It is not easy for companies to file a lawsuit to claim compensation from employees

In this article, Lawyer Nguyen Nhat Duong and Cao Nguyen Bao Lien will address how the company should handle to ensure the enforcement of compensation claims in accordance with legal regulations. The article was published in People's Count Journal, published on April 23, 2024. Below is the English version:

Current labor laws tend to protect the rights of employees, who are the weak parties in labor relations with enterprises. Therefore, in labor disputes, enterprises (employers) are often the parties that have to prove many factors to protect their demands/opinions. However, the likelihood of enterprises receiving unfavorable results in disputes is quite high due to the strict regulations imposed by labor laws and the compliance requirements imposed on enterprises. In many cases, employees may breach their obligations under the employment contract, and the company has the right to claim compensation. However, due to mismanagement and failure to comply with regulations, the company may become the violating party. In such situations, how should the company handle things to ensure that its compensation claims are legally sound?

1. When can a company seek damages from an employee?

The first important thing that enterprises need to consider is the basis on which they can request employees to compensate for damages. According to the 2019 Labor Code, enterprises have the right to demand compensation from employees in the following cases:

Firstly, if the parties to the employment relationship have reached a written agreement on the content and duration of confidentiality of trade secrets, protection of technological secrets, rights and compensation in case of violation, the employee who violates these provisions is responsible for compensating the enterprise. This is a case specified in Clause 2, Article 21 of the 2019 Labor Code. Accordingly, in order to claim compensation from the employee in this case, those who are directly involved in trade secrets, technological secrets as regulated by law must have an agreement between the enterprise and the employee within or outside the employment contract on the confidentiality of information as mentioned above, and at the same time, the employee violates the agreed content.

Secondly, if the employee unilaterally terminates the employment contract illegally, the employee shall be liable to compensate the company with half of the monthly salary according to the employment contract and an amount equal to the salary according to the employment contract for the days without prior notice. This is stipulated in Clause 2 Article 40 of the 2019 Labor Code. Accordingly, the 2019 Labor Code has stipulated (i) cases in which employees unilaterally terminate the labor contract without prior notice to the company, and (ii) the obligation of prior notice by employees when unilaterally terminating the labor contract in other cases. If an employee unilaterally terminates the labor contract without complying with these provisions, it will be considered as unilateral termination of the labor contract in violation of the law. In such a case, the company has the right to demand compensation from the employee in accordance with the above provisions.

Thirdly, if an employee damages tools or equipment or engages in any other conduct that causes damage to the company's property, he or she shall pay compensation in accordance with the provisions of the law or the company's work rules. This case is stipulated in Clause 1, Article 129 of the 2019 Labor Code, and is considered to be one of the two cases in which employees have material liability to the enterprise.

Fourth, if an employee loses tools, equipment or property of the enterprise, or other property assigned by the enterprise or consumed by the enterprise beyond the permissible limits, the employee shall compensate the damage in whole or in part according to market prices or the enterprise's labor regulations. This is the remaining case in which employees are responsible for material liability to the enterprise as stipulated in Clause 2, Article 129 of the 2019 Labo Code.

2. Not every claim accepted by the Court

Although there is a legal basis for claiming compensation from employees, the practical application of these cases is not easy, which requires strict compliance from enterprises.

Specifically, regarding the first case, the 2019 Labor Code allows enterprises and their employees to agree on the content and duration of trade secret protection, protection of technology secrets, rights and compensation in case of violation. However, to date, such agreements often lead to disputes, and the validity of this agreement is still unclear. This results in a lack of legal basis for companies to claim damages. This can be seen in Judgement No. 03/2023/LD-PT, issued by the Thanh Hoa People's Provincial Court on January 1, 2023, on claiming compensation for breach of labor contract.[1] This Judgement concerns the dispute between TT Technology Joint-Stock Company ("TT Company") and Mr. Nguyen Dinh D. Accordingly, Mr. D entered into an employment contract and a confidentiality and non-competition agreement ("Non-Disclosure Agreement") with TT Company to undertake not to work for NS Petrochemical Refining Limited Liability Company ("NS Company") for 12 months from the date of termination of the employment contract with TT Company. However, immediately after the termination of the employment agreement with TT Company, Mr. D joined NS Company. TT Company later acknowledged such an incident and then filed a lawsuit against Mr. D to recover damages from Mr. D in accordance with the provisions of the confidentiality agreement. The Court of First Instance awarded in favor of TT Company’s claim, but the Court of Appeal ruled in the opposite direction. According to the judgment, the Appeals Court found that the non-disclosure agreement between TT Company and Mr. D violated the Constitution, the 2019 Labor Code, and the 2013 Labor Code on the Freedom of Employees to Choose a Place of Work. In reality, the terms agreed in the non-disclosure agreement are widely used. However, with conflicting opinions, even from adjudicating bodies at different levels, as in the above case, the use of this agreement by the enterprise as a basis to claim compensation from employees is still quite vague. So what should companies do to ensure a solid legal basis for claiming compensation in this case? In our opinion, in order to establish an agreement that has legal validity and can be used to settle disputes, enterprises should determine the specific subject (the employee) who must enter into this agreement, and ensure that the employees who enter into the agreement are all those who work in positions directly related to the company's trade secrets and technology secrets. In addition, the non-disclosure agreement must be limited in time and place. Companies can hardly require employees to work for their competitors for too long, or force employees not to work for companies that are not competitors or in the same market, as in the above dispute.

