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1 August 2012 edition contents Enhanced obligations for board members of public companies Key changes to securities laws 2 4 In brief: In this edition we discuss enhanced obligations for board members of public companies, increased regulation of foreign workers and the introduction of a new anti-money laundering law. We also give overviews of the key recent changes to securities and labour laws. Anti-money laundering 8 laws introduced Increasing regulation of 12 work permits for foreign employees An overview of the New 14 Labour Code 2012 New legal instruments 20 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). Visit subscribe to (or take a free tour of) Vietnam Laws online database a searchable database of over 3,500 of our English translations of Vietnamese laws regulating investment and business access free translations of a selection of Vietnamese laws read the Vietnam Legal Update from 2012 back to 1997 complete with index of contents and search function find out more about our practice in Vietnam Visit find out more about the Allens network and our international practice Allens is a leading international law firm in South East Asia, China and Australia. Allens offers one of the most comprehensive legal networks in Asia and Australia with offices in Beijing, Brisbane, Hanoi, Ho Chi Minh City, Hong Kong, Jakarta, Melbourne, Perth, Port Moresby, Shanghai, Singapore, Sydney and Ulaanbaatar and, via our integrated global alliance with Linklaters, we have access to lawyers in 27 offices across 19 countries. Allens' Vietnam practice is led by resident partners Bill Magennis, Hop Dang and Robert Fish. Our in-country team consists of international and local lawyers and legal translators. We encourage feedback from our readers regarding the Vietnam Legal Update. Please direct all enquiries, comments and suggestions to us via at VLU@allens.com.au. 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 August

2 Enhanced Obligations for Board Members of Public Companies On 26 July 2012, the Ministry of Finance (MOF) issued Circular TT-BTC regarding regulations on corporate governance applicable to public companies (Circular 121). A standard charter for public companies is also attached to Circular 121. Circular 121 comes into effect from 17 September 2012 and repeals Decision QD-BTC dated 13 March 2007 of the MOF on corporate governance (Decision 12) and Decision QD-BTC dated 19 March 2007 of the MOF issuing a standard charter (Decision 15). The corporate governance rules and the standard charter under Circular 121 apply not only to listed companies (as stipulated in Decision 12 and Decision 15) but also to non-listed public companies. Amongst other matters, Circular 121 creates additional requirements for members of the board of management of public companies (Board). We explore a few of these additional requirements in this article. Non-executive and independent Board members Under the current regulations, at least one third of the Board members of a listed company must be 'independent and non-executive members'. These independent and non-executive members cannot hold the position of general director, deputy general director, chief accountant or another management positions appointed by the Board of the company and/or its major shareholders. Circular 121 contains similar requirements with respect to the number of independent and non-executive Board members in both listed and unlisted public companies. However, it slightly changes the requirements as to who can be considered 'independent and non-executive members'. Under Circular 121, a non-executive Board member is a person who is not concurrently the general director, a deputy general director, chief accountant or any other manager appointed by the Board. Circular 121 takes further steps to ensure that a Board is independent and that all personal interests of Board members are disclosed. Independent Board members are members who are not: (a) executive Board members or related persons of the general director, 2012 Allens Vietnam Laws August

3 deputy general directors, chief accountants or any other managers appointed by the Board; (b) (c) (d) (e) Board members, general directors or deputy general directors of subsidiaries, affiliates or other companies over which the company has control; major shareholders or representatives or related parties of major shareholder of the company; working in the entities providing legal consultancy or auditing services to the company in the last 2 years before they become Board members; or counterparties (or their related parties) who have engaged in transactions with the company which in the last 2 years have annual revenue equal to at least 30% of total revenue of the company or the total value of goods or services purchased by company. Obligations to declare benefits and related party transactions Under Circular 121, Board members of a company are required to declare to the company any compensation that they have received from subsidiaries, affiliates or other entities in which the company has contributed capital and is represented by that particular Board member. Compensation, other income and expenses payable by the company to each of its Board members must be disclosed with particular details in the company's annual report. Board members 1 of a company are responsible for reporting to the company, and disclosing to the public, information on the following: (a) (b) (c) transactions between the company and companies in which these Board members are founding members, or have been members of the board of management or general director in the last 3 years; transactions between the company and companies in which related persons of these Board members' are members of the board of management, general director or major shareholders; and transactions which can otherwise benefit these Board Members. Chairman and general director Under the current regulations, the chairman of the board of management cannot concurrently be the general director of the company unless approved otherwise by the annual general meeting of shareholders. Under Circular 121, this approval of the annual general meeting of shareholders must now be given annually. 1 This obligation also applies to members of the Inspection Committee and the general director Allens Vietnam Laws August

