Doing Business in ASEAN: Legal Considerations – Vietnam Chapter
Several factories in industrial parks have reportedly been set on fire and attacked in Binh Duong Province (Southern Vietnam). Affected factories include not only Chinese businesses, but also Taiwanese, Japanese, Korean and Singaporean businesses. This may stem from the fact that some businesses from these countries also use Chinese characters in their company names.
The protest started in response to China moving an offshore oil rig into Vietnamese waters close to the Paracel Islands, which are claimed by both Vietnam and China.
Strikes in Vietnam are most of the time illegal, as proper industrial action must be organized by a trade union subject to strict conditions. Having an internal company trade union may facilitate communications with the workforce and prevent strikes. In addition, trade union participation is also required in disciplinary actions against employees (e.g., participants of illegal strikes).
Recent changes to Vietnam’s labor laws, including the new Labor Code (No.10/2012/QH13) and its guiding regulations, have a clear bias towards trade union involvement in other labor related matters as well. For example, a trade union has to comment on the provisions of a company’s internal labor regulations (“ILR“), before they can be registered. Without registered ILR, an employer’s disciplinary actions against employees have no legal effect. ILR should also clearly state that participation in unapproved strikes is subject to discipline. Without effective ILR, a business may not be able to terminate an employee, even if they were absent from work without proper cause.
A company that has no internal trade union (also called “grassroots trade union”) is at the mercy of the local District Labor Federation. To deal with these public trade union federations can be much more time-consuming for compliance-minded businesses than directly being able to speak with the representatives of an internal trade union – who are, after all, employees.
Regardless of whether your company has an internal trade union or not, the company is still obliged to pay trade union fees. The fees can be substantial and are set at 2% of the salary budget used to calculate social insurance fund contributions of all eligible employees. Likewise, members of a grassroots trade union must contribute 1% of their salary. However, when an internal trade union exists, 65% of the funds paid in by the employer will be to the internal trade union and can be used for activities that may actually benefit your organization (such as, employee training or entertainment events).
Employers cannot act unilaterally to establish internal trade unions, but they also cannot prohibit employees from forming one. Most employers would find it preferable to do what is possible to influence the process proactively, as officers of trade unions enjoy special labor rights, including stronger protection against termination.
Businesses employing staff in Vietnam should consider reviewing their ILR and establishing internal trade unions in light of recent changes to the Labor Code as well as anti-China protests.
For further information, please contact:
Giles T. Cooper, Partner, Duane Morris
Manfred Otto, Duane Morris