In the second case, the legal basis for companies to claim compensation seems clearer. In particular, if the employee terminates the employment contract without prior notice and does not fall under the cases in which it is possible to unilaterally terminate the employment contract without prior notice, the enterprise can record the employee's violation and thus use it as a basis for claiming damages from the employee. At the same time, it is possible to use the minutes of the employee's violation as evidence when claiming compensation in court. 

3. Requiring employees to compensate for material damage is not easy

In the third and fourth cases, since these are situations in which the employee is liable for material damage to the enterprise, the conditions, order and procedures for the enterprise to claim compensation are more complex.

First, it is necessary to consider the provisions on the conditions for claiming compensation in these cases. If an employee damages tools or equipment or engages in other conduct that causes damage to the company's property, he or she must pay compensation according to the provisions of the law or the company's work rules. However, if the damage is not serious due to negligence and its value does not exceed 10 times the regional minimum wage where the employee works, the employee must compensate a maximum of 03 months' salary and have it deducted monthly from his or her salary[2]. In addition, the amount of the monthly deduction from the employee's salary may not exceed 30% of the employee's actual monthly salary after deducting mandatory social security contributions, health insurance, unemployment insurance and income tax[3]. Therefore, if the company is faced with this situation, it must also pay attention to the above mentioned regulations.

Meanwhile, if the employee loses tools, equipment or other property of the enterprise, or exceeds the permissible level of material consumption set by the enterprise, he shall compensate for the damage in part or in full according to the market value or labor regulations. However, if the employee's actions are caused by natural disasters, fires, enemy actions, epidemics, catastrophes, or unforeseeable objective events that cannot be remedied despite taking all necessary measures within their capabilities, no compensation is required.[4]

At the same time, in determining the amount of compensation for damages in both cases, the company must take into account the fault, the actual extent of the damage, and the actual circumstances of the employee's family, personal life, and property[5]. It can be seen that there are many conditions and requirements that the law imposes on enterprises when requiring employees to bear material responsibility.

In addition, enterprises must also strictly adhere to the provisions of Article 71 of Decree 145/2020/ND-CP regarding the procedures and processes for handling compensation claims. This decree regulates the organization of the compensation meeting, the composition of the participants, and the required content of the decision on compensation processing. If the company fails to comply with any of these regulations, it may result in the mishandling of compensation claims, which may lead to unfavorable situations for the company.

In addition, an equally important note for companies is the time limit for processing compensation claims against employees in these cases. Specifically, the time limit for processing compensation claims is 6 months from the date the employee damages the tools, equipment or property of the enterprise or other property assigned by the enterprise, or causes damage to the enterprise's property, or exceeds the permitted material consumption. Enterprises should note that the processing of compensation claims will not be carried out during the periods when the employee: (i) is on sick leave or maternity leave; is on leave with the consent of the enterprise; (ii) is in temporary detention; (iii) is awaiting the results of the investigation and verification by the competent authorities of the violations stipulated in Clauses 1 and 2, Article 125 of the 2019 Labor Code; and (iv) is pregnant, on maternity leave or breastfeeding a child under 12 months of age. Upon the expiration of the above-mentioned time limits, if the time limit has expired or is still within the time limit but less than 60 days, the enterprise may extend the time limit for processing compensation claims, but not more than 60 days from the date of the expiration of the above-mentioned time limit[6]. Thus, it can be seen that the company's compensation claim may still not be realized if the time limit for processing compensation claims expires as mentioned.

In summary, for each case of claiming compensation, the company must pay attention to the compliance of various conditions, procedures and processes in order to secure the grounds for its claims. In view of the above-mentioned protection of employees, if the company does not strictly adhere to the legal regulations, in addition to the unacceptable compensation claims, the company may find itself in unfavorable situations in disputes with employees.

Read more at: Doanh nghiệp khởi kiện yêu cầu người lao động bồi thường thiệt hại