4 Key Changes to Securities Laws Decree 58/2012/ND-CP of the Government dated 20 July 2012 implementing a number of provisions on the Law on Securities and the amendment to the Law on Securities (Decree 58) Decree 58, which takes effect on 12 September 2012, has introduced a number of changes to the securities laws in Vietnam. Decree 58 replaces a number of securities law decrees, including Decree 14/2007/ND-CP of the Government dated 19 January 2007 on detailed implementation of the Law on Securities (Decree 14), Decree 84/2010/ND-CP of the Government dated 2 August 2010 on amending Decree 14 (Decree 84) and Decree 01/2010/ND-CP of the Government dated 4 January 2010 on private placement (Decree 01). The table below is a summary of the key changes under Decree 58. Description of Change Commentary Private share placement Removal of requirement for an escrow or blocked account No 12 month 'lock-up' period for non-public companies No six month 'black out' period on conducting private share placements for nonpublic companies No 30 days deemed registration Decree 01 required subscription monies to be placed into an escrow or blocked account on completion of the placement. This requirement does not appear in Decree 58. The Law on Securities places a 12 month lock-up on the transfer of shares acquired under a private share placement of a public company. There are limited exceptions to the lock-up, such as transfers between institutional securities investors. This lock-up was extended to non-public companies by Decree 01. However, this is no longer applicable under Decree 58. The Law on Securities provides that a public company can only conduct a private share placement six months after completion of its last share placement. Decree 01 extended this 'black out' period to all shareholding companies. In contrast, Decree 58 does not have a similar provision. Decree 58 requires the relevant registration authority to register a private placement within 15 days of receipt of a complete application file. Decree 01 provided that a private placement is deemed to be registered if the relevant authority did not respond for a period of 30 days after the filing date this does not appear in Decree 58. Employee Incentive Plans Vietnamese employees There has previously been doubt as to whether a 2012 Allens Vietnam Laws August

5 permitted to be issued offshore securities under an incentive plan Vietnamese employee working for a foreign invested company is permitted to hold bonus securities issued to that employee by an offshore entity, such as the parent company of the Vietnamese employer. Decree 58 permits this on the basis that in exercising the employee's rights to the bonus securities, the employee must comply with the foreign exchange control regulations of Vietnam. There are no specific regulations from the State Bank of Vietnam on the offshore remittance of the Vietnamese employee to purchase the bonus securities. Therefore, it is possible that the bonus securities may be required to be issued to the Vietnamese employees for no consideration. In addition, Decree 58 prohibits the Vietnamese employee from trading the bonus securities in Vietnam. Share Swaps A shareholding company may issue new shares as consideration for the acquisition of shares from existing shareholders of another company Company A may acquire shares from an identifiable shareholder of Company B or make a tender offer to acquire a certain number of shares from existing shareholders of Company B. The consideration will be paid in scrip of Company A as opposed to cash. Decree 58 introduces a number of conditions, including: approval of the general meeting of shareholders of Company A of an issuance plan for use in the share swap; Company A being required to comply with any mandatory tender offer requirements; if Company A is acquiring from an identifiable shareholder, then an agreement must be entered into between Company A and that shareholder; and there being no breach of foreign ownership restrictions as a result of the share swap. Decree 58 does not specifically address the ability of Company A increasing its stake in Company B by acquiring new shares of Company B as opposed to existing shares though it would appear that the Law on Enterprises permits such transactions (subject to necessary corporate and regulatory approvals) given the ability for a company to accept non-cash consideration for new shares Allens Vietnam Laws August

