What should enterprises do when employment contracts expire but they fail to notify the employees?

Mr. Nguyen Thanh A is an employee of Joint Stock Company X under Employment Contract No. 1, which was first signed and effective from 6^th April 2022 to 5^th April 2023. In order to absorb a younger workforce, Company X does not intend to enter into a new employment contract with Mr. A when Employment Contract No.1 expires. However, when Employment Contract No. 1 expired, Company X did not notify Mr. A, and also forgot about its expiration. Mr. A wished to continue working, so he did not notify Company X, but continue to come to work since 6^th Aril 2023, during the time the work assignment and conduct between Mr. A and Company X continued as usual. On 4^th May 2023, the human resource department of Company X learned that Mr. A’s Employment Contract No. 1 expired and wanted to issue immediately a notice of termination. This is a common occurrence in many enterprises. In this situation, what should enterprises do to mitigate undue risk?

1. Labor relations in the transitional period after the expiration of employment contracts

Pursuant to Item a, b, Clause 2, Article 20 of the Labor Code 2019, if a definite-term employment contract expires and the employee wishes to continue working, both parties shall conclude a new employment contract within 30 days from the expiration of the previous employment contract (hereinafter referred to as the “Transitional Period”); in the period prior to the conclusion of a new employment contract, the rights, obligations, and interests of both parties shall be in accordance with the previously concluded employment contract. In addition, if the parties do not conclude the a new employment contract within 30 days of the expiry of the employment contract, the  employment contract concluded definite-term shall become an indefinite-term employment contract.

These regulations regarding the transitional period after the expire of employment contracts are not new, though differ from the Labor Code 2012[1] in that the Labor Code 2019 specifically states that the rights, obligations, and interests of enterprises and employees shall be in accordance with the already concluded employment contract during the Transitional Period.

According to Clause 1 Article 34 of the Labor Code 2019, one of the bases for terminating of employment contracts is the expiry of employment contract. Therefore, it should be clearly stated that the employment contracts concluded between enterprises and employees are no longer effective after their expiration; in this transitional period, the rights, obligations, and interests of the parties are regulated by law on the basis of the content of the expired employment contract.

Since the employment contract has expired, the transitional period is not added to the duration of such contract, it is simply a period that the law has provided for the parties to negotiate and to conclude a new employment contract. This can be seen as an exception, since according to the Labor Code 2019, the parties must have already concluded an employment contract already[2] before the employee starts working. In our opinion, this exception stems from the fact that the Labor Code 2019 imposes certain constraints on enterprises and employees regarding the rights, obligations, and interests of the parties under the concluded the employment contract, which is different from the case where there is no employment contracts, as stated in Clause 2 Article 13 of the Labor Code 2019.

2. The right to unilaterally terminate the labor relation in the transitional period during the expire of the employment contract

In the above scenario, Mr. A continues to work as usual after the expire of his employment contract had continued working as usual, up until the 29^th day after the expiry date, Company X found out and wanted to issue a notice of termination of Mr. A’s employment contract. The question is whether this unilateral termination of Mr. A’s employment contract was lawful or not.

As mentioned above, during the transitional period, labor relation between the parties is established based on the basis of the law, and this period is not included in the duration of the employment contracts. Therefore, it would be unreasonable to consider the termination (if any) of the labor relation during this period as the termination of employment contracts. However, after reviewing the relevant of provision of the Labor Code 2019, we did not find anything regarding the termination of labor relation in this transitional period.

Point b Clause 2 Article 20 of the Labor Code 2019 stipulates that if after 30 days have passed since the expiry of the employment contract and both parties do not conclude a new employment contract, the definite-term employment contract concluded shall become an indefinite-term employment contract.

The law stipulates that if “both parties do not conclude a new Employment Contract”, the concluded definite-term employment Ccontract shall become an indefinite-term employment contract, but does not stipulate how things should be handled if one party does not want to conclude a new employment contract in order not to continue the labor relation (usually the enterprise party) or if one party does not want to conclude a new employment contract at any cost (usually the employee party) in order to transform the expired employemnt contract into an indefinite-term employment contract.

Employment contracts are still essentially contracts and are based on the agreement between enterprises and employees. Therefore, it would be unhealthy and unfair for enterprises if not to conclude a new employment contract and continue the labor relation but since the employees have been working, the concluded employment contract becomes an indefinite-term employment contract or enterprises may conclude a new employment contract, but with change conditions compared to the expired employment contract, but since the employees have not agreed to these conditions, the 30-day period  has expired, on the basis that both parties have not concluded a new employment contract to continue working, the concluded employment contract becomes an indefinite-term employment contract. As we can see, this is not a clear-cut rule regulation and can create quite a dilemma for enterprises.

