Common mistakes enterprises make during labor contract negotiation

In today's fiercely competitive economy, building a high-quality workforce is a priority for many enterprises. The labor contract, serving as the legal agreement between employer and employee, not only delineates the rights and obligations of both parties but also provides a crucial legal foundation for protection in the event of disputes. However, the process of negotiating labor contracts can harbor numerous risks if enterprises do not pay adequate attention. Therefore, understanding the key considerations during this phase is essential. This article highlights critical points enterprises should heed when negotiating labor contracts.

1. Enterprises failing to meet subject conditions when the representative signing the labor contract lacks authority

A common yet often overlooked violation among enterprises is having an unauthorized representative sign the labor contract. Current regulations stipulate that the default authority to sign labor contracts with employees lies with the enterprise's legal representative, except in special cases such as signing a labor contract with the General Director of a joint-stock company, where the authorized person is designated by the Board of Directors[1]. Typically, enterprises delegate the human resources department to handle recruitment through to contract signing. However, it's noteworthy that in some instances, the head of human resources may lack the authority to sign labor contracts if there has been a delegation of authority. For example, if the enterprise's legal representative, the General Director, delegates authority to a Deputy General Director, who then further delegates to the HR Director to sign labor contracts, this constitutes an unauthorized sub-delegation contrary to current labor laws[2]. Unlike general civil relations, where an authorized person may delegate to another with the principal's consent, labor law permits only a one-time delegation from the legal representative directly to the individual responsible for contract signing, without further sub-delegation. Additionally, in special cases where the authority to sign labor contracts rests with the Board of Directors, such as signing with the General Director, Director, or specific positions as stipulated in the company's Charter, this authority should be delegated to an individual, like the Chairman of the Board, to execute this responsibility.

Labor contracts signed without proper authority may be deemed invalid, necessitating re-execution by authorized parties. To avoid such pitfalls, enterprises should verify signing authority before executing labor contracts under delegation and review existing contracts to identify and rectify any unauthorized signings, thereby preventing potential invalidation and unforeseen losses.

2. Enterprises executing incorrect types of contracts

The labor contract is a fundamental document outlining the rights and obligations within the employment relationship. In practice, some enterprises attempt to circumvent obligations related to social insurance, health insurance, and more by mislabeling labor contracts as "service contracts," "collaborator agreements," "partnership agreements," etc. Regardless of their titles or forms, such contracts are considered labor contracts if they involve paid work under the management, operation, and supervision of one party[3]. Evasion of obligations through misnamed contracts constitutes a violation of labor laws. Enterprises may face inspections and administrative penalties, with fines ranging from VND 4,000,000 to VND 50,000,000, depending on the number of affected employees[4].

Mislabeling labor contracts may temporarily reduce costs but significantly undermines employees' legitimate rights. In the long run, enterprises risk disputes where courts may reclassify such agreements as labor contracts based on their substance, obligating enterprises to fulfill all statutory duties and potentially compensate for actual damages arising from the misclassification.

To comply with labor laws, protect legitimate interests, and minimize risks of inspections, penalties, and other sanctions, enterprises should thoroughly review labor contract templates and existing agreements that function as labor contracts to ensure timely adjustments in accordance with legal provisions.

3. Labor contracts lacking specificity in essential terms

Article 21 of the 2019 Labor Code, guided by Article 3 of Circular 10/2020/TT-BLĐTBXH, outlines mandatory contents for labor contracts. Nonetheless, many enterprises fail to comply by omitting specifics regarding job duties, workplace location, working hours, or wage payment methods. Such omissions violate labor laws and can infringe upon employees' legal rights.

A prevalent issue is the lack of detailed terms, resulting in vague or ambiguous clauses. For instance, specifying the workplace as "as arranged by the company" or "other locations assigned by the company as appropriate" contravenes legal requirements, which mandate clear stipulation of the work location. If the job involves regular duties at multiple sites, all such locations must be explicitly listed. Clearly defining job duties and work locations in the labor contract is obligatory and reflects the enterprise's commitment to honoring the agreement with the employee.

Another common mistake is the failure to specify the wage payment method, a mandatory element under Clause 2, Article 96 of the 2019 Labor Code. Phrases like "Payment method: bank transfer or cash" are insufficient. The law requires that if wages are paid via bank transfer, they must be deposited into the employee's personal account at a bank. Lack of clarity in payment methods can lead to disputes and serious consequences, potentially resulting in administrative penalties under Decree 12/2022/NĐ-CP.

Negotiating labor contracts is not merely an internal agreement but a critical step in recording and safeguarding the legal rights of both enterprises and employees. Enterprises must pay close attention to common mistakes such as unauthorized signatories, incorrect contract types, and omissions in essential terms like job duties, work location, and payment methods to mitigate errors. Diligence and strict adherence to legal provisions not only reduce legal risks but also foster trust and transparency in labor relations, promoting sustainable enterprise development.