6 Treasury Shares Decree 58 sets out the conditions for public companies to buy-back its shares to use as treasury shares and the conditions for the sale of the treasury shares The provisions on treasury shares in Decree 58 are not new. Circular 18/2007/TT-BTC of the Ministry of Finance dated 13 March 2007 which arguably was 'accidentally' repealed by Circular 194/2009/TT-BTC of the Ministry of Finance dated 2 October 2009 contained similar provisions on share buy-back for use as treasury shares. A significant point from Decree 58 is that the role of a securities company is more prominent and a public company is required to engage the services of a securities company to conduct a share purchase by the company and the subsequent sale of the treasury shares. Tender Offers Voluntary tender offers Decree 58 regulates the tender offer process Decree 58 allows an investor to make a voluntary tender offer to acquire shares from existing shareholders of a public company. If the investor chooses to make a voluntary tender offer, the investor must comply with the tender offer process in Decree 58. There is not much new development in Decree 58 in relation to the tender offer process. It contains similar provisions that are described in Circular 194/2009/TT- BTC of the Ministry of Finance dated 2 October 2009 on tender offer of shares of public companies fund certificates of closed public investment funds (Circular 194). Decree 58 could have gone further by setting detailed rules for the use of the exemptions to the making of a mandatory tender offer as legislated under the Law on Securities. Hopefully this will be addressed by the Ministry of Finance when it introduces implementing regulations. There are a few new things in relation to the tender offer process under Decree 58: Changes to the timeframe in which the board must respond to a tender offer (ie. 10 days instead of 14 days); the majority of the board is required to agree on whether to recommend to shareholders to accept or reject an offer as opposed to a twothirds majority; shareholders who have accepted the tender 2012 Allens Vietnam Laws August

7 offer may only withdraw their acceptance if there has been a change to the terms of the offer or a competing offer, previously these shareholders could withdraw their acceptance at any time during the offer period; and the offer price (for listed companies) must not be lower than the average reference price for the shares for 60 consecutive trading days or lower than the price that the offeror purchased the relevant shares in the past 60 trading days. The second pricing element is new. Depository Receipts Decree 58 explicitly allows a company to issue new shares for the purpose of implementing an offshore depository receipts program Decree 58 sets out a number of conditions that a company must satisfy if it wants to issue new shares under an offshore depository receipts program: the company must satisfy the conditions to make a public offer of shares (ie. VND 10 billion in paid-up capital and one year profitability test); the issuance plan and use of proceeds must be approved by the general meeting of shareholders or board of the company as required by the Law on Enterprises; there will be no breach of the foreign ownership prohibitions; and the depository receipt program must satisfy the offer conditions prescribed in the jurisdiction that the depository receipts will be offered. The Ministry of Finance is required to issue regulations to implement these provisions of Decree 58 in relation to depository receipts. Listing Conditions Decree 58 has toughen the conditions for a company to list on a stock exchange in Vietnam Below is a comparison of the new tougher conditions for listing on the Ho Chi Minh City Stock Exchange (HoSE) and Hanoi Stock Exchange (HNX). Capital HoSE: the company must have a paid-up capital of VND 120 billion (previously VND 80 billion). HNX: the company must have a paid-up capital of VND 30 billion (previously VND 10 billion ) Allens Vietnam Laws August

8 Profitability HoSE: the company must have been operating in the form of a shareholding company for at least two years and the company must have been profitable for the last two years. The ratio of equity over after-tax profit must be a minimum of 5% in the latest financial year this was not previously required. HNX: the company must have been operating in the form of a shareholding company for at least one year. The ratio equity over after-tax profit must be a minimum of 5% in the latest financial year this was not previously required. Shareholding spread HoSE: except for converting State-owned enterprises, at least 20% of the voting shares in the company must be held by at least 300 shareholders who are not major shareholders (previously this was 100 shareholders). HNX: except for converting State-owned enterprises, at least 15% of the voting shares in the company must be held by at least 100 shareholders who are not major shareholders (previously there was no percentage). Anti-Money Laundering Laws Introduced Law No 07/2012/QH-13 on Anti-Money Laundering dated 18 June 2012 (Law 07) On 18 June 2012, the National Assembly passed Law 07 on Anti-Money Laundering. Law 07 will take effect on 1 January 2013 and overrule Decree 74 of the Government dated 7 June 2005 on the same matter (Decree 74). Law 07 retains provisions on know your client (KYC) and reporting obligations that a Reporting Entity (as defined below) must introduce in their business dealings with clients. 2 But Law 07 provides in more detail the classification of clients into non-risky clients and risky clients for the purposes of KYC. What is money laundering? Money laundering is defined under Law 07 as an act of an individual or organisation to 'legalise' the origin of an asset derived from illegal activity. This includes those money laundering activities stipulated in the Penal Code of Vietnam. 2 A client is an individual or organisation who are using, or intends to use, a service or product of a Reporting Entity Allens Vietnam Laws August

