An employer in Vietnam can make employees redundant when it changes its structure or technology or faces genuine economic difficulty, but only after preparing a labour usage plan, consulting the employee representative organisation, notifying the provincial authority and the affected employees in advance, and paying the job-loss allowance. Redundancy is not a shortcut for removing individuals; it is a collective process with its own conditions.
Foreign-invested companies often meet these rules for the first time during a global cost-cutting exercise, when head office expects a headcount reduction within weeks. This guide explains the lawful grounds, the plan and consultation requirements, how mergers and business transfers are handled, the payments involved, and the mistakes that turn a restructuring into a series of unlawful dismissals. It is general information based on the Labour Code adopted in 2019; confirm the current procedure before acting.
The lawful grounds for redundancy
Structural change. Changing the organisational structure or reorganising the workforce, for example merging departments, closing a business line or centralising functions.
Technology change. Changing processes, technology, machinery or equipment in a way that reduces the need for labour, such as automating a production line.
Product change. Changing products or the product structure so that some roles are no longer needed.
Economic reasons. An economic crisis or recession affecting the business, or implementing state policy on economic restructuring or international commitments.
Corporate reorganisation. A merger, consolidation, division or separation of the enterprise, or a transfer of ownership or the right to use its assets, can also lead to job losses under a parallel provision.
What is not a ground. A wish to replace an employee with someone cheaper, a personality clash, or poor individual performance are not restructuring grounds. Each has its own legal treatment, and dressing them up as redundancy is one of the most common reasons layoffs are overturned.
Force majeure is separate. Natural disasters, fire, epidemics or state-ordered relocation that force job cuts fall under a different termination ground with its own notice rules and severance treatment, so identify which provision actually fits your facts.
Why the ground must be genuine and documented
Redundancy is about positions, not people. The legal question is whether the employer's operations really changed in a way that removes the need for certain roles, or whether it faces real economic difficulty. A company that dismisses one manager it dislikes and calls it "restructuring", while hiring a replacement with a new title a month later, is exposed to an unlawful dismissal claim.
Courts and mediators look for evidence: board or shareholder resolutions approving the change, new organisational charts, documents on new equipment or processes, financial statements showing losses or falling orders, and a clear link between the change and the specific positions removed. In a hypothetical case, a foreign-owned electronics assembler in Bac Giang automates its packing line and can show purchase records for the new machines, a revised staffing table and the reduced headcount needed per shift. That evidence carries the case; a slide deck from regional headquarters announcing "efficiency targets" does not.
Economic reasons need particular care. A temporary dip in sales is not necessarily an economic crisis or recession in the legal sense. The employer should be able to show how the difficulty affects its own business and why reducing headcount, rather than temporary measures, is necessary.
Alternatives the law expects you to consider
Vietnamese labour law treats termination as the last step in a restructuring, not the first. Before deciding how many people must go, an employer should look seriously at the options that keep employees in work. Redeployment to another department, site or affiliated company is the most obvious. Retraining employees so they can operate new equipment or move into new roles is another, and the labour usage plan explicitly asks which employees will be retrained to continue working.
Temporary measures can bridge a short downturn. These include reducing working hours by agreement, transferring employees temporarily to other work within the limits and pay protections the code sets, and a temporary work stoppage, during which pay depends on the cause: a stoppage caused by the employer generally requires full salary, while stoppages for reasons outside both parties' control allow lower agreed pay within legal limits. Each option needs to be applied correctly, and none can be imposed as a disguised pay cut.
Documenting that alternatives were considered matters even when they turn out not to be feasible. A plan that records why redeployment was impossible, for example because no comparable roles exist at other sites, is far more persuasive than a plan that jumps straight to a list of names.
The labour usage plan
When a restructuring or economic reason affects the jobs of many employees, the employer must prepare a labour usage plan. The plan sets out the list and number of employees to be retained, retrained to continue working, transferred to part-time work, retired, or terminated; the measures and financial resources for implementing the plan; and the timeline. The idea is that termination comes last, after the employer has considered keeping, retraining and redeploying staff.
The employer must consult the employee representative organisation at the workplace, where one exists, when preparing the plan. Once approved, the plan has to be publicised to employees within the period set by the code. The plan is not a formality; it is the document a mediator or court will read first if an affected employee complains.
For foreign-invested companies, the plan should reflect Vietnamese realities: which roles can be redeployed to other sites or affiliates, whether retraining is feasible, and how foreign and local employees are treated consistently. Head office criteria for selection, such as performance ratings, can be used only if they are fair, transparent and documented in the plan.
Procedure from decision to final payment
A lawful redundancy generally follows this sequence:
- Decide and document the business change through the competent corporate body, with supporting evidence of the structural, technological or economic reason.
- Assess alternatives: redeployment within the company or group, retraining, reduced hours, or temporary work stoppage with the pay rules that apply.
- Prepare the labour usage plan where the change affects many employees, consulting the employee representative organisation.
- Publicise the approved plan to employees within the required period.
