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Flexi-security of employment in Vietnam’s labor and employment policy

(LLCT) - To identify gaps in Vietnam’s labor and employment policies from the viewpoint of flexi-security of employment, this article focuses on reviewing and assessing the relationship of flexibility and security of employment in the context of the existing regulations on (1) Employment contracts (EC), entering into and performance of an EC; and (2) Wages and insurance, including participation in social insurance (SI), unemployment insurance (UI) and health insurance (HI); as well as proposing solutions to overcome the limitations and enhance the strengths of the current labor and employment policy.

Keywords: labor and employment policy, flexi-security of employment.

The flexi-security of employment is a concept that refers to the combination of ensuring job security for employees while ensuring a flexible form of employment in the labor market. The flexi-security of employment is a strategic policy to simultaneously implement the flexibility of the labor market (through employment organization and labor relations) and ensure employment security for workers (through the social security system for employees). Particularly, the flexi-security of employment can be achieved by implementing three following aspects simultaneously (1) Loosen job protection regulations; (2) Provide a generous security system for unemployed people(1); and (3) Implement positive labor market policies(2).

By transforming from a centrally planned to a socialist-oriented market economy, Vietnam has strongly changed in the perceptions of labor and labor market policies. The State gradually reduces interference to the labor market and thus, flexibility in employment is promoted. However, in the context of increasing competition and unpredictable instability in the market, it is essential to promote job flexibility as well as protect employees from the risk of losing their jobs and income. Therefore, ensuring the harmony between security and employment flexibility in labor and employment policies is one of the goals that Vietnam needs to work towards.

To identify gaps in Vietnam’s labor and employment policies from the viewpoint of flexi-security of employment, this article focuses on reviewing and assessing the relationship of flexibility and security of employment in the context of the below existing regulations:

1. Labor contracts and flexi-security of employment

An employment contract: entering into and performance of an employment contract are important contents in both the first Labor Code (1994) and the revised Labor Code. According to the latest Labor Code revised in 2012 (hereafter referred to as the Labor Code), an employment contract is a set of detailed agreements between worker and employer on remunerated work, working conditions, rights and obligations of each party in the labor relationship(3).Therefore, both parties in the labor relationship are responsible for entering into a contract of employment(4). This is the basis for creating equality between the parties and protecting the parties against conflicts arising in the labor relation. Among the provisions of employment contract, the provisions on (1) Term and conditions for changing the employment contract term and (2) Amendment, supplementation, termination of employment contract, are directly related to flexi-security of employment.

Term of labor contract

The Labor Code (1994) stated that entering a contract of employment can be done in many forms, including an “indefinite” employment contract, “definite term for a fixed duration from 12 to 36 months” and “seasonal work from 3 to less than 12 months”(5). Diversifying the types of employment contracts is an important and significant change. It provides a legal basis that allows employment flexibility and facilitates the process of labor mobility. For definite term or seasonal employment contracts, the attachment between the parties in the first recruitment is reduced, letting the parties have equal opportunity to consider and decide before signing an indefinite contract. Therefore, the diversification of employment contract allows more flexible employment but still ensures the equality of benefits for both parties before and after signing the contract of employment.

Though the provisions of the Labor Law (1994) have created flexible conditions for employment by allowing different types of employment contracts with a definite or seasonal term, the current regulations are still inclined to enhance security of employment (more focus on job protection for workers) rather than promoting employment flexibility (expanding employment flexibility of the parties, especially for employers). The provision of “the employer is only allowed to sign a seasonal employment contract with a total duration of less than 12 months as well as having only two consecutive define-term contracts with one employee” and “when a define-term employment contract has expired and no new employment contract is entered into while the employee continues to work, the signed contract shall automatically become an indefinite-term employment contract”(6) are actually continuing to set limits on the use of define-term or seasonal employment contracts but facilitate the transition from signing a definite or seasonal contract to an indefinite term contract of employment. The current regulations on changing terms of employment contracts may cause employees to have expectations of stable employment by changing to an indefinite-term employment contract in the future. It might create a burden for employers with responsibilities and pressures to ensure job and income stability for their employees. Accordingly, this provision creates more disadvantages and risk of being stuck in indefinite-term labor contracts for employers.

Amendment, supplementation and termination of employment contracts

According to the current Labor Code of Vietnam, the employment contract may be amended, supplemented or terminated when the contract’s contents are no longer consistent with the actual situation, when the job has been completed, or the conditions for practicing the employment contracts have changed. However, these amendments can only be achieved on the principle of mutual agreement between the two parties(7). Among these provisions, the provision on termination of employment contracts has a direct impact on employment and labor changes as well as the interests of labor relations.