9 Reporting Entity Persons who are obligated to adopt KYC and reporting obligations are called Reporting Entities. The Reporting Entities comprise a wide range and cover most professional services firms or individuals (Non Financial Entities) as well as financial institutions and credit institutions (Financial Entities). A Financial Entity is an organisation which is licensed to carrying on the following activities: deposit taking; lending; financial leasing; payment services; issue of credit cards, debit cards, transfer instructions, electronic funds transfers; bank guarantees and financial undertakings; provide foreign exchange services, monetary instruments; underwriting and consultancy in securities issues and securities placement agents; portfolio investment management; securities and cash management; insurance services and investments related to life insurance; and money changing services. A Non Financial Entity is an organisation or individual which performs one or more of the following activities: (a) (b) (c) (d) (e) prized gaming or casino business (Casino Business); real estate management services, real estate brokerage or real estate trading floor (Real Estate Business); precious metal and stone business (Precious Commodities Business); notary public, accountants, legal services of a lawyer or a legal profession organisation (Professional Services Business); and investment entrustment, services for the establishment, management, supervision of companies or managerial and secretarial services for third parties (Management Services Business). Financial Entities must collect, verify and monitor information about their clients, and take particular measures where transactions are suspicious, of a high value or carried out by 'risky' clients 2012 Allens Vietnam Laws August

10 Know your client obligations 1. Collection and maintenance A Reporting Entity is obliged to collect KYC information from a client. This information must be regularly updated by the Reporting Entity should it change during the time that the client is a client of the Reporting Entity. 2. Verification The Reporting Entity also has the obligation to ensure that the transactions being performed are consistent with the KYC information regarding client, business activity, risk and asset origin. 3. Circumstances subject to KYC procedures A Financial Entity must apply KYC procedures in the following circumstances: (a) (b) (c) (d) a client opens an account or propose to conduct a transaction with a Financial Entity; a client implements a high value transaction (as defined below) that is irregular or implements a wire electronic transfer without details of the name, account and address of the sender; where a transaction is a suspicious transaction (as more specifically described below) or the parties to a transaction are connected to money laundering activities; or if there is suspicion as to the full or accurate information previously collected from a client under KYC procedures. A high value transaction is a transaction (or a series of transactions in one day) made in cash, gold or foreign currency having a total value equal to or exceeding the threshold to be decided by the Prime Minister from time to time. The current threshold of high value transactions as provided by Decree 74 is only VND 200 million (ie. less than USD 10,000). Circumstances in which a Non-Financial Entity must apply KYC procedures vary depending on the specific activity of the Non Financial Entity. A summary of these circumstances is given below: (a) (b) (c) (d) A Casino Business must apply KYC procedures for clients conducting high value transactions. A Real Estate Business must apply KYC procedures in providing sale and purchase brokerage services and real estate management for clients. A Precious Commodities Business must apply KYC procedures for a high value transaction with a client for the purchase and sale of precious metals or stones with a high transaction value with payment in cash. A Professional Services Business must apply KYC procedures when: 2012 Allens Vietnam Laws August

