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1 January 2013 edition contents SBV eases restrictions 2 on lending in foreign currency Economic sector and 4 CPC codes - obstacles for business registration New regulations for 6 fund management companies Determining and 9 evaluating projects and works of national importance Draft Decree on Foreign 12 Employees Case Commentary 13 New legal instruments 15 The material contained in Vietnam Legal Update is intended to inform readers of recent legal developments in Vietnam. It is not intended, and should not be relied upon, as legal advice. Should readers wish further information in relation to any legal instrument or matter mentioned in this issue, they are encouraged to contact one of our Vietnam offices (details at the end of this issue). In brief: In this month's edition we cover the new laws on lending in foreign currency, operation and establishment of fund management companies and applications for registration of new businesses. We also discuss developments in laws governing projects of national importance, and the draft labour decree on foreign employees. Our Case Commentary discusses a decision of the Supreme People's Court regarding reorganisation and retrenchment of workers. Visit Allens is a leading international law firm in South East Asia, China and Australia. subscribe to (or take a free tour of) Vietnam Laws online Allens offers one of the most comprehensive database a searchable legal networks in Asia and Australia with offices database of over 3,900 of our in Beijing, Brisbane, Hanoi, Ho Chi Minh City, English translations of Hong Kong, Jakarta, Melbourne, Perth, Port Vietnamese laws regulating Moresby, Singapore, Sydney and Ulaanbaatar investment and business and, via our integrated global alliance with Linklaters, we have access to lawyers in 27 access free translations of a offices across 19 countries. selection of Vietnamese laws Allens' Vietnam practice is led by resident read the Vietnam Legal Update partners Bill Magennis, Hop Dang and Robert back to 1997 complete with Fish. Our in-country team consists of index of contents and search international and local lawyers and legal function translators. find out more about our practice We encourage feedback from our readers in Vietnam regarding the Vietnam Legal Update. Please Visit direct all enquiries, comments and suggestions find out more about the Allens to us via at VLU@allens.com.au. network and our international practice Allens Pte Ltd is incorporated in Singapore with limited liability, company reg no H. Our associated firm Allens is an independent partnership operating in alliance with Linklaters LLP Allens Vietnam Laws January

2 SBV eases restrictions on lending in foreign currency Circular 37/2012/TT-NHNN of the State Bank of Vietnam (SBV) dated 28 December 2012 on regulations on lending in foreign currency by credit institutions and foreign bank branches to resident borrowers (Circular 37) In response to appeals from various banks and businesses, the SBV recently issued Circular 37 to lift the stringent restrictions on Vietnamese banks' ability to lend in foreign currency. The new regulations have been welcomed by the business community and became effective on 1 January Circular 37 has expanded the circumstances under which lending in foreign currency is permitted and reduced cases where a special approval from the SBV is required. Furthermore, Circular 37 now provides details of the application process for SBV approval of foreign currency loans in special cases. These were not in place under the previous regulations and this had caused practical difficulties for banks. Under the previous regulations (Circular 03/2012/TT-NHNN of the SBV dated 8 March 2012), lending in foreign currency was only permitted for: the purpose of making overseas payment for the import of goods and services (provided that the borrower has sufficient foreign currency from production and business revenue to repay the loan); the import of petroleum as approved by the SBV; or, in special cases, upon receipt of a special approval from the SBV. Under Circular 37, in addition to the above circumstances, Vietnamese credit institutions and foreign bank branches are allowed to lend in foreign currency in the following cases: 1. Short-term loans for import of petroleum granted to primary petroleum import enterprises allocated an allowance by the Ministry of Industry and Trade under the petroleum import quota set for To qualify, the enterprises must require a foreign currency loan to make offshore payment for such import, when the borrower does not have sufficient foreign currency from production and business revenue to repay the loan. Under the previous regulations, an approval from the SBV was required in this case. However, this requirement has been abolished under Circular 37. This permission is effective until 31 December Short-term loans for export related activities when the borrower will have sufficient foreign currency revenue from its exports to repay the loan. However, in this case, upon loan disbursement in foreign currency, the borrower must sell such amount to the lender and receive VND, except where the law requires the relevant payment transaction of the borrower to be made in a foreign currency. This permission is also effective until 31 December Loans for direct offshore investment projects or works of national importance where the underlying investment policy has been approved by the National Assembly, Government or Prime Minister and for which the Ministry of Planning and Investment has issued an offshore investment certificate Allens Vietnam Laws January