The right to unilaterally terminate an employment contract is an important right for employer and employee, which is recognized by the law to protect the parties’ legitimate rights in labor relations. The employee has the right to unilaterally terminate the employment contract if one of the following situations occurs: (1) The labor contract has been fulfilled, expired, terminated by a court decision, or agreed upon by two parties; (2) Employee rights are not performed as the content of employment contract; and (3) The employee cannot afford to work due to lack of health, difficulty in family circumstances, or has been assigned to undertake new duties in the state organization(8). The employer also has the right to unilaterally terminate the employment contract in cases where the employee “often fails to complete the duty stated in the employment contract” or “suffers from illness or accident and has not been covered after a long time of treatment,” and in cases where the employer “has a force majeure reason related to a natural disaster, fire, restructuring or technological change, economic crisis,” or “is forced to terminate the employment contract upon request of the State” (9).

Thus, flexibility in employment and labor is a necessary measure to protect both parties’ rights against the risks of market instability, but under the current regulations, flexibility is not fully allowed while employment opportunities created for employees and employers are not entirely equal. Besides, the basic standards used for determining the right of the employer to unilaterally terminate an employment contract are unclear and difficult to realize. Although the employment contract has a job description, it is still hard to generate detailed requirements on labor productivity and efficiency; for example, the case of workers working on the production line. Similarly, even though technological restructuring or economic crisis are considered “force majeure reasons”, this provision is still general. Therefore, in certain circumstances, employers cannot easily prove that an employee working with low productivity is “failure to perform task” or the reduction of employer’s workforce is due to “force majeure reasons”.

The provision on cases of illegal unilateral termination of employment contracts confirms the fact that the current law is more about protecting the rights and interests of workers than ensuring the fairness of rights and interests to all parties in labor relations. If an employee illegally unilaterally terminates the EC, he/she is only responsible for compensation for damage caused by the demolition of EC. Specifically, in addition to not receiving severance allowance, he/she must compensate half of the monthly salary as stipulated in the employment contract for the employer, compensate the amount of money corresponding to the salary in the days of failure to notice the termination, and must also reimburse training costs to the employer. After fulfilling these obligations, they are no longer bound by the EC and can freely switch jobs(10). However, in the case of unilaterally terminating the labor contract illegally, the employer must compensate for the damage caused by the termination of the labor contract (in the form of unemployment allowance or severance allowance of at least 02 months wage as compensation for the breach of the employment contract) and be responsible for getting the employee back to work if the employee still wants to continue the job(11). This means that, if there is no good reason to unilaterally terminate the EC and without the employee’s agreement, the employer cannot change or adjust the employment with the employee whom the employer terminated the contract with.

2. Wages and flexi-security of employment

According to the Labor Code, wage – a monetary amount that is paid to the employee by the employer to perform the work as agreed upon by the two parties – is one of the most important agreements in the employment contract. In principle, wages are determined based on an agreement between the employer and the employee.

Due to many reasons, workers are more likely to be at a disadvantage in negotiating wages. To minimize this irrationality, the State provides a base salary system which serves as a basis for calculating wages, allowances, and other benefits as well as insurance premiums for public officials, army men, and people who work for state agencies(12) and the minimum wage (the lowest wage that the employer must pay to employees who work in private sectors to perform the simplest work in normal working conditions to ensure the minimum living needs of the employee and his/her families)(13).This provision allows the employer to adjust the employee’s salary following the practical situation (flexible payroll payment) while ensuring that the employee has a stable income at a minimum (income security) that is not lower than the base salary or the minimum wage set by the Government.

For employees in State agencies, the salary is calculated according to wage scale, allowance and base salary. Because base wages are adjusted according to the state budget’s capacity, the consumer price index, and the economic growth rate of the country, the adjustment of base salary in practice is often slow and does not keep up with the fluctuations of market prices. The wage scale and base allowances are determined based on seniority and position without paying adequate attention to productivity and actual working efficiency, so wages are rather equal and unadjusted over time. This leads to the fact that the salaries of officials in state agencies are relatively stable but often low.

Meanwhile, for employees in the private sector, the employer has the right to proactively build the wage scale and payroll and choose the appropriate form of payment based on the minimum wage prescribed(14). As there are many forms of wage payment such as time-based or product-based wage payment, employers have greater flexibility in paying workers. Wages paid to employees are not necessarily fixed but can be appropriately adjusted according to productivity and quality of labor during the implementation of the employment contracts.

Compared to State agencies, employees in the private sector have a lower level of income security (ensuring minimum wage stability compared to ensuring income stability) but greater flexibility in paying wages (wages are adjusted based on productivity and work efficiency compared to the basic salary, and only adjusted by seniority and position). This makes an unreasonably low wage level for public officials in State agencies, which is less adjusted according to productivity and efficiency than those of employees in the private sector. This irrational difference has promoted a strong employment shift between the two sectors. In just five years, from 2003 to 2008, more than 16,000 personnel and public officials left state agencies to look for other jobs(15).