11 assisting a client with the preparation of the conditions to implement a transaction or representing a client in relation to the transfer of land use rights or house ownership rights; managing cash, securities or other assets of a client; managing a client's bank account or trading account at a securities company; managing the operations of a company of the client; or participating in the purchase and sale of business organisations. (e) A Management Services Business must apply KYC procedures when providing: services to establish a company; managerial and secretarial services; services to provide a registered office or business address or place of business for a client; representative services for a company or a shareholder; or investment entrustment services. Non-risky and risky clients A Reporting Entity must classify its clients into 'risky clients' and 'non-risky clients' on the basis of the type of client, type of product or service and residential or head office location of the client. The following clients/transactions are classified as risky: (a) (b) (c) (d) (e) (f) Politically risky clients: foreign individuals with political influence or related persons (ie. parents, spouses, children and siblings) of such individuals; foreign bank agency relationships: the agent banks of the Reporting Entity are foreign banks; transactions applying new technology: when the Reporting Entity does not meet the client in person to enter into the transaction; closely monitored transactions: these include extraordinarily large value transactions or complex transactions, which are not currently defined; transactions with clients who are on the list published by the international Financial Action Task Force or on the warning list published by the State Bank of Vietnam (Warning List); and transactions with an intermediary: the Reporting Entity identifies the client through the intermediary who must collect and maintains KYC information. Law 07 prescribes that precautionary measures in the KYC procedures are required for these risky clients/transactions. For instance, the precautionary measures for political risky clients include measures to identity the origin of assets of the clients. For foreign bank agency relationships, they include an assessment on anti-money laundering measures of the agent bank. For non-risky clients, the Reporting Entity only needs to maintain general information such as the client's full name, date of birth, nationality, position, phone number, ID or passport number, date/place of issue, registered residential address and current residential address. Reporting obligations A Reporting Entity must report high value transactions and suspicious transactions to 2012 Allens Vietnam Laws August

12 the State Bank of Vietnam and, in certain circumstances, the relevant authorities. Law 07 defines a suspicious transaction as a transaction that is extraordinary or where there is a reasonable basis to suspect that the assets in the transaction originate from an illegal activity or is related to money laundering. In particular, Law 07 prescribes a range of transactions which are deemed to be "generally suspicious" and a range of transactions which are deemed to be suspicious in relation to the banking, securities, insurance or prized gaming and casino sectors. Below is the range of transactions which are deemed as generally suspicious: (a) (b) (c) (d) (e) (f) (g) (h) a client provides inaccurate, incomplete and/or inconsistent client identification information; a client persuades the Reporting Entity not to report a transaction to a competent State body; the client is unidentifiable on the basis of the information provided by such client, or the transaction involves an unidentifiable party; after an account has been opened or a transaction has been conducted, the personal or office telephone number provided by a client is not contactable, or does not exist; a transaction is conducted pursuant to an order or delegation of authority from an individual or organization named on the Warning List; consideration of client identification information which has been collected or of the economic and legal bases of a transaction suggests that there may be a link between the parties involved in the transaction and criminal activity, or a relationship between such parties and an organization or individual named on the Warning List; an organization or individual participates in a transaction with a large amount of money which does not correspond with their income or relate to their business activities; or a transaction of a client is conducted through the Reporting Entity without complying with the sequence and procedures stipulated by law. A Reporting Entity must also report to the anti-terrorism authority and the State Bank of Vietnam any transaction with a client on the Black List (as defined below) or a client conducting activities for terrorism purposes (as regulated in the Penal Code);. The Black List is a list from the Ministry of Public Security of organisations and individuals connected to terrorism or supporting terrorism. Increasing regulation of work permits for foreign employees Background In the past two years we have witnessed increased scrutiny in the regulation of employment of foreigners working in Vietnam. The introduction of Decree 46/2011/ND- CP dated 17 June 2011 of the Government (Decree 46) in mid-2011 has drawn outcry 2012 Allens Vietnam Laws August