3 4. Loans for other purposes upon special approval of the SBV. Credit institutions and foreign bank branches are permitted to assess and decide to make foreign currency loans outside of the above circumstances in 'priority sectors and sectors in which development of production and business is encouraged by the Government' after obtaining a special approval from the SBV on a case-by-case basis. In order to apply for special approval from the SBV for lending outside the prescribed circumstances, the relevant bank must prepare a submission to the SBV (which must contain detailed content as prescribed under Circular 37). The SBV has 30 working days from receipt of the submission to consider and respond to the bank in writing. Practically speaking, it is arguable that the maximum time period of 30 working days period is too long; though this may be another indication that the SBV does not encourage foreign currency lending outside the permitted scope. Circumstances 1 and 2 above have only been temporarily introduced, and Circular 37 specifies that the applicability of these provisions will cease on 31 December After this date, it is unclear what direction the SBV will take in relation to foreign currency loans made in such cases. Circular 37 introduces additional circumstances in which Vietnamese credit institutions are permitted to lend in foreign currency, however some of these new provisions will only apply for a limited time Although the new rules only became effective on 1 January 2013, Circular 37 may affect loan agreements signed before this date as follows: in the case of project finance or syndicated loans, if the lending bank and the borrower agree to continue implementing the existing loan agreement or amend the loan agreement to be consistent with Circular 37; and in the case of credit facilities or revolving loans with drawndown on or after 1 January 2013, the lending bank and the borrower must comply with the new regulations of Circular Allens Vietnam Laws January

4 Economic sector and CPC codes - obstacles for business registration Decree 05/2013/ND-CP dated 9 January 2013 (Decree 05) amending Decree 43/2010/ND-CP dated 15 April 2010 on registration of enterprises (Decree 43) Conducting business in Vietnam The Law on Enterprises provides that enterprises in all economic sectors have the right to conduct lines of business which are not prohibited by law. There are several lines of business which are classified as 'conditional', meaning that an enterprise conducting business in that sector must satisfy certain conditions stipulated by relevant authorities. An enterprise has the right to select its own business scope, however it is obliged to register such business scope with relevant licensing authorities and, if the selected business sectors are conditional, to satisfy the relevant conditions. As a result of this registration requirement, a company may only conduct the business which is specified in its business registration certificate (BRC), in case of a local company, or investment certificate (IC), in the case of a foreign invested company. As discussed below, a few common obstacles often arise for new companies when applying for a BRC or IC. Decree 05 attempts to rectify some of these issues. Economic sector code obstacle removed Decree 43 requires economic sector codes of the business scope conducted by a company to be specified in its BRC/IC in accordance with Decision 10/2007/QD-TTg on economic sector codes of Vietnam (Decision 10) and Decision 337/2007/QD-BKH on contents of economic sectors in Vietnam (Decision 337). Decision 10 lists each economic sector with its corresponding 4 digit code. Decision 337 provides further description and sub-classification of these economic sectors and the sub-classification codes, which consist of up to 12 digits. Although Decree 43 provides that the statement of the economic codes in a company's BRC or IC is only for statistical purposes, it also requires the company to determine and state such codes in its application documents for registration of its business scope. An application for business registration without the economic sector codes will be rejected by the licensing authority. This can sometimes be a real obstacle for companies if they cannot find the appropriate codes for the business activities which they would like to conduct, or if such proposed business activities are not accurately described in Decision 10 and Decision 337. Decree 43 attempts to deal with this situation by providing that, where there are business activities which do not have equivalent codes set out in Decision 10 and Decision 337 or any other regulations, the licensing authority must notify the Ministry of Planning and Investment (MPI) so that the MPI can consider adding a new code number. However, Decree 43 does not contain a specific provision allowing the licensing authority to approve the registered business activities without the economic sector codes in the company's BRC or IC prior to the MPI issuing new codes for such activities. This can result in lengthy delays in the registration of a company. To resolve 2013 Allens Vietnam Laws January