Meanwhile, the flexibility in paying salaries in the private sector has both positive and negative effects. On one hand, the flexibility of payment motivates and promotes work efficiency, but on the other hand, it leads to a strong division of income. For example, in 2009, in foreign-invested enterprises (FDI), the annual average income of workers with an education level under high school was $1,887 while that of a worker with a Master’s degree was at $23,084 (12 times more)(16). Although the income of workers in private enterprises has recently improved significantly, it is still significantly lower than the incomes of workers in state-owned enterprises and FDI enterprises. In Ho Chi Minh City, in 2014, the average annual income of workers in private enterprises ranged from 61.1 to 73.3 million VND, much lower than that of officials in state agencies (in the range from 128.1 to 130.4 million VND) and of workers in FDI enterprises (from 193.5 to 206.4 million VND)(17). Unskilled workers without expertise are the most vulnerable group.

To limit the violation of wage regulations and ensure income security for employees, the Labor Code provides a mechanism to review and resolve disputes or conflicts related to changes or concerns about wages, bonuses, allowances and wage increases between employees and employers through collective bargaining(18).

3. Types of insurance and flexi-security of employment

Social insurance (SI), health insurance (HI) and voluntary insurance (VI) are social services that ensure job security and income for employees pre- and post-employment. In recent years, regulations on compulsory participation of SI, VI, and HI in Vietnam have continuously improved and made progress in protecting the rights of employees.

First, the law specifies the rights of employees and the responsibilities of employers in participating in compulsory insurance including SI, VI, and HI. The employment contracts must clearly state the contribution rate calculated in the monthly salary for each type of compulsory insurance and the contribution portion as responsibility of the employer and employee, as well as the method and time of their contribution(19). This is an important legal basis to protect the rights of an employee (employment and income security) and to ensure employers that fulfill their obligations and responsibilities in labor relations.

According to the Labor Code, both employees and employers have responsibilities to contribute to compulsory insurance, but the employers contribute more. Except for unemployment insurance (UI) with an equal contribution rate between employees and employers, other forms of compulsory insurance have higher contribution rates from the employer (see Table 1). Specifically, the employer is fully responsible for contributing to the Occupational Accidents and Diseases Insurance (OADI), with a contribution rate of 5%, and is also responsible for about two thirds of the SI and HI’s contribution. Most of the benefits that employees receive after participating in insurance are contributed by their employers.

Second, the Labor Code extends the compulsory subjects to participate in insurance(21). Previously participating in social insurance was only mandatory for employees who have employment contracts of3 full months or more. However, the current mandate has expanded to cover employees with employment contracts of 1 full month or more. Also, the Labor Code stipulates the subjects who are required to participate in voluntary insurance and health insurance, including all employees with employment contracts of 3 full months or more. This change protects more workers, especially those in vulnerable groups (including those working under seasonal employment contracts and those working in rural areas or the non-official economic sector). In means, the process of amending and supplementing regulations on compulsory insurance participation must be based on the foundation to improve fairness and equality in society.

Although the differences in accessibility and benefits from social security are reduced, they have not been completely cleared. The current policy does not cover all subjects and labor relations in society. Employees who work under a contracting agreement, probation contract, or an employment contract with a term of less than 1 month, as well as domestic workers and workers who do goods processing at home, are not subjects participating in compulsory insurance despite having signed employment contracts. Besides, many self-employed workers (about 30 million workers in agricultural households or individual business households) are not subject to this compulsory insurance program. In such cases, employers and employees are encouraged to participate in voluntary social insurance instead of compulsory social insurance.

Moreover, due to limited knowledge and difficult economic conditions, most workers do not actively or voluntarily participate in social insurance. Among the subjects participating in compulsory insurance, a large part agreed with the employer to evade insurance by entering into employment contracts in the form of contracting agreements. As of May 2018, there were about 2 million workers who had employment contracts from 1 to 3 months in Vietnam, but only 8,000 people participated in social insurance(22). Together with about 30 million workers in agricultural or individual business households and 8 million paid workers with no employment contracts,23 around 75% of workers in Vietnam, of which most were informal workers, were not yet benefited from the labor protection regime.24 In 2016, among the informal employees, the rate of compulsory and voluntary social insurance was only 0.2% and 1.2% respectively. By not participating in insurance, in case of instability, workers have to change jobs more frequently and are more likely to face unfair treatment such as unstable jobs, lower wages and fewer opportunities for advanced training.

Finally, due to the lack of strict sanctions, the situation of “insurance payment evasion” of employers and enterprises is quite common.

