term labor contract.

In particular, the law expressly provides that employers may not unilaterally terminate a labor contract on the grounds that an employee is pregnant, on maternity leave, or raising a child under 12 months of age. Furthermore, if a fixed-term labor contract expires during such a period, female employees are given priority in entering into a new labor contract.

With respect to extended sick leave, an employer may only terminate the labor contract if the employee has undergone medical treatment for the period prescribed by law and remains unable to recover sufficient working capacity. However, a fixed-term labor contract will still terminate upon expiration of its agreed term unless the parties agree otherwise.

V. Why should you seek legal advice from NPLaw regarding fixed-term labor contracts?

When issues arise in connection with fixed-term labor contracts, seeking assistance from a reputable legal service provider such as NPLaw is a practical solution to ensure that the lawful rights and interests of all parties are adequately protected.

• Accurate and up-to-date legal advice: NPLaw’s lawyers possess extensive expertise in labour law and can provide clear guidance on the proper interpretation and application of current legal regulations.
• Contract drafting and review support: Ensuring that fixed-term labor contracts contain all mandatory provisions, comply with legal requirements, and minimize potential legal risks.
• Effective dispute resolution: Advising on appropriate strategies for resolving labour disputes and representing clients before competent authorities when necessary.
• Time and cost efficiency: Reducing errors during contract implementation and helping clients avoid unnecessary legal expenses.

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