5 this problem, the Government recently issued Decree 05, amending Decree 43, to allow licensing authorities to approve business activities without economic sector codes and specify these in the company's BRC or IC, and subsequently notify the MPI of the business activities which did not correspond to existing economic sector codes. CPC codes what are they? Vietnam's commitments upon accession to the World Trade Organisation (the WTO Commitments) set out various services for which Vietnam has committed to open the market for foreign investors, and the relevant schedules for such opening. Each service described under the WTO Commitments has a Central Product Classification (CPC) code, used by the United Nations. In addition to the economic sector codes mentioned above, foreign invested companies are required to state the relevant CPC code for each service in their application for business registration. The CPC codes used in the WTO Commitments are the codes from the provisional version of the CPC codes listed on the United Nations website used by the Ministry of Industry and Trade for negotiations with the WTO on Vietnam s accession to the WTO. Descriptions of services under these codes may be slightly different to descriptions of services under the same code numbers of the previous or later versions of the CPC. The licensing authorities will approve foreign invested companies to conduct services which Vietnam has committed to open under the schedules stated in the WTO Commitments. If any services in the registration application have not been specifically mentioned in the WTO Commitments, the application must be reviewed based on relevant specific laws. In practice, many local licensing authorities take the view that if the WTO Commitments do not include a commitment to open the market with respect to a service and the relevant specific laws do not restrict foreign investors from conducting such service, the foreign investors is allowed to conduct such services. This is consistent with the fundamental principles of Vietnamese law that: (i) if a matter is governed by an international treaty to which Vietnam is a signatory and by local laws, the international treaty prevails, and if there is no such international treaty governing the matter, it must be governed by the relevant local laws; and (ii) a company should be permitted to do what is not prohibited by law. However, there remain some licensing authorities that nevertheless hold the view that if Vietnam has not committed to open market to foreign investors with respect to a service, foreign investors should not be permitted to conduct such service. Addressing inconsistencies between economic and CPC codes It is important that the economic sector codes and CPC codes cover every type of business activity that a company might like to conduct. However, it is not always possible to find corresponding descriptions of business activities under the economic sector codes and the CPC codes. One economic sector code might comprise business activities corresponding to more than one CPC code, or vice versa. Decree 05 also attempts to rectify this issue, stating that if equivalent economic sector codes for proposed business activities cannot be found, then it is sufficient to submit a registration application without specifying a code Allens Vietnam Laws January

6 Decree 05 becomes effective on 25 February 2013 New regulations for fund management companies Circular 212/2012/TT-BTC of the Ministry of Finance dated 5 December 2012 on establishment, organization and operations of fund management companies (Circular 212) On 5 December 2012, the Ministry of Finance (MOF) issued Circular 212 on the establishment, organisation and operations of fund management companies. Circular 212 will come into effect on 1 March 2013 and will replace Decision 35/2007/QD-BTC (Decision 35) dated 15 May 2007 (as amended on 26 December 2008). As mentioned in our August VLU, Decree 58/2012/ND-CP dated 20 July 2012 (Decree 58) provided for a number of significant changes in respect of regulations on securities and fund management companies. Circular 212 is intended to detail the implementation of Decree 58 and replace provisions of Decision 35 which are no longer consistent with Decree 58. Circular 212 is expected to create more favourable conditions for fund management companies to operate in a professional and transparent manner. It is also expected to help the authorities effectively supervise and manage the operations of fund management companies and to attract more offshore funds in the future. Conditions on shareholders/members of a fund management company (FMC) Like Decision 35, Circular 212 details the conditions for establishment of an FMC in respect of material facilities, equipment, personnel, capital, shareholder structure and financial capacity of investor(s). However, Circular 212 sets out more detailed guidance on the conditions in respect of shareholders (or members) of an FMC. In particular, under Circular 212, an FMC must have at least 2 shareholders or members of which at least 1 must be a commercial bank, insurance company or securities company. If an FMC is a one member limited company, its owner must be a commercial bank, insurance company or a securities company. If a shareholder is an organisation, such organisation must have been in operation for at least 5 consecutive years, or 2 consecutive years if the shareholder is a commercial bank, insurance company or securities company. Circular 212 also details the conditions in respect of the financial capacity of the shareholders. If a shareholder is an organisation, it must have been profitable in the 2 consecutive years prior to the year in which it applies to establish the FMC and in the year in which the application is made, the shareholder cannot have made a loss. If a shareholder is a bank, insurance company or securities company, it must not be under any special control or suspension of operations or any special warning circumstances. Possibility of establishment of 100% foreign owned FMCs Under Decree 58, a foreign investor may acquire up to 49% of the charter capital in an existing FMC, or, if certain criteria are met, establish a new FMC which is owned 100% by the foreign investor. Although Decree 58 took effect on 15 September 2012, no 2013 Allens Vietnam Laws January

