A labor contract is a crucial legal document establishing the foundational employment relationship between employee and employer. To ensure legal compliance and protect the maximum rights of all parties, it is essential to understand the different labor contract types and latest regulations. This article provides standard templates and detailed analysis of key considerations.
What Is a Labor Contract?
A labor contract is the core legal agreement establishing working conditions and rights between employee and business. Using a standardized labor contract template plays an indispensable role in human resource management and legal compliance.
Definition and Legal Role:
- Definition: A labor contract is a written agreement on paid employment, working conditions, and the rights and obligations of each party (Article 13, 2019 Labor Code).
- Foundational Function: It is the primary legal basis for resolving all disputes and complaints during employment, from salary matters to labor discipline.
- Protective Value: A standard contract protects employee rights while serving as a legal safeguard for the employer against compliance risks.
- HR Professionalism: Applying a contract template updated with the 2019 Labor Code demonstrates professionalism and seriousness.
Critical Legal Notes:
- Compliance Requirement: Any clause violating mandatory Labor Code provisions (such as regional minimum wage or maximum probationary period) may be declared void.
- Regular Updates: Businesses must continuously review contract templates to ensure compliance with latest labor regulations.
- Beyond Paperwork: The contract directly governs Social Insurance, Personal Income Tax, and other welfare schemes.
Labor Contract Types Under the 2019 Labor Code
The 2019 Labor Code simplified contract classification into two main types based on employment duration, creating a clear basis for managing HR policies.
1. Indefinite-Term Labor Contract
This type creates the greatest stability and long-term commitment in employment relationships.
Key Characteristics:
- Term: No agreed-upon termination date; effective indefinitely.
- Use: Typically for key personnel, stable positions, or committed long-term employees.
- Termination Process: Stricter than fixed-term contracts.
- Employer: Can only terminate for just cause (structural change, technology change, poor performance, etc.).
- Employee: Has the right to terminate unilaterally with at least 45 days’ prior notice.
Business Benefits:
- Reduced Recruitment Costs: Encourages employee loyalty, reducing labor turnover.
- Workforce Stability: Ensures critical positions remain filled, minimizing operational disruptions.
2. Fixed-Term Labor Contract
This is the common contract type for meeting human resource needs for a limited time.
Key Characteristics:
- Term: Clearly specifies the expiration date, but not exceeding 36 months (3 years).
- Use: Seasonal work, short-term projects, or initial employment after probation.
- Renewal Rule (Critical):
- After the first fixed-term contract expires, parties can sign one additional fixed-term contract (the second time).
- When the second fixed-term contract expires, if the employee continues working, that contract automatically converts to an indefinite-term contract.
Business Risks:
- Term Management: HR must closely monitor signing history to prevent unintended automatic conversion to indefinite-term.
- Severance Obligations: Termination after two fixed-term contracts requires severance allowance compliance.
3. Contract Type Distinctions and Transition Rules
Clear differentiation is essential for HR operations, particularly when handling older contracts.
Key Differentiation Criteria:
| Criteria | Indefinite-Term | Fixed-Term |
| End Date | Not specified | Maximum 36 months |
| Number of Signings | Signed once | Maximum 2 times |
| Termination Process | Requires just cause and 45 days’ notice | Automatically terminates upon expiration |
| Effect After Expiration | N/A | 1st expiration: Renewal option; 2nd expiration: Automatic conversion to indefinite-term |
Transition Regulations:
- Existing Contracts: Contracts signed before January 1, 2021 continue under the 2012 Labor Code until expiration.
- Contract Renewals: Upon renewal, the 2019 Labor Code’s 2-time signing limit applies.
- Risk Management: HR must verify each employee’s contract history to ensure smooth transitions and avoid unintended type changes.
Mandatory Content in Labor Contracts
The 2019 Labor Code mandates 14 key contents. Omitting any item may render the contract invalid or subject to penalties.
1. Basic Information of Parties
Identity and signing authority of both parties must be verified with absolute accuracy.
Employer Information (Required):
- Company name, main office address, tax code (must match business license).
- Full name and title of the legal representative or duly authorized person.
- If signatory is authorized, the authorization document number and date must be stated.
Employee Information (Required):
- Full name, date of birth, permanent address.
- Citizen Identity Card/ID/Passport number (must be valid and current).
- Contact information (phone number, email) for communication purposes.
2. Employer Rights and Obligations
These clauses define management authority and the employer’s financial and occupational safety responsibilities.
Employer Rights:
- Manage, direct, and supervise employee performance.
- Implement rewards and discipline according to internal regulations.
- Adjust or relocate the employee when necessary, within contract terms.
Employer Obligations:
- Securing Employment: Providing work, workplace, and working conditions as agreed.
- Payment: Paying salary fully, on time, at the agreed rate (not lower than regional minimum wage).
- Insurance: Fully paying Social Insurance, Health Insurance, and Unemployment Insurance as required.
- Occupational Safety: Ensuring safe working conditions and providing necessary labor protection equipment.
3. Employee Rights and Obligations
This clause ensures employees receive legal benefits commensurate with job responsibilities.