3. Problems when enterprises want to unilaterally terminate labor relation during the transitional period

*Case 1: Enterprises use the basis of the expiration of employment contract to terminate labor relation with employees

As mentioned above, according to Clause 1 Article 34 of the Labor Code 2019, employment contracts are deemed to be effective from the time of their expiration, so it is not reasonable for enterprises to use of the expiration of the employment contract as the basis for terminating the labor relation with employees.

*Case 2: Enterprises use the right to unilaterally terminate employment contracts in accordance with the expired employment contract to terminate the existing labor relation with employees

Point a Clause 2 Article 20 of the Labor Code 2019 stipulates that within the period prior to the conclusion of a new employment contract, the rights, obligations, and interests of both parties shall be in accordance with the concluded employment contract. To be reasonably understood, the rights of both parties under the concluded employment contract may include the right of enterprises to unilaterally terminate employment contracts. Howerver, if enterprises make use of this right to unilaterally terminate the existing labor relation during the transitional period, they must still have to comply with the bases for exercising this right and the obligation to give notice in accordance with the provisions of the law. It can be seen that, based on the circumstances that enterprises can use unilaterally terminate employment contracts with employees in Clause 1 Article 36 of the Labor Code 2019, except for situations arising from employees, if the employees still continue to work as usual, enterprises shall have no bases to unilaterally terminate the existing labor relation with them.

This puts enterprises into a difficult position of either continuing to employ the employees (which is not in line with the demands, plans and directions of the enterprises) or to unilaterally terminating the employment contract (labor relation) illegally and facing considerabal risks. Enterprises must make a decision, because if the 30-day period from the expiration of the employment contract expires and both sides do not conclude a new employment contract, the concluded definite-term employment contract shall become an indefinite-term employment contract. Then, the enterprises must continue to employ the employees.

In reality, there are disputes between enterprises and employees on this issue. In such cases like these, althoug the courts cite the same regulation, they take different positions on the two cases mentioned above, but all the positions do not harmonize the interests[3] of the parties.

4. What should enterprises do if they want to unilaterally terminate labor relations during the transitional period?

As discussed in Section 3 above, the problems and risks that enterprises face when unilaterally terminating labor relations during the transitional period are significant.

Apart from the right to unilaterally terminate labor relattions, the Labor Code 2019 also provides that enterprises may dimiss employees in the event of restructuring, technological change or economic reasons, the most notable of which is the change in organizational structure, workfore reorganization[4]. However, apart from paying unemployment subsidies[5], before dismissing the employees, enterprises must consult with the grassroots employees’ representative organizations if the employees are members of such organizations and notify with the provincial-level people’s committee and the employees 30 days in advance[6]. In addition, if  many employees are laid off at the same time, enterprises must develope and execute a labor utilization plan[7]. As can be seen, these procedures are feasible, but time-consuming for enterprises.

Apart from the above-mentioned regulations, a review of the Labor Code 2019 did not reveiew any clear regulations regarding solutions for enterprises in this case. Therefore, it is nescessary the This relevent state authorities to provide more detailed regualtions and guidelines to ensure that regulations regarding the transitional period for the purpose of concluding a new employment contracts are not “abused” for the private purposes of the employees or enterprises. Per above:

i. In order to maintain the spirit and essence of employment contracts as an agreement between the parties, there is a need for detailed regulations and guidelines regarding the situations that lead to “both parties not concluding a new employment contract” and the results of each situation;

ii. In order for enterprises and employees to have a clear basis for unilateral terminating their labor relation, there must be clear regulations on the right to unilaterally terminate their labor relation during this transitional period.

Overall, as the existing legal provisions are unclear, enterprises need to take measures in strict compliance with the law as soon as employees’ employment contracts are about to expire. This can be achieved by reviewing and regularly updating the list of employees whose employment contracts are due to expire, and notifying employees who do not wish to conclude new employment contracts. The advantage for enterprises is that the Labor Code 2019 no longer requires at least 15-days’ notice to the employees when contracts expire[8], so enterprises can give notice at any given time, as long as it is before the expiry of the employment contracts. When labor relation enters the transitional period, if it is not possible to dismiss the employees due to the change in the organizational structure, the reason for the reorganization of the workforce, enterprises should consider the risks incurred when unilaterally terminating labor relation with the employees.