7 100% foreign owned FMC has been established as there has been a lack of detailed guidance on this issue at circular regulation level. Circular 212 sets out in detail the conditions that must be met for a foreign investor to acquire capital in an FMC or to establish a 100% foreign owned FMC. By introducing more detailed guidance, Circular 212 is expected to make the securities market more attractive to foreign investors. Circular 212 expands the scope of permitted business activities of Fund Management Companies, as well as setting out the conditions that must be satisfied for a foreign investor to establish a 100% foreign-owned FMC Minimum ownership by founding shareholders or members Circular 212 requires founding shareholders or members of an FMC to subscribe to or contribute at least 65% of the charter capital of the FMC, at least 30% of which must be owned by banks, insurance companies and securities companies. As does Decision 35, Circular 212 prohibits the founding shareholders or members from assigning their shares to non-founding shareholders within the first 3 years from the establishment of the FMC. However, Circular 212 provides for an exception for the transfer to non founding shareholders or members if such transfer is conducted in accordance with the decision of a court or a competent authority. Licensing procedures for establishment of an FMC To establish an FMC, investors must submit application documents evidencing satisfaction of all conditions as required under Circular 212 to the State Securities Commission (SSC). These application documents must include: documents for the proposed premises of the FMC; documents evidencing the legal status of the investors (such as business registration certificates or investment certificates and charters); resolutions of shareholders or members on the establishment of the FMC; charter of the FMC; letters of appointment of authorised representatives of shareholders or members that are organisations; criminal record clearances for the authorised representatives of the FMC, the members of the board of management or the members council of the FMC and other management personnel as described in Circular 212; practising certificates of the general director, deputy general director and fund managers; and documents evidencing the financial capacity of investors to contribute capital to the FMC. Under Circular 212, shareholders or members that are banks, insurance companies or 2013 Allens Vietnam Laws January

8 securities companies are required to submit a confirmation from the authorised management authorities, (ie. the State Bank of Vietnam if the shareholder or member is a bank, or the MOF if the shareholder is an insurance company or their equivalents in a foreign country in the case of foreign investors), that they are not subject to any special controls or official warnings, as well as approvals from these authorities for the relevant shareholder or member to contribute capital to the FMC. Within 20 days from receipt of the application documents, the SSC will send a notice to the investors to complete the physical facilities and deposit capital into an escrow account at a bank appointed by the SSC. The SSC must then issue an establishment license 7 days from the date it has received: confirmation of receipt of the capital into the escrow account; minutes on inspection of the material facilities; and any other documents required under Circular 212. Within 7 days from the effective date of the establishment license, the FMC must announce its establishment in the information media of the SSC and in three consecutive editions of a newspaper. Internal audit department Unlike Decision 35, Circular 212 requires an FMC which is a public company or a securities investment company, or a company which manages public funds, to establish an internal audit department. The internal audit department of an FMC has the authority to inspect, evaluate and/or audit the management activities, compliance with regulations, internal processes and operations of all departments of the FMC. Circular 212 sets out the principles for the auditing activities as well as professional conditions applicable to members of the internal audit department. Any appointment, removal or change of members in the internal audit department must be reported by the FMC to the SSC. The requirement to establish an internal audit department existing together with the internal control department is intended to provide the shareholders or members with an additional channel to manage and supervise the activities of the executive board and the FMC. New permitted business activity of an FMC One of the important changes of Circular 212 is that an FMC will be permitted to provide securities investment consultancy. Securities investment consultancy activities are defined to include advising clients on: investment policies and transactional strategies (eg. allocation of capital, types of investment assets, method of determination of asset value, forms of investment, etc); publishing information on securities investment; and implementing training programs on securities investment. In order to provide securities investment consultancy services, an FMC must sign an investment consultancy agreement with its clients which must contain a number of minimum contents as required under Circular 212. Circular 212 also sets out the 2013 Allens Vietnam Laws January

