NPLaw will provide a detailed analysis of the legal grounds, procedures, and issues to be noted when terminating employment contracts for employees of branches, helping enterprises avoid legal risks and resolve disputes effectively through the following article.

I. Current situation regarding termination of employment contracts for employees of branches

In the current context, alongside the strong development of large-scale enterprises, expanding branches in multiple localities is an inevitable trend. Accordingly, it raises labor-related legal issues, particularly the termination of employment contracts for employees working at branches. 

Actual situation in enterprises: 

  • When enterprises reorganize, downsize branches, or change structures, many employees face contract termination.
  • In numerous cases, enterprises terminate contracts with branch employees without fully complying with the provisions of the Labor Code 2019, leading to labor disputes.
  • Labor management between headquarters and branches is often unclear: Some enterprises grant full authority to branches, while others require all HR decisions to be made by headquarters. This creates difficulties in determining the competent authority for contract termination.

Common situations:

  • Termination due to branch closure or downsizing: It is a common case during enterprise restructuring.
  • Unilateral termination of contracts: Many cases involve branches or employees wishing to unilaterally terminate contracts without meeting conditions or notice periods as prescribed.
  • Disputes over severance and redundancy allowances: Employees often encounter issues regarding eligibility for severance or redundancy payments.
  • Jurisdiction conflicts: Some employment contracts are signed by the parent company (headquarters), but termination decisions are issued by its branch, causing disputes over legality.

II. Legal provisions regarding termination of employment contracts for employees of branches

1. What is the termination of employment contracts for branch employees?

According to Article 13 of the Labor Code 2019, an employment contract is an agreement between an employee and an employer regarding paid work, wages, working conditions, and the rights and obligations of each party in the labor relationship.

According to Clause 1, Article 44 of the Law on Enterprise 2020, a branch is a dependent unit of an enterprise, tasked with executing all or part of the enterprise’s functions, including functions under authorized representation. The branch’s business sector must align with that of the enterprise.

Thus, terminating an employment contract with an employee of a branch not only ends the relationship between the employee and the branch (since the branch is not a separate legal entity), but also terminates the association essentially of the employee and the company – the legal entity that directly signed the employment contract.

2. Cases leading to the termination of employment contracts for branch employees

Pursuant to Article 34 of the Labor Code 2019, the following cases of employment contract termination are recognized:

  • Expiration of the employment contract, except as provided in Clause 4, Article 177 of the Labor Code 2019.
  • Completion of work as per the employment contract.
  • Mutual agreement to terminate the employment contract.
  • Employees sentenced to imprisonment without probation or not eligible for conditional release under Clause 5, Article 328 of the Criminal Procedure Code 2015, sentenced to death, or prohibited from performing work specified in the contract by a legally effective court decision.
  • Foreign employees in Vietnam being subject to expulsion by a legally effective Court decision or authorized State agency decision.
  • Employees being subject to disciplinary dismissal.
  • Employees unilaterally terminating the contract per Article 35 of the Labor Code 2019.
  • Employers unilaterally terminating the contract per Article 36 of the Labor Code 2019.
  • Employers initiating employees employment termination under Articles 42 and 43 of the Labor Code 2019.
  • Expiration of work permits for foreign employees in Vietnam per Article 156 of the Labor Code 2019.
  • Termination of probation agreements when probation performance is unsatisfactory or when one party cancels the probation agreement.

3. Procedures for terminating employment contracts for branch employees

When terminating employment contracts for branch employees, enterprises must comply with the Labor Code 2019 and guiding documents:

(i) Authority to issue termination decisions:

  • If the contract is signed by the parent company: The parent company must issue the termination decision.
  • If the contract is signed by the branch (under authorization from the parent company): The branch director may issue the termination decision.

(ii) Notice of termination: Employers must provide advance notice according to Article 36 of the Labor Code 2019:

  • 45 days for indefinite-term contracts.
  • 30 days for fixed-term contracts.
  • 3 working days for seasonal or short-term contracts under 12 months.

(iii) Payment of employee entitlements:

  • Full payment of wages, allowances, and other benefits within 14 working days from the termination date (Article 48, Labor Code 2019).
  • In special cases (e.g., restructuring, mergers) may extend to a maximum of 30 days.
  • Completion of severance and redundancy obligations if applicable (Articles 46 and 47, Labor Code 2019).

(iv) Finalization and return of social insurance and related documents:

  • Enterprises must coordinate with the Social Insurance authority to finalize records and return them to the employee (Clause 3, Article 48, 2019 Labor Code).
  • Issue a certificate of work history upon employee request.

III. Questions on termination of employment contracts for employees of branches

1. Can branch employees be terminated due to downsizing?

Per Article 42 of the Labor Code 2019, if structural or technological changes affect many employees, the employer must develop and implement a workforce plan per Article 44.

Where new positions exist, retraining is prioritized. If employment cannot be accommodated, redundancy pay must be provided according to Article 47.

2. Consequences of unlawful termination

Per Article 41, Labor Code 2019, if the employer unlawfully terminates a contract:

  • The employee must be reinstated with full wages and social, health, and unemployment insurance for the non-working period, and additionally paid an amount of at least two months’ salary as compensation.
  • Upon reinstatement, the employee returns any severance or redundancy payments previously received.
  • If the original position no longer exists, parties may amend the contract by a supplementary agreement.
  • Violating notice periods under Clause 2, Article 36 requires payment equivalent to the salary for the unnotified days.
  • If the employee does not wish to continue working, besides amounts stated Clause 1 of this Article, the employer must additionally pay severance per Article 46 to terminate the contract.
  • If both parties agree not to reinstate the employee, additional compensation may be agreed at least two months’ salary, beyond the above payment.

3. When terminating the employment contracts of branch employees, is the company obligated to pay severance pay?

Per Article 46, Labor Code 2019, employers must pay severance to employees who have worked at least 12 months continuously, at half a month’s salary per year worked, except in cases of retirement eligibility under legal regulations or Point e, Clause 1, Article 36 of this Law.

4. Can contracts be terminated during maternity leave?

Per Clause 3, Article 37, Labor Code 2019, employers may not unilaterally terminate contracts of employees on maternity leave.

5. Is consultation with the labor union required?

For structural, technological, or economic reasons leading to redundancies, employers must consult with the grassroots labor representative organization where the employee is a member before termination (Article 42, Labor Code 2019).

IV. Legal advisory services on termination of employment contracts for branch employees

Clients seeking advice on terminating employment contracts for branch employees may contact NPLaw for direct legal consultation and guidance.