With the rapid development of Vietnam’s economy and the continuous influx of foreign investment enterprises, labor dispute cases are showing complex and diverse characteristics. This article will delve into two representative labor dispute cases, interpret them from a legal perspective, and provide practical risk prevention strategies for enterprises investing and operating in Vietnam. Through these cases, we aim to help enterprises better understand Vietnamese labor laws, effectively prevent and handle labor disputes, and ensure compliant operations and sustainable development in Vietnam.

Case 1: D Company’s Collective Labor Contract Dispute

Case Background

D Company is a Chinese textile enterprise operating in Bac Ninh Province, Vietnam, established in 2015, mainly producing sportswear and outdoor equipment. The company employs about 2,000 local workers, 90% of whom are production line workers. At the beginning of 2022, affected by the global economic downturn and rising raw material costs, the company faced severe operational pressure. Order volume decreased by 30% compared to the same period last year, and profit margins fell from 8% to 3%.

On January 15, 2022, the company’s management held an emergency internal meeting to discuss cost control measures. The meeting ultimately decided to reduce costs by adjusting the compensation structure. The new plan would reduce the fixed salary proportion from 70% to 50%, while increasing the proportion of variable wages linked to individual and company performance. Management believed this would protect the company’s interests while motivating employees to improve production efficiency.

On January 20, the company’s human resources department first communicated the new compensation plan to union representatives. Union representative Li Wen (pseudonym) strongly opposed this, believing it would significantly reduce employees’ income stability, especially in the current economic situation where employees need more stable income sources. Over the next two weeks, both parties conducted three rounds of negotiations but failed to reach an agreement. The union insisted that the fixed salary proportion should not be lower than 65%, while the company’s maximum concession was 55%.

On February 28, after communicating with the Chinese headquarters, the company’s management decided to forcibly implement the new compensation system from March 1. The company announced this decision through workshop bulletin boards and WeChat groups on the afternoon of that day, requiring all employees to implement the new salary standards starting the next day.

Dispute Development

After the implementation of the new system, the average monthly income of workshop workers decreased from 6,000,000 Vietnamese dong to about 5,200,000 Vietnamese dong. Many employees found it difficult to reach their previous income levels even with overtime. On March 10, about 200 workers began to gather at the factory gate to protest, demanding the company withdraw the new policy.

On March 15, organized by the union, about 1,800 employees officially began to strike. They hung banners at the factory gate with slogans such as “Return Our Fair Compensation” and “Resist Illegal Salary Adjustment.” After a week of strikes, factory production came to a complete halt, with the company estimated to lose over $50,000 per day.

The local government began to pay attention to this matter, worried that the strike might trigger larger-scale social instability. On March 23, the Bac Ninh Province Labor Bureau sent a mediation team to D Company to start hosting negotiations between labor and management.

Case Analysis

D Company exposed multiple issues in handling this salary adjustment process, reflecting the legal and management risks that enterprises easily overlook when operating in Vietnam.

From a legal perspective, D Company’s actions violated multiple provisions of Vietnam’s Labor Code. Article 63 of the Labor Code clearly requires that the signing, modification, and termination of collective labor contracts should follow the principle of consensus. The company unilaterally implemented a new compensation policy without reaching an agreement with the union, seriously violating this principle.

Moreover, Article 95 of the Labor Code stipulates that when an employer unilaterally changes labor conditions, they must notify employees at least 15 working days in advance and obtain their consent. D Company announced on February 28 that the new policy would be implemented the next day, completely disregarding the statutory notice period. This approach not only violated the law but also deprived employees of their right to know and choose.

From a management perspective, D Company performed poorly in communication and crisis management. The company attempted to push such a major compensation reform in just two weeks, seriously underestimating the importance of communicating with employees. After employees began to protest, the company took a passive waiting attitude, neither communicating with employee representatives in a timely manner nor actively seeking assistance from government departments, leading to further deterioration of the situation.

The company’s compensation adjustment plan itself was also problematic. Reducing the fixed salary proportion from 70% to 50% directly was too drastic, failing to consider the cultural characteristics of Vietnamese employees who generally prefer stable income. This aggressive adjustment method, without supporting measures, was bound to cause strong backlash.

Dispute Resolution

Under the mediation of the Bac Ninh Province Labor Bureau, after three days of intensive negotiations, D Company and employee representatives finally reached the following agreement:

1. The company agreed to increase the fixed salary proportion in the new compensation plan to 60%.
2. Introduce a quarterly minimum wage mechanism to ensure that employees’ quarterly total income is not less than 90% of that before the adjustment.
3. Establish an employee suggestion award to encourage employees to propose suggestions for improving production efficiency.
4. The company promised not to lay off employees in the next 6 months.
5. Compensate employees for 80% of their wages during the strike period.
6. Establish a communication committee consisting of management, union representatives, and front-line employees, holding monthly meetings to discuss company operations and employee concerns.