- Notify in advance: the employer must give advance notice of the terminations to the provincial-level people's committee and to the affected employees, within the period set by the code.
- Issue individual termination decisions stating the legal ground and effective date.
- Pay the job-loss allowance and settle all entitlements within the statutory settlement period, and confirm social insurance periods.
Check the exact notice period and the threshold for "many employees" in the current code and guidance. Missing the advance notice to the authority is a common, easily avoided error.
Payments in a redundancy
Affected employees receive several payments, each with its own basis:
| Payment | Basis | Notes |
|---|---|---|
| Job-loss allowance | One month's salary per year of service not covered by unemployment insurance, minimum two months' salary | Applies to employees who worked regularly for twelve months or more |
| Final salary | Salary up to the last working day | Paid in the final settlement |
| Unused annual leave | Payment for leave days not taken | Calculated on the salary rules in the code |
| Contractual or policy extras | Group severance policies, retention bonuses, negotiated top-ups | Enforceable as contract terms if promised |
| Unemployment benefits | Paid by the state fund, not the employer, to eligible insured employees who apply | Employer must confirm insurance periods promptly |
Many employers offer a voluntary separation package before announcing compulsory redundancies. Employees who accept sign mutual termination agreements, which reduces both cost uncertainty and the risk of disputes about selection. Note that an employee who accepts a voluntary package usually receives the treatment agreed in that package rather than the job-loss allowance as such, so the package should be at least as generous as the statutory amount to be attractive and defensible.
Mergers, acquisitions and business transfers
When an enterprise merges, consolidates, divides or transfers its ownership or the right to use its assets, the employer must also prepare a labour usage plan. The successor employer is responsible for continuing to employ workers under the plan, and for the employees' rights and benefits that carry over. Employees who lose their jobs because of the reorganisation are generally entitled to the job-loss allowance.
For a foreign investor buying a Vietnamese company or business, this is a due diligence point, not just an HR afterthought. Accrued service, unpaid insurance contributions and the cost of any planned headcount reduction become the buyer's concern. Transaction documents should allocate responsibility for these liabilities, but an allocation between seller and buyer does not change what employees can claim under the law.
Timing also matters. Employees in a target company often hear rumours of a sale long before any announcement, and the most capable people leave first. Clear, lawful communication about the labour usage plan, once it can be shared, protects both the transaction value and the employer's position if disputes later arise about what employees were told.
Asset deals, where a buyer takes over a factory or a business line but not the legal entity, raise particular questions about which employees transfer and on what terms. The labour usage plan should be agreed between the parties before closing, with employees informed, rather than worked out after the new owner arrives.
When you need a Vietnamese lawyer
Any redundancy affecting more than a handful of employees, any restructuring announced by a foreign head office, and any acquisition with planned job cuts should involve a licensed Vietnamese lawyer from the planning stage. The legal steps interact with the business timeline: notice periods to authorities and employees can push the effective date back, and a plan prepared without consultation may have to be redone.
Employees who believe their position was not genuinely eliminated, or that the selection was unfair, should keep the plan if it was publicised, their termination decision and any evidence that the role continues under another name. Disputes about unilateral termination can go directly to court, and advice early helps assess whether the claim is stronger than the package on offer.
Questions worth asking: is the ground genuine and documented, does the plan meet the legal content requirements, has consultation been done properly, when must the authority be notified, and what is the total cost including allowances and likely negotiated top-ups. Check the current rules with the labour authority or a licensed lawyer before announcing anything, and build the legal timeline into the business plan rather than the other way round.
Frequently asked questions
Can a company in Vietnam lay off staff because profits fell?
Possibly, if the situation amounts to an economic reason under the Labour Code, such as a crisis or recession affecting the business, and the employer follows the procedure. A simple drop in profit is not automatically enough. The employer should document the difficulty and why job cuts are necessary.
Do I get more money if I am made redundant than if I resign?
Generally yes. Redundancy for structural, technological or economic reasons triggers the job-loss allowance at one month per year of uncovered service, minimum two months, while a resignation triggers the severance allowance at half a month per year. Both exclude years covered by unemployment insurance.
Must the employer consult the trade union before layoffs?
Where there is an employee representative organisation at the workplace, the employer must consult it when preparing the labour usage plan for restructuring that affects many employees. Without such an organisation, the employer still has to prepare the plan and inform employees as required by the code.
Can a foreign employee be made redundant in Vietnam?
Yes, on the same legal grounds and with the same procedure as local employees. Because foreign employees have usually not been covered by unemployment insurance, their job-loss allowance is often calculated on their full service. Immigration consequences of the job ending are handled separately.
Can the employer rehire for the same role after a redundancy?
Rehiring for the same or an essentially identical role soon after a redundancy suggests the position was not genuinely eliminated, and can support a claim that the termination was unlawful. If business recovers, employers often offer the role back to former employees first.
What if the employer closes the company entirely?
If an enterprise ceases operations, employment contracts end on that ground and the employer must settle wages, allowances and insurance obligations. Employees whose employer disappears without paying should act collectively through employee representatives and the local authorities and register their claims.