9 principles and restrictions in relation to provision of consultancy services by an FMC. Under Circular 212, an FMC that has not been licensed to provide consultancy services may apply to amend its establishment license to add consultancy services to its licensed business activities. The FMC must submit the required application documents, including practising certificates and other relevant certificates of its consultants (eg. CFA, CIIA), to the SSC. The statutory time for the SSC to issue the amended establishment license is 5 working days. Changes of the establishment license and activities subject to approval by the SSC Like Decision 35, Circular 212 also sets out certain changes of an FMC s establishment license that must be approved by the SSC. These changes include: a change in the name of the FMC; a change of the registered office of the FMC, its branch(es) and representative office(s); a change of the legal representative of the FMC; an increase or decrease in the charter capital of the FMC; any form of re-organisation of the FMC; and a conversion of the form of enterprise of the FMC. Further, Circular 212 also requires the following changes in ownership ratios and the following activities to be approved by the SSC: transactions of 10% or more of the charter capital of the FMC; transactions resulting in a change in ownership ratio of a shareholder or member such that it crosses a threshold amount of either 10%, 25%, 50% or 75% of the charter capital of the FMC; and the establishment of a representative office or branch, or the conduct of any investments in foreign countries by the FMC. Determining and evaluating projects and works of national importance Decree 03/2013/ND-CP of the Government dated 4 January 2013 providing detailed regulations for the implementation of Resolution 49 on projects and works of national importance (Decree 03) On 19 April 2011, the Government Office issued Official letter No assigning to the Ministry of Investment and Planning the task of preparing an implementing decree for Resolution No. 49 of the National Assembly on important national projects. On 4 January 2013, Decree 03 was issued. Decree 03 provides detailed regulations and guidelines on: application of the criteria on investment capital (prescribed in Articles 3.1 and 4.1 of Resolution 49); any projects or works already commenced in which an issue arises within the 2013 Allens Vietnam Laws January

10 criteria on national importance (prescribed in Article 10.3 of Resolution 49); the organisation and operational method of the State Evaluation Council and other bodies assigned to conduct evaluations; the hiring of inspection consultants and calculating costs of evaluating and verifying projects and works of national importance; and the procedures for evaluation of projects or works of national importance. Criteria for evaluating important national projects Important national projects are defined in Resolution 49 to include independent investment projects or project works, or a group of works closely associated with each other, which satisfy the criteria prescribed in Articles 3 and 4. Article 3 states that all projects or works taking place in Vietnam with a total investment capital of at least VND 35 trillion, comprising at least VND 11 trillion of State capital, are deemed to be of national importance, (as well as projects in specified sectors likely to have serious environmental impact). Article 4 states that all projects or works taking place overseas with a total investment capital of at least VND 20 trillion are deemed to be of national importance. All projects or works that meet the criteria in Articles 3 and 4 must be submitted to the National Assembly for its decision on the investment policy to be applied to that particular project or works. Under Decree 03, all projects and works of 'national importance' must be submitted to the National Assembly for its decision on the applicable investment policy, including all projects that have already commenced but that are later altered so that they meet the criteria Decree 03 clarifies that 'investment capital' in Article 3.1 and 4.1 of Resolution 49 shall be calculated based on market prices as at June 2010; with the conversion to June 2010 prices calculated based on the inflation co-efficient determined in accordance with the consumer price index issued by the General Statistics Office. Currently commenced projects or works in which issues arise Article 10.3 of Resolution 49 provides that, in addition to the projects and works meeting the investment capital criteria mentioned above, projects that are 'currently commenced' in which 'issues arise', must also be submitted to the National Assembly for its decision with respect to applicable investment policies. Decree 03 clarifies the meaning of this 2013 Allens Vietnam Laws January