Case Insights

This case provides us with valuable lessons and has important implications for enterprises operating in Vietnam.

In-depth understanding and strict compliance with Vietnamese labor laws are the foundation for enterprises operating locally. The D Company case clearly shows that ignoring legal provisions can lead to serious consequences. Enterprises should regularly organize training on labor laws for management and human resources departments, inviting local legal experts for targeted explanations. When formulating major personnel policies, legal advisors should be consulted in advance to ensure the legality of the policies. Establishing a legal compliance review mechanism and incorporating it into the company’s major decision-making process can effectively reduce legal risks.

Establishing a sound employee communication mechanism is crucial. D Company’s experience shows that lack of effective communication can lead to escalation of conflicts. Enterprises can consider setting up an employee representative system, regularly holding employee symposiums to understand employee demands in a timely manner. Before making major policy adjustments, a detailed communication plan should be developed, including multiple rounds of face-to-face communication, written explanations, Q&A sessions, etc., to ensure employees fully understand the policy background and content. Establishing smooth grievance channels to make employees feel respected and valued can greatly reduce potential conflicts.

When making salary adjustments, a more flexible and gradual approach should be adopted. D Company’s aggressive adjustment triggered strong backlash. Enterprises can consider piloting on a small scale first, collecting feedback before full implementation. Or adopt a phased adjustment, such as adjusting the fixed salary proportion to 65% in the first year, and further adjusting in the second year depending on the situation. At the same time, complementary incentive measures should be designed, such as additional bonuses for employees with outstanding performance, to balance income uncertainty. When designing compensation plans, local cultural characteristics and employee psychological needs should be fully considered, avoiding rigidly applying the management model of the headquarters.

Maintaining good relations with local government and labor departments can play a crucial role in times of crisis. Enterprises can regularly invite labor bureau officials to visit the factory, report on company situations, and build mutual trust. Proactively communicate with government departments about the company’s operating conditions and challenges faced, seeking policy support and guidance. When encountering labor disputes, report the situation to relevant departments in a timely manner to strive for fair and reasonable mediation.

Establishing a crisis response plan is an indispensable part of enterprise management. For possible situations such as strikes and mass incidents, enterprises should develop response plans in advance. The plan should include crisis communication strategies, temporary production arrangements, communication plans with relevant parties (such as customers, suppliers), etc., to minimize the negative impact of unexpected events. Conduct regular crisis drills to ensure relevant personnel are familiar with the response process and can react quickly and effectively in emergency situations.

Case 2: E Company’s Improper Dismissal of Foreign Employee

Case Background

E Company is a German auto parts manufacturer operating in Ho Chi Minh City, established in 2018, mainly providing parts for domestic Vietnamese and Southeast Asian market automotive brands. The company has about 500 employees, including 20 foreign professional technical personnel from different countries.

In May 2023, E Company hired Zhang Ming (pseudonym), a senior engineer from China. Zhang Ming had previously worked for a well-known Chinese automotive company for 8 years, possessing rich product development experience. He was hired to lead E Company’s new generation electric vehicle battery management system development project.

However, soon after Zhang Ming arrived at E Company, he quickly developed disagreements with the company’s German technical director. The two had serious differences in technical approaches and project management methods. The technical director believed Zhang Ming’s working style was too aggressive and did not fit the company’s team culture.

On June 20, 2023, after an intense project meeting, the technical director proposed to the human resources department to dismiss Zhang Ming. After a brief discussion with the company’s general manager, the human resources manager decided to immediately terminate the labor relationship with Zhang Ming.

On the morning of June 21, the human resources manager verbally notified Zhang Ming that the company had decided to terminate his labor contract, citing “poor work performance and inability to integrate into the team” as the reason. Zhang Ming was asked to immediately pack his personal belongings and leave the company. The company refused to pay any compensation, only agreeing to pay the salary for the current month.

Dispute Development

Zhang Ming was shocked and angry at the company’s sudden decision. He believed that his work ability and performance were not problematic, and the company’s approach was both unprofessional and illegal. After consulting with a local labor law advisor, Zhang Ming decided to file a complaint with the Ho Chi Minh City Labor Arbitration Committee.

His complaint included: demanding compensation for illegal dismissal, payment for unused annual leave, payment of due bonuses, and requesting the company to issue a formal dismissal document to facilitate his handling of visa and work permit-related matters.

The Labor Arbitration Committee accepted Zhang Ming’s complaint and held a hearing on July 10. E Company sent its human resources manager and legal representative to attend the hearing.

Case Analysis

E Company made several serious legal and management mistakes in handling Zhang Ming’s dismissal, reflecting the company’s immaturity in dealing with foreign employee issues.