13 from foreign invested enterprises (Foreign Enterprises), who are the main employers of foreign employees, and from the business associations representing these enterprises. The main criticisms revolve around the harsh requirements imposed on Foreign Enterprises when applying for the issuance or extension of work permits. The situation was exacerbated once again in late 2011 by the issuance of an Official Letter 3178/LDTBXH-VL dated 23 September 2011 of the Ministry of Labour, Invalids and Social Affairs (MOLISA) (Letter 3178) on strengthening the management of foreign employees working in Vietnam. Letter 3178 once again confirmed the strict requirements from the Government in relation to the issuance or extension of work permits. DOLISAs take action Due to these requirements, the Departments of Labour, Invalids, and Social Affairs (DOLISA), especially those in major cities such as Hanoi and Ho Chi Minh City, have taken a hard line when reviewing application files for work permits. Since 2011, HCMC DOLISA alone has issued administrative fines for failure to comply with the requirements on foreign employment to 35 companies in Ho Chi Minh City, totalling VND 580 million in fines. It is also reported that HCMC DOLISA has turned down over 10% of the 3,000 application files for, or extension of, work permits since Having said that, these actions are still deemed 'too light' by MOLISA, said one report. 3 Unlike the strict attitude of the Hanoi and HCMC DOLISAs, it is reported that the DOLISAs of different provinces do not implement the Government requirements quite so strictly. In particular, DOLISAs from the agricultural and aquaculture provinces, sectors which are supposed to be dominated by local labourers. 4 Reports from the media said that there are growing numbers of foreign employees who work illegally in these sectors. In response to these reports, MOLISA issued an Official Letter 2761/LDTBXH-VL on 9 August 2012 on strengthening the management of foreign employees in Vietnam (Letter 2761). New development Letter 2761 is directly addressed to the Chairpersons of the Peoples' Committees and clearly mandates four goals: (a) a complete review of the implementation of Decree 46 and Letter 3178 in the relevant province/city; (b) an investigation and check of all foreign employees working in the relevant province or city, with a specific focus on foreign employees who are working in sectors such as medical practice in private clinics, education and aquaculture; 3 See (last visited on 17 August 2012) 4 See (last visited on 17 August 2012) 2012 Allens Vietnam Laws August

14 (c) (d) understanding of the 'demands on foreign employment' of enterprises and organisations in the relevant province or city; and strengthening of cooperation between the authorities on management of foreign employment in the relevant province/city. In addition, Letter 2671 requires a complete report with the above contents to be submitted back to the MOLISA by 30 September While Letter 2671 does not contain any substantive changes in relation to employment of foreigners, the findings from the report are likely to result in further conditions being introduced. It would not be surprising if, in the following month, organisations and enterprises which have a history of employing foreign employees receive visits from the DOLISAs or requests to report on their use of foreign employees. An Overview of the New Labour Code 2012 In our VLU issue of December 2011, we discussed the changes to Vietnamese labour law proposed in the draft Labour Code released in October 2011 (2011 Draft). The new Labour Code 10/2012/QH13 was passed on 18 June 2012 and will take effect on 1 May 2013 (New Labour Code). In this article we compare the provisions of the New Labour Code with those of the current Labour Code 1994 (as amended in 2002, 2006 and 2007) (Current Labour Code) and outline the significant changes implemented by the New Labour Code. Labour contracts Under the Current Labour Code, if an employer fails to enter into a new labour contract with an employee upon expiry of that employee's seasonal labour contract, the employee is taken to have an indefinite labour contract with that employer. The New Labour Code has changed this so that now an employee is now only entitled to an additional definite labour contract with a duration of 24 months. Annex to a labour contract Although it is already common practice to insert annexures to labour contracts when amendments are made, an annex to a labour contract is specifically referred to in the New Labour Code Probationary period The New Labour Code officially recognises the existence of a probationary contract during the probation period before a formal labour contract is reached. This new provision raises some questions: 1. Term of a labour contract When a separate probationary contract is entered into, it is unclear whether this probationary period is taken into account for the purposes of determining the length of the employee's official employment contract. This is especially relevant where, for example, an employer intends to employ an employee under a definite term contract for the maximum period of 36 months. If the labour 2012 Allens Vietnam Laws August

15 contract is entered into for a period of 36 months, there is a danger that the term of the probationary contract will be added to the term of the official employment contract, which could mean that the employer will have unwittingly granted the employee an indefinite labour contract. 2. Termination of employment Like the Current Labour Code, the New Labour Code permits either party to terminate employment during the probation period without any prior notice to the other party. However, the specific inclusion of a reference in the New Labour Code to employers and employees first entering into a probationary contract separate from an official labour contract suggests that any unilateral termination of the employment relationship during the probationary period can only occur with respect to a probationary contract that has been separately entered into. This is because there is no a clear reference in the law permitting unilateral termination of a labour contract during the probation period even if the labour contract expressly provides for such termination. 3. Salary during probation period Consistently with the 2011 Draft, the New Labour Code increases the salary during the probation period to 85% of the agreed salary, higher than those of 70% under the Current Labour Code. Part-time working The New Labour Code grants to part-time employees equal benefits, rights and obligations to those of a full-time employee. However, as pointed out in our December 2011 edition with respect to the 2011 Draft, it remains unclear whether this means that a part-time employee can receive the full entitlement to annual leave of 12 days per year like a full-time employee. The wording of the New Labour Code suggests that this is the case, rather than a proportional amount of the entitlement as is the case in many other jurisdictions. Further guidance on this point may be provided in the implementing decree or circular. Termination of a labour contract 1. Circumstances for termination of a labour contract Article 36 of the New Labour Code contains the same five circumstances that appeared in the 2011 Draft for termination of a labour contract as follows: (a) (b) (c) (d) The employee has reached retirement age and has satisfied the minimum time period for social insurance contribution; in the case that the employer is a legal entity, the employer has terminated its operation; the employee is dismissed for disciplinary reasons in accordance with article of the New Labour Code; the employee unilaterally terminates their labour contract in accordance with article 37 of the New Labour Code; or 2012 Allens Vietnam Laws August