11 clause as follows: A currently commenced project means: a project or works for which the investment decision has already been made (in the case of projects and works using State Budget capital or other capital sources, for which an investment decision was made in accordance with regulations by the Prime Minister or a delegate); or a project or works already issued with an investment certificate (in the case of other types of projects). An issue arises for a currently commenced project within the criteria on national importance prescribed in Article 10.3 of Resolution 49 if changes have been made to the project such that it now meets the criteria on projects and works of national importance prescribed in Resolution 49. Hiring inspection consultants for projects and works of national importance According to Resolution 49, the Government's dossier of projects and works of national importance must be inspected by a relevant body of the National Assembly. Decree 03 further provides that the Chairman of the State Evaluation Council or Evaluation Agency may hire a domestic or foreign organisation or individual, or a domestic and foreign partnership, to carry out one or more of the tasks of evaluating a project or works of national importance, pursuant to an approved selection plan. In the case of a foreign organisation or a foreign / domestic partnership, the Chairman of the State Evaluation Council must seek approval from the Prime Minister before engaging these services. Decree 03 sets out the steps for selection of domestic and foreign inspection consultants as follows: 1. An inter-branch expert evaluation group, which will consist of various experts from various ministries, industries, localities and other relevant bodies (as required for the particular project), must prepare a set of requirements for submission to the State Evaluation Council. 2. The inter-branch expert evaluation group must select a preliminary list of consultants with the capacity and experience satisfying the set of requirements for submission to the Chairman of the Sate Evaluation Council for approval. 3. Inspection consultants will receive the set of requirements, prepare their proposals within the stipulated deadline and submit these to the inter-branch expert evaluation group. 4. The inter-branch expert evaluation group will assess the proposals and may invite the inspection consultants to negotiate or clarify information if necessary. 5. The inter-branch expert evaluation group must prepare an assessment report for submission to the Chairman of the State Evaluation Council for approval. 6. The inter-branch expert evaluation group will select an inspection consultant, who will enter into a project inspection contract with the State Evaluation Council or Evaluation Agency. Decree 03 comes into effect on 20 February Allens Vietnam Laws January

12 Draft Decree on Foreign Employees In last month's VLU we reported that a series of draft decrees implementing the new Labour Code were issued in December 2012 and discussed the Draft Decree on Labour Contracts. This edition will focus on the draft decree on foreigners working in Vietnam. With only 5 succinct articles on the legal framework for foreign employees working in Vietnam, the new Labour Code, (which comes into effect on 1 May 2013), has left many ambiguities requiring further clarification. For this reason, on 7 December 2012 the Government introduced a long-awaited draft decree providing detailed regulations for implementation of the 2012 Labour Code regarding foreigners working in Vietnam (the Draft Decree). The Draft Decree is intended to replace Decree ND-CP of the Government dated 25 March 2008 (as amended) on employment and administration of foreigners working in Vietnam (Old Decree). We set out below the main changes to the labour law contemplated in the Draft Decree. More exemptions for work permits Article 172 of the New Labour Code sets out nine circumstances in which foreign workers are not required to have a work permit, one of which is 'other cases as provided by the Government'. The Draft Decree adds six more circumstances to this list, three of which are newly introduced by the Draft Decree, being: (1) volunteers; (2) foreign students studying in Vietnam; and (3) people working at international secondary schools managed by a foreign diplomatic representative office or by an international inter-governmental organisation. More stringent conditions for foreign employees Compared with the Old Decree, the Draft Decree contains more stringent conditions for the issuance of work permits. First, foreign experts are now required to have no less than 5 years' experience and foreign technicians, a newly recognised group of foreign employees, must have: (1) been trained in a technical speciality for at least 1 year; (2) a degree or certificate; and (3) already worked for at least 3 years in his or her trained speciality. The Draft Decree also provides that foreign employees working in Vietnam as the result of an internal transfer within a foreign international company group must have been recruited by such enterprise at least 12 months before working in Vietnam. The equivalent requirement for those working as a service provider pursuant to a contract is at least 2 years. Procedures for Recruitment of Foreign Employees While most of the procedures for recruiting foreign employees remain the same, one previously required step has been removed by the Draft Decree. Now, employers who wish to recruit foreign employees no longer need to first advertise the position to in central and local newspapers prior to recruiting a foreign employee. However, the Draft Decree adds the further requirement that, in order to recruit a 2013 Allens Vietnam Laws January