From a legal perspective, E Company’s actions violated multiple provisions of Vietnam’s Labor Code. According to Article 46 of the Labor Code, employers must have just cause to terminate a labor contract and need to provide advance notice. For contracts without a fixed term, the notice period is 45 days. E Company’s sudden dismissal of Zhang Ming without providing any advance notice seriously violated legal requirements.

Moreover, Article 39 of the Labor Code requires employers to notify termination decisions in writing. E Company only verbally notified Zhang Ming, which is not only illegal but also deprived the employee of the opportunity to defend himself and prepare.

E Company also ignored the special legal status of foreign employees. According to Vietnamese law, employers have the responsibility to assist foreign employees in handling work permit and residence-related matters. The company’s hasty action might cause Zhang Ming to face visa and residence issues, which is not only inhumane but may also bring additional legal risks to the company.

From a management perspective, E Company showed great unprofessionalism in handling employee conflicts and performance issues. The company did not establish an effective performance evaluation and feedback mechanism, nor did it give Zhang Ming an opportunity to improve. When disagreements arose, the company chose the most extreme handling method instead of attempting mediation or seeking other solutions.

This approach may not only damage the company’s reputation but also negatively impact the morale of other employees, especially foreign employees. It sends a dangerous signal: the company does not value employee rights and may dismiss employees without reason at any time.

Dispute Resolution

Under the mediation of the Labor Arbitration Committee, after two rounds of negotiations, E Company and Zhang Ming reached the following agreement:

1. E Company acknowledged errors in the dismissal procedure and agreed to apologize to Zhang Ming.
2. The company agreed to pay Zhang Ming 3 months’ salary as compensation, amounting to $45,000.
3. Pay Zhang Ming for unused annual leave, totaling $5,000.
4. The company promised to issue formal dismissal documents and assist Zhang Ming in handling work permit cancellation procedures.
5. Both parties agreed to sign a confidentiality agreement, not disclosing specific settlement terms to the public.

Case Insights

E Company’s case provides us with valuable lessons, especially when dealing with foreign employee-related issues.

Establishing a standardized dismissal procedure is key to protecting the rights of both the company and employees. Enterprises should develop detailed employee performance evaluation and disciplinary systems to ensure dismissal decisions have sufficient basis. This process should include regular performance reviews, written warnings, improvement plans, and other steps. For foreign employees, cultural differences should be considered, possibly requiring more communication and adaptation time.

Emphasize the importance of written notices in human resource management. All important personnel decisions, especially dismissals, should be notified in writing, and relevant records should be kept. This is not only a legal requirement but also an important means of protecting the company from potential legal disputes. Written notices should clearly state the reasons for dismissal, compensation plans, handover arrangements, and other details.

Strict adherence to statutory notice periods is an important measure to avoid additional compensation risks. Enterprises should be familiar with and strictly implement the dismissal notice periods stipulated in Vietnamese labor laws. If the company wishes the employee to leave immediately, it should pay corresponding notice pay. This is not only a legal requirement but also a manifestation of respect for employees.

Strengthening foreign employee management requires special attention. Enterprises should be familiar with and strictly implement Vietnam’s special regulations for foreign employees, including work permit management, residence permit processing, etc. Establish a dedicated foreign employee service team to provide them with necessary support and guidance. When dismissing foreign employees, companies need to consider their special circumstances and provide necessary departure assistance, such as work permit cancellation, visa changes, etc.

Cultivate an inclusive corporate culture and effective conflict resolution mechanisms. The cultural conflict in E Company’s case reflects a common challenge faced by many multinational enterprises. Enterprises should cultivate an open and inclusive corporate culture, encouraging mutual understanding and respect among employees from different backgrounds. Establishing effective conflict resolution mechanisms, such as setting up mediation committees, can help resolve conflicts between employees and avoid simply handling problems through dismissal.

Conclusion

Through in-depth analysis of the cases of D Company and E Company, we can clearly see the diverse labor dispute risks that may be encountered in the process of operating in Vietnam. These cases cover key areas such as collective labor relations, salary adjustments, employee dismissal procedures, and foreign employee management, reflecting the complexity and uniqueness of Vietnam’s labor law environment.

These cases emphasize several key points: the importance of in-depth understanding and strict compliance with Vietnamese labor laws; the necessity of establishing a sound human resource management system; the crucial role of effective communication in preventing and resolving labor disputes; and the special considerations needed when dealing with foreign employee issues.

For enterprises that are operating or planning to conduct business in Vietnam, these lessons are particularly valuable. Establishing a sound human resource management system, cultivating a management team familiar with local laws and culture, and seeking professional legal and consulting services when necessary will be key factors in ensuring the steady development of enterprises in the Vietnamese market.