Terminating an employee for poor performance is permitted in Vietnam. But there are strict conditions. Most employees will strongly resist; practical implementation is fraught with procedural hurdles and risks of legal disputes. This article sets out the legal requirements, common HR challenges, best practices and alternatives for employers seeking to terminate an employee for underperformance.
What does the law say?
Article 36.1(a) of the 2019 Labor Code provides that an employer has the right unilaterally to terminate a labor contract if the employee “frequently fails to complete the work stated in the labor contract. The law does not define what constitutes “frequently” nor how to assess “failure to perform”. This ambiguity does create a hurdle and potential legal risk for employers. Basically, it can be understood that termination cannot be based on a single instance of poor performance. The employer must demonstrate a pattern of underperformance over time, supported by objective evidence.
To terminate an employee lawfully for poor performance, the employer must have an internal policy to assess the employee’s work performance (“Performance Policy”). The Performance Policy must contain criteria to determine a failure of performance. This policy must be consulted with the internal trade union (if one has been established) and discussed through statutory dialogue with the employees’s representative group. If there is no Performance Policy, termination based on poor performance could be considered to be wrongful.
What are the practical challenges?
While the legal framework is clear in theory, the employer and HR professionals usually face numerous challenges to apply it effectively.
- Lack of a formal Performance Policy
There are several practical challenges. Many employers do not have a Performance Policy. Even when they do exist, they are not precise. They are more in the nature of generic statements of performance, hard to state precisely. Many companies, especially subsidiaries of foreign firms, rely on a global Performance Policy issued by the parent company or group but not by the employer in Vietnam. In addition to often being imprecise, global policy is not necessarily adapted to Vietnamese labor law. If the policy is not issued locally, it may not apply in Vietnam.
- Inconsistent or missing documentation
In some cases, even when a performance policy is in place, employers fail to conduct regular performance reviews of employees nor do they maintain adequate records. A lack of documentation significantly weakens the employer’s position in the event of a perceived performance lapse. If there is no consistent and objective evidence, it is likely impossible for the employer to prove that the employee “frequently failed” to meet performance expectations.
Courts in Vietnam require clear, written records to support claims of underperformance. The absence of such documentation often leads to charges of wrongful termination.
- Outdated job descriptions
Performance assessments must be based on the employee’s actual duties as outlined in his/her job description. If the job description is outdated, vague, or no longer reflects the employee’s current responsibilities, it becomes difficult for the employer to justify termination on the grounds of poor performance. Accurate and up-to-date job descriptions are essential to ensure that performance evaluations are fair, objective, and legally defensible.
- Premature termination
Some employers attempt to terminate an employee “on the spot” after a single incident of poor performance. This approach, of course, violates the requirement of “frequent failure”.
If the employee disputes the termination, the burden of proof is on the employer. The employer must prove that the employee regularly failed to meet performance standards and that the termination process was fair and lawful. Employees will be favored in cases of unclear or undocumented termination.
What are employer’s responsibilities for wrongful termination?
Employers who fail to follow a defensible process could be responsible for liabilities that grow out of a wrongful termination, and they are often required to reinstate the employee and make the following payment of compensation:
- salary, social insurance and health insurance for the period the employee did not work.
- at least two-months salary;
- severance allowance in case the employee does not want to be re-employed; and
- at least two-months additional salary in case the employer does not wish to receive the employee back and the employee agrees not to return;
- pay in lieu of prior-notice in case the employer breaches the requirement of prior notice as described above.
The payment must be made within 14 working days from the date of termination. It can be longer, but it may not exceed 30 days from the date of termination in special cases (eg, employer’s closure, restructuring).
The employee may negotiate for multiple months of additional salary. This, plus the extended internal disruption can be a source of concern to the employer.
What are the best practices for employers?
To create a path that permits termination of employees who perform poorly, employers can establish a clear and well-documented Performance Policy. The issuance of this policy must follow a statutory process, including consultation with the internal trade union (if applicable) and a dialogue with the employee representative group. The policy should contain specific, measurable criteria that are both aligned with each employee’s job descriptions and duties.
In some cases, before proceeding with the termination process, employers provide employees with a genuine opportunity to improve their performance under a structured Performance Improvement Plan (“PIP”). This PIP process may include regular feedback, performance reviews to see if there is any improvement of performance before the employer terminates the employment relationship. The PIP is not a legal requirement. But it is a legal safeguard because it demonstrates the employer’s good faith and commitment to fair treatment. By showing that the employer has made reasonable efforts to support the employee before considering termination, the company strengthens its legal position and reduces the risk of claims for wrongful termination.
What are alternatives?
Termination Alternatives
Given the emotional, financial and reputational impact that termination can have on an employee and the resistance that is often interposed by employees, some employers prefer to pursue mutual termination rather than unilateral termination. This approach allows both parties to negotiate the terms of separation, including the final working date, compensation, and any additional support. A mutual agreement reduces the risk of legal disputes and fosters a more respectful and amicable exit process.
In some cases, employees may choose to resign voluntarily if they feel they are not a good fit for the role. Employers can offer support such as extended notice periods, job search assistance, and financial incentives to facilitate a smooth transition.
Non-Termination Alternatives
In certain situations, employers may consider alternatives to termination, especially when poor performance is not due to negligence but rather to a mismatch between the employee’s skills and their assigned role. For example, if an employee’s position does not align with her strengths or qualifications, reassigning her to a more suitable role can be a practical and constructive solution. This approach preserves the employment relationship while addressing performance concerns in a non-confrontational manner.
Another alternative is to offer additional training or mentoring. By investing in the employee’s development, the employer demonstrates a commitment to helping staff succeed rather than resorting to immediate termination. This can contribute to general higher retention.
Non-termination strategies may not always be warranted but when possible, they reflect a more positive and empathetic approach to performance management. The employer is seen as willing to explore solutions that benefit both the company and the individual, while also reducing the risk of legal disputes and reputational damage.
Conclusion
Poor performance is a legitimate ground for termination under Vietnamese labor law, but its execution may not be easy. Employers may want to balance their right to terminate with HR best practices to avoid costly disputes. Establishing clear performance standards, offering improvement opportunities, and documenting every step can help employers more smoothly to exercise termination for poor performance or to find workable alternatives.