13 foreign employee, an employer must have obtained a letter of consent from the local Department of Labour, Invalids and Social Affairs (DOLISA) granting permission to recruit the foreign worker. In addition, each year employers must send a report on their need for recruiting foreign employees to fill each working position to the local DOLISA. DOLISA must consider each report and provide written consent to the employer's reported recruitment needs for each position based on the decision of the Chairman of the provincial People's Committee. This letter of consent must then be included in the application file for the issuance of a work permit for each recruited foreign employee. Duration, Reissuance and Withdrawal of Work Permits The Draft Decree shortens the maximum duration of a work permit to 24 months, from 36 months as stipulated in the Old Decree. Once an employee's work permit expires, a new work permit with a maximum duration of 24 months will be reissued as long as the employer lodges the application file for reissuance of the work permit within a maximum of 15 days after the expiry date of the work permit. Failure by the employer to re-apply will result in the work permit being withdrawn, and deportation of the foreign employee if she or he continues to work in Vietnam without a work permit. Case Commentary: Mr Chau Minh Vu. v. Coca-Cola Vietnam Co. Ltd. Judgment 02/2006/LD-GDT dated 04 April 2006 This month's case commentary considers a 2006 decision of the Supreme People's Court ruling on a labour dispute between Coca-Cola Vietnam Co. Ltd. (Coca-Cola) and one of its employees, Mr Chau Minh Vu (Mr Vu). The Facts In September 1996 Mr Vu started working as a member of the security team of Coca- Cola under an indefinite term contract. At the end of 2003, with the approval of the Department of Labour, Invalids and Social Affairs of Ho Chi Minh City (the DOLISA), the General Director of Coca-Cola issued a decision to dissolve its security team and retrenched 22 employees to lower its manufacturing expenses. Coca-Cola replaced its security team by hiring a professional security company. The process was carried out in accordance with Article 17 of the Labour Code. Following this, on 5 February 2004, Coca-Cola terminated its labour contract with Mr Vu, effective from 8 February The severance package paid to Mr Vu included: Allowance for loss of work (equivalent to 7.5 months' wages); Compensation for late notification of contract termination (equivalent to 1.5 months' wages); and Allowance for re-training (equivalent to 1 month's wage). On 8 March 2004, Mr Vu commenced legal action against Coca-Cola for unlawfully terminating the labour contract, demanding that Coca-Cola withdraw its decision to terminate his labour contract, re-employ him in the same position with the same benefits, and pay him his wages until 10 February 2004 and for the period he was not 2013 Allens Vietnam Laws January