16 (e) the employer unilaterally terminates the labour contract due to changes of structure, technology or due to economic reasons or merger, consolidation or separation, in accordance with Article 38 of the New Labour Code. In the above list, only the circumstances under point (a), and the reference to an 'economic reason' in point (e), are new. The remaining circumstances already appear in different provisions under the Current Labour Code. Point (a), raises the query as to whether or not an employer can terminate a labour contract if such employee has reached retirement age, but has not fully paid the social insurance premiums for entitlement to pension salary. Based on a literal interpretation of the New Labour Code provisions, it seems that the answer is negative, ie. that both of those conditions must be satisfied, regardless of the age of the employee. This is a further point that is likely to require further clarification in implementing legislation. The New Labour Code introduces a number of significant developments, however the application of many of these new provisions is, in many respects, unclear. It is hoped that the implementing decrees and circulars can clarify the queries raised 2. Severance allowance upon termination of a labour contract An employee whose employment is terminated in accordance with Article 36 of the New Labour Code (for one of the reasons listed above), is entitled to a severance allowance of half a month's salary for each year of employment, except for where an employee (i) is dismissed for disciplinary reasons ; or (ii) is entitled to pension salary. However, there is an additional entitlement contained in Article 49 of the New Labour Code stating that an employee who is retrenched due to changes of structure, technology or due to economic reasons or merger, consolidation or separation, (ie. for one of the reasons listed in Article 36(e)), is entitled to a severance allowance of one month's salary for each year of employment. Although it would appear that the Article 49 entitlement is intended to apply instead of, and not in addition to, the general entitlement for severance allowance, this is unclear from the wording of the New Labour 2012 Allens Vietnam Laws August

17 Code. Again, it is hoped that further guidance under an implementing decree or circular may clarify this point for employers. Redundancy Currently, termination of the employment of an employee in Vietnam is difficult, even in the case of redundancy. This is because Article 17 of the Current Labour Code only permits an employer to terminate an employee if the employer can prove that the employer is undergoing a change in structure or technology. To relax this burden over an employer, the New Labour Code states that an 'economic reason', may also cause an employee to be legitimately made redundant. Asset sale In circumstances where an employer is undergoing a process of merger, consolidation, separation and asset sale, the Current Labour Code imposes an obligation upon the succeeding employer to take over the employment of all current employees or, where this is impossible, it imposes an obligation on both the succeeding and preceding employer to pay severance allowance to those employees that will not continue to be employed. The New Labour Code retains the obligation of a succeeding employer to take over the employment of all current employees, however it introduces the concept of a 'labour usage plan', which must outline the employees who will be retained, retrenched or transferred to part-time work, and which is to be formulated by the former employer and followed if a succeeding employer is unable to meet the obligation to employ all current employees. The labour collective representing the current employees must be involved with the formulation of any labour usage plan. The New Labour Code also states that the preceding employer must take responsibility for payment of any severance allowance. Notice upon expiry of a definite labour contract The New Labour Code requires an employer to serve a written notice of termination of a definite labour contract to an employee at least 15 days prior to the date of expiry of such contract. Labour outsourcing As foreshadowed in the 2011 Draft, a new concept of "labour outsourcing" is addressed in the New Labour Code, whereby a labour contract is entered into between an employee and the labour outsourcing enterprise. However, labour outsourcing activities may only be conducted in respect of specified jobs listed in implementing decree or circular and any one employee may only be outsourced for a maximum of 12 months. Since the labour outsourcing is a new concept in Vietnamese law, further guidance as to how this activity should be conducted is required. Pay for working overtime In addition to the entitlement to pay for overtime working as addressed in the Current Labour Code, the New Labour Code 2012 also gives an employee working overtime at night (ie. between the hours of 10 pm and 6 am), an additional 20% of the salary 2012 Allens Vietnam Laws August

