Managing Contracts and Severance in Vietnam
Introduction
Vietnam's economic development, transitioning from low-cost production to technologically intensive outputs, presents significant opportunities for foreign investors. This shift, however, also introduces challenges, particularly in labor market dynamics. The finite pool of skilled labor necessitates a deep understanding of Vietnamese labor laws and effective strategies for managing contracts and employee termination.
Economic Trends
- GDP Growth: Vietnam has maintained a strong GDP growth trajectory, averaging 6.2% from 2000 to 2015, positioning it as a lower-middle-income country.
- Wage Growth: Wages have risen in tandem with economic growth, increasing by 75% between 2005 and 2015, reflecting a 3.63% growth from 2014 to 2015.
- Minimum Wages: Increased by 7.3% in 2017, with varying rates based on work zones, aiming to maintain competitiveness in the face of regional competition.
Skills Shortage
- Inherent Issues: The labor market faces challenges due to skills shortages, particularly in skilled blue-collar, management, engineering, and skilled manual trades.
- Market Transition: Vietnam is transitioning from an agrarian, informal economy to an urban, manufacturing, and services-oriented formal economy, highlighting the need for a skilled workforce.
Skilled Workforce Growth
- Employment by Sector: Over the past decade, the number of skilled workers (those with vocational degrees requiring more than three months of study) has grown significantly, from 1.7 million in 2005 to 11.2 million in 2016.
- Urban vs. Rural: In urban areas, skilled workers make up a larger proportion of the labor force, demonstrating a shift towards more skilled employment.
Challenges in Staffing
- Sourcing Skilled Talent: Foreign investors are increasingly challenged in sourcing qualified personnel and retaining them for long-term projects.
- Contract Management: Understanding permitted contract structures, termination obligations, and severance liabilities under Vietnamese labor law is crucial for effective contract management.
Conclusion
To navigate these challenges, foreign investors must maintain a comprehensive understanding of Vietnamese labor laws, monitor legislative changes, and implement robust systems for managing contracts and handling employee terminations. This ensures compliance and minimizes legal risks associated with labor management in Vietnam.