Employee Rights:
- Salary and Allowances: Entitled to salary, bonuses, allowances, and promotion/salary increase schemes, if any.
- Leave: Entitled to paid annual leave, public holidays, and sick leave per regulations.
- Protection: Entitled to protection of health, honor, dignity, and mandatory insurance benefits.
- Termination Right: Has the right to unilaterally terminate with legal notice or without notice in special cases.
Employee Obligations:
- Job Performance: Complete agreed work and comply with quality regulations.
- Compliance: Adhere to labor discipline and company regulations.
- Confidentiality: Maintain business and technological secrets if required by agreement.
- Liability: Compensate the company for damages caused by their fault.
4. Ancillary Clauses and Commitments
To enhance legal protection and safeguard company assets, specific supplementary clauses are necessary.
Recommended Ancillary Clauses:
- Non-Disclosure Agreement (NDA): Defines confidential information types (customer lists, business strategies, technology) and post-termination confidentiality obligations.
- Intellectual Property (IP): Commits that ownership of products, software, or innovations created during employment belongs to the company.
- Non-Compete Clause: Prohibits working for competitors for a specified period after resignation (only valid if accompanied by compensation).
- Applicable Language and Law: For international companies, clarify that the Vietnamese version is the original with highest legal validity and Vietnamese law governs.
Drafting and Signing Labor Contracts in Compliance
The signing process must follow prescribed procedures to ensure absolute legal validity.
1. Signing Principles and Form
Contracts must be drafted based on principles of respect and equality.
Signing Principles:
- Voluntariness and Equality: Neither party may coerce or threaten the other.
- Good Faith and Cooperation: Both parties collaborate with responsibility and honesty.
- Legality: Contract content must not violate law or social ethics.
Contract Form:
- Written Form: Most common; made in at least 2 copies, with each party keeping one copy, having full legal validity.
- Electronic Form: The 2019 Labor Code permits electronic contracts via data messages with equal legal validity (must comply with Electronic Transactions Law).
- Verbal Form: Only applies to contracts with duration under 1 month (excluding certain special jobs).
2. Mandatory Compliance Standards
HR departments must understand legal limits to avoid penalties or contract voidance.
Probation Period Limits:
- Maximum Duration by Role:
- 180 days: Management positions.
- 60 days: Intermediate college degree or higher.
- 30 days: Junior college degree.
- 6 working days: Other jobs.
- Probationary Salary: Must be at least 85% of the official salary.
Salary and Benefits Limits:
- Minimum Wage: No agreement on official salary lower than regional minimum wage.
- Basic Rights: Clauses restricting employee basic rights (leave, insurance) are prohibited.
- Signing Authority: Contract must be signed by legal representative or authorized person.
3. Handling Invalid Contracts
Invalid contracts require corrective measures as mandated by law.
Types of Invalidity:
- Wholly Invalid: Entire contract violates law (e.g., contracting for prohibited work).
- Partially Invalid: Specific clauses violate law (e.g., salary below minimum wage).
Employer Responsibilities:
- Revision/Supplementation: Parties must revise contracts to align with Labor Code requirements.
- Rights Resolution: Employer must fully implement employee rights (salary, insurance) per legal provisions.
- Difference Compensation: If salary is below minimum, employer must reimburse the difference for the period worked.
Standard Labor Contract Templates
Preparing customizable, standard contract templates is an invaluable asset for HR departments.
1. Indefinite-Term Labor Contract Template
Key Drafting Focus Points:
- Job Description: Detailed job title, duties, and responsibilities as basis for performance evaluation.
- Salary and Benefits: Present basic salary, allowances (travel, lunch, phone), and long-term welfare schemes.
- Evaluation Process: Reference Performance Evaluation Regulation or Internal Labor Regulation for termination grounds.
2. Fixed-Term Labor Contract Template
Key Drafting Focus Points:
- Term Definition: Highlight start date and end date (not exceeding 36 months).
- Expiration Handling: Include clause requiring written notice of renewal or termination at least 15 days before expiration.
- Renewal Tracking: Track number of signings (1st or 2nd time) to avoid exceeding legal limits.
3. Labor Contract Amendment Template
Role and Structure:
- Purpose: Amend or supplement original contract clauses but must not change contract type.
- Content:
- Reference original contract (number, signing date).
- Clearly list changed clauses (e.g., “Change Article 3 – Salary to: Basic salary is X VND…”).
- Specify effective date of amendment.
- Important Note: Type changes (fixed-term to indefinite-term) require a new contract, not an amendment.
Summary
The labor contract template is the ultimate legal tool establishing and protecting the rights of both employees and employers. Given increasingly strict regulations under the 2019 Labor Code, businesses must regularly review and update contract templates, paying special attention to:
- Contract classification (fixed-term/indefinite-term) and renewal rules (maximum 2 times).
- Mandatory content (salary must equal or exceed regional minimum).
- Probation limits (maximum duration and minimum 85% salary).
View labor contract drafting and management not just as administrative procedure but as serious investment in business stability and legal compliance, building a solid foundation for sustainable organizational development.
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