18 'calculated at the wage unit price or wage for such work conducted during the day time'. It is unclear whether the basis of this additional 20% should be an employee's ordinary wage, or the rate applicable to that particular day (if, for example, the day in question is a public holiday or rostered day off). Overtime working As stated above, an employee working overtime is entitled to overtime pay. However, Article c of the New Labour Code states that after an overtime working period over successive days in a month, an employer must arrange for an employee to take extra leave for the period of time for which he or she was unable to take leave. The law does not explicitly state whether this extra leave entitlement is in addition to, or instead of, the entitlement for overtime pay. It is hoped that this is also addressed in implementing legislation. Salary Deduction The New Labour Code gives greater protection to employees by only permitting an employer to deduct amounts from employees' wages in order to compensate for any loss arising from tools and equipment that have been damaged by the employee, after paying compulsory insurance contribution premiums and PIT. Holidays The New Labour Code increases the total number of public holidays from 9 to 10 days, adding one more day for Lunar New Year Holiday. The New Labour Code has also retained the provision of the 2011 Draft allowing foreign employees to take one extra holiday on their country's traditional 'Tet' (which, as noted in our December 2011 article, will require further definition in the implementing Decree). Types of labour discipline The New Labour Code only permits three forms of labour discipline, as follows: Reprimand; Deferral of wage increase for a maximum 6 months or demotion; and Dismissal. 'Transfer to another position with a lower wage' is no longer listed a form of discipline (and it is unclear whether this concept is a form of 'demotion', however given the specific removal of this concept in the New Labour Code, it is probably unlikely). Dismissal Circumstances for dismissal by an employer under the New Labour Code are broader than those in the Current Labour Code and reflect a more common sense approach. Expressly allowable causes for dismissal now include gambling, deliberate violence causing injury, using drugs at the workplace and infringing intellectual property rights of the employer. Maternity leave A female employee's maternity leave has been increased from 4 to 6 months under the 2012 Allens Vietnam Laws August

19 New Labour Code. A female employee can agree with her employer to return to work earlier, provided that she has taken at least 4 months' leave, (as opposed to the current requirement of 2 months' leave) after the birth, and provided also that the return to work has been agreed to by a doctor. Exemption from work permit for a foreign employee The New Labour Code removes the entitlement to a work permit exemption for all foreign employees entering Vietnam to work for a period of less than 3 months. Now, only a foreign employee who enters into Vietnam for a period of less than 3 months 'in order to offer services' is exempt from the work permit requirement. Duration of a work permit The maximum duration of a work permit is 2 years under the New Labour Code, reduced from 36 months as prescribed in Decree 34/2008/NĐ-CP dated 25 March 2008 of the Government on recruitment of foreign employees as amended by Decree 46/2011/NĐ-CP dated 17 June Allens Vietnam Laws August

20 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: Decision 459 with the master plan on development of Vietnam's gas industry, 30 March 2011 Circular 60 on foreign contractor tax, 12 April 2012 Draft Circular on re-organization of credit institutions (merger, consolidation, and conversion of legal form), 1 June 2012 Law 7 on Anti-Money Laundering, 18 June 2012 Law 11 on Pricing, 20 June 2012 Decree 58 implementing the Law on Securities, 20 July 2012 Decree 57 on the financial regime applicable to credit institutions and foreign bank branches, 20 July 2012 Letter 2742 on reports required to be provided by securities companies, 2 August 2012 Draft amendments to the Law on Personal Income Tax, 2 August 2012 Letter 2761 of the Ministry of Labour on foreigners working in Vietnam, 9 August 2012 Draft Decree with proposed new minimum area wage rates to apply from 1 January 2013, 21 August 2012 Circular 24 terminating bank capital mobilization and lending in gold, 23 August 2012 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 Hi Chi Minh City, Vietnam T F Robert.Fish@allens.com.au 2012 Allens Vietnam Laws August