Recent changes in labor market policies in Vietnam have made many signs of progress towards flexi-security of employment. However, there are still shortcomings in flexi-security of employment in Vietnam’s labor and employment policies.

First of all, it is essential to promote flexible employment in parallel with strengthening the social security system, but Vietnam’s policies are generally more in terms of security than flexible employment. Ensuring job security through a safety system is considered but the flexibility of employment has not been focused. Current regulations’ focus is giving priority to employment stabilization. For example, there is a limitation on the numbers of short-term and define-term employment contracts. It is compulsory to convert these above contracts into an indefinite-term or long-term contract if the labor relations continue. The conditions for the unilateral termination of the employment contract, especially for the employer side, are difficult to fully comply with. Some conditions are still general and impractical. Meanwhile, the lack of employment flexibility leads to low governance efficiency, which is extremely true within government agencies. By maintaining the status of public officials and personnel for a lifetime, the quality of human resources in the public sector is unlikely to improve significantly in the coming period.

Second, even though Vietnam’s policies have diversified insurance forms and expanded compulsory insurance to increase the protection for workers, the number of people accessing and benefiting from general and compulsory insurance has not significantly improved. There is a paradox that those who are most vulnerable to market instability and need to be protected, such as agricultural and informal workers, are least protected by the insurance system.

Third, the differences in the rights and responsibilities of participating in insurance among different forms of employment contracts lead to loopholes and illegal action to evade insurance obligations. By not providing a written contract or entering into forms of a lease or a contracting agreement – which is essentially a labor relationship not yet governed by the law – the employer may evade responsibility for paying social insurance, health insurance, and compulsory unemployment insurance to employees.

To overcome these limitations, Vietnam’s labor and employment policies need to be improved in the following direction:

First, the policy should encourage employment flexibility and focus on creating better labor and employment mobility services. The public sector needs to abandon the permanent status system of public officials and personnel, allowing flexibility in employment and increasing competition to employ talent in the future.

Second, the coverage of the social security network should continue to expand to cover all groups of people in need of protection as well as covering all issues in flexi-security of employment in all labor relations that should arise in practice. To achieve this, the State should support vulnerable groups and gradually reduce the difference in insurance rights and responsibilities between different types of employment contracts.

Last but not least, it is necessary to concretize the content of policies, especially the strict sanctions to be easily applied in practice and to deter and handle violations.

______________________

Endnotes:

(1) Wilthagen, 1998, in Per Kongshoj Madsen,

Flexicurity - A new perspective on labor markets and welfare states in Europe, Presentation at DG EMPL Seminar on Flexi-security in Brussels, on 18th May 2006, p.3 – Adapted from the Institute of Labor Science and Social Affairs. Flexi-security in Vietnam: Research at Enterprise Level, Hanoi, 2009.

(2) Madsen, 2003 –Adapted from http://www.ilo.int.

(3) Article 15, Labor Code.

(4) Article 17, Labor Code.

(5), (6) Article 22, Labor Code.

(7) Article 35 and 36, Labor Code.

(8) Article 37, Labor Code and Article 11, Decree 05/ND-CP.

(9) Article 38, Labor Code and Article 12 and 13, Decree 05/2015/ND-CP.

(10) Article 42, Labor Code.

(11) Article 36 and 38, Labor Code; and Article 14, Decree 05/2015/ND-CP.

(12) Resolution 99/2015/QH13.

(13) Decree 122/2015-ND-CP.

(14) Article 93 and 94, Labor Code.

(15) Ngo Thanh Can: “Symbiotic public personnel and consequences”, http://vnn.vietnamnet.vn, dated 14-9-2008. 

(16) Institute of Labor Science and Social Affairs: Labor and Employment in period of integration, 2009.

(17) Pham Thi Ly: “Jobs and income of foreign direct invested enterprises’ employees in Ho Chi Minh City”, 2017, http://www.vjol.info.

(18) Article 66 and 70, Labor Code

(19) Article 4, Decree 5-2015/ND-CP

(20) Article 6, Decision 595/QD-BHXH

(21) Decision 595/QD-BHXH dated14-4-2017

(22) Hoang Manh: “Evasion of social insurance responsibility by signing contracting agreements instead of 1 to 3-month employment contracts”, 2018, https://dantri.com.vn.

(23) World Bank: “Vietnam’s Future Jobs: Leveraging Mega-trends for Greater Prosperity”, 2018, https://www.worldbank.org.

 

(24) Ministry of Labor – Invalids and Social Affairs: “Vietnam Labor Market Newsletter”, Vol 18, Quarter 2-2018, http"//www.molisa.gov.vn.

Dr. Le Thuy Hang

Institute of Leadership Science and Public Policy

Ho Chi Minh National Academy of Politics

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