14 allowed to work. The Decision At the trial level, the People's Court of Ho Chi Minh City ruled that Coca-Cola's decision to terminate the labour contract was lawful and rejected all of Mr Vu's claims. The Appeal Court of the People's Supreme Court in Ho Chi Minh City disagreed with this ruling and accepted Mr Vu's claims. Some of the reasoning of the Appeal Court was noted in the judicial review decision (discussed below) as follows: Coca-Cola hired a professional security company after it dissolved its own security department, therefore the security department was not eliminated, meaning that the retrenchment of these employees was not due to an organisational restructure and did not fall within Article 17.1 of the Labour Code; and Coca-Cola's retrenchment of the security department was also not carried out in accordance with Article 17.2 of the Labour Code, which requires employees to be retrenched on a case by case basis with considerations such as business requirements, seniority, skill and family conditions rather, all employees in the department were retrenched at once. Despite attempts to comply with the approval and notification procedures through the DOLISA, there remained differences of opinion as to whether the retrenchment of a group of staff members was carried out in accordance with the Labour Code Following the Appeal Court's decision, Coca-Cola filed several complaints, resulting in the Chief Justice of the People's Supreme Court filing a protest against the appeal decision, which was accepted by the Director of the People's General Inspectorate. At the judicial review level, the People's Supreme Court made the following observations: (a) (b) the definition 'organisational restructuring' in Article 17.1 of the Labour Code does cover dissolving the security team to hire a professional security company; and it was impossible for Coca-Cola to retrench the security staff one by one because the company had to retrench the whole team at the same time in order to hand over the job to the security company Allens Vietnam Laws January

15 In addition, the People's Supreme Court noted that Coca-Cola paid to Mr Vu an allowance for loss of work because Coca-Cola could not create a new job for the security team after restructuring its staff organisation, and that it discussed and reached an agreement with the executive committee of the trade union of Coca-Cola and notified the DOLISA of the planned retrenchment, as required by law. On the basis of these arguments, the People's Supreme Court set aside the appeal decision and upheld the trial decision. Commentary This case highlights potential risks for employers in Vietnam who find themselves in a situation where an organisational restructure is required. Although 'organisational restructuring' is now a lawful basis for terminating an employee's labour contract, Mr Vu's case against Coca-Cola demonstrates that the different courts in Vietnam have different interpretations of what an 'organisational restructure' entails, and what an employer may legitimately do in such circumstances. Hopefully this will become clearer in Vietnam as this reason for termination becomes more familiar to courts and employers alike. In the meantime, employers should ensure as much as possible that each decision to terminate the labour contract with an employee or group of employees can be justified under the relevant laws and regulations. Legal instruments recently uploaded on to the Vietnam Laws online database Vietnam Laws online database (available at is an online searchable database containing English translations of more than 3,500 Vietnamese laws. Legislation recently uploaded includes: Circular 28 regulating registration of import/export rights of foreign business entities without a presence in Vietnam, 27 September 2012 Circular 226 regulating prudential requirements applicable to securities business organizations, as amended by Circular 165, 9 October 2012 Law on Lawyers as amended by Law 20, 20 November 2012 Law 28 on Electricity dated 3 December 2004 as amended by Law 24, 20 November 2012 Decree 127 dated 12 December 2008 on job loss (or unemployment) insurance, as amended by Decree 100, 21 November 2012 Draft amended Law on Corporate Income Tax, 7 December 2012 Circular 37 regulating foreign currency lending by credit institutions and foreign bank branches to resident borrowers, 28 December 2012 Decree 03 guiding Resolution 49 of the National Assembly dated 19 June 2010 on projects and works of national importance, 4 January 2013 Circular 21 dated 18 June 2012 regulating term lending and borrowing 2013 Allens Vietnam Laws January

16 and term purchase and sale of valuable papers as between banks, as amended by Circular 01, 7 January 2013 Summary of Government Resolution 02 with solutions to reduce difficulties for production and business, assist the market and resolve bad debts, 7 January 2013 Decision 637 dated 30 August 2008 regulating securities margin trading, as amended by Decision 09 dated 8 January 2013 Decree 43 on enterprise registration as amended by Decree 05, 9 January 2013 Letter 04 widening the securities trading band, 9 January 2013 Decision 02 containing Regulations on oil spill response, 14 January 2013 Decision 202 on the equitization plan of Agrimeco, 22 January 2013 Hanoi Suite 401, Hanoi Towers 49 Hai Ba Trung Street, Hoan Kiem District Hanoi, Vietnam T F Bill.Magennis@allens.com.au Hop.Dang@allens.com.au Ho Chi Minh City Suite 605, Saigon Tower 29 Le Duan Boulevard, District 1 Ho Chi Minh City, Vietnam T F Robert.Fish@allens.com.au 2013 Allens Vietnam Laws January