Legal issues when the company does not sign a labor contract in Vietnam

When companies accept workers to perform work, they are required to comply with the provisions of labor law. The labor contract is an important legal basis between the employee and the employer to ensure and protect legal rights and interests in the labor relationship. However, nowadays many companies do not sign labor contracts to avoid other obligations. So what are the legal issues when the company does not sign a labor contract in Vietnam?

Legal basis

• Labor Code 2019;
• Decree No. 12/2022/ND-CP regulates sanctions for administrative violations in the fields of labor, social insurance, and Vietnamese workers working abroad under contracts.

What is a labor contract?

Under Article 13 of the 2019 Labor Code, labor contracts “are an agreement between the employee and the employer regarding paid employment, salary, working conditions, rights, and obligations”. The duties of each party in the labor relationship.

Thus, before accepting employees to work, the company must enter into a contract with the employee that records the agreement between the employee and the employer.

Is the company required to sign a labor contract?

Under Article 14 and Article 15 of the 2019 Labor Code regulating the form of labor contracts, contracts can exist in one of the following three forms:

• The form of labor contract can be concluded in writing or by electronic means (with the same legal validity).
• In the case of a verbal contract, the term is less than 1 month.
• Except for cases in other regulations such as: for seasonal work or certain jobs with a term of less than 12 months, a group of workers aged 18 years or older can authorize a worker in the group. to conclude labor contracts; In this case, the labor contract must be concluded in writing and has the same effect as if it were signed with each employee; When employing people under 15 years old to work, for domestic workers, it is mandatory to enter into a written labor contract even if the term is less than one month.

Therefore, the Labor Code 2019 stipulates that, before accepting employees to work, the employer and employee must directly enter into a labor contract. Labor contracts must be concluded in writing. For temporary jobs with a term of less than 1 month, both parties can enter into verbal labor contracts.

Who is entitled to sign a labor contract?

Under Article 18 of the Labor Code 2019, the authority to sign labor contracts belongs to the employee and the employer. In which :

Employees have the right to sign labor contracts for the following subjects:

• Employees are 18 years of age or older.
• Employees from 15 to 18 years old with written consent from their legal representative.
• Person under 15 years old and that person’s legal representative.
• The person authorized by the workers in the group to sign the contract.

Employers have the right to sign labor contracts in the following cases:

• The legal representative of the enterprise, or a person authorized by the enterprise according to regulations.
• The head of an enterprise or organization with legal status according to regulations, or an authorized person.
• A representative of a family, cooperative group, or other organization without legal status, or an authorized person.
• Individuals who directly employ workers.

Legal issues when the company does not sign a labor contract in Vietnam

When a company does not sign a labor contract, it will cause legal consequences for all three parties: the employer, the employee, and the State.

For companies – employers

Clause 1, Article 9 of Decree No. 12/2022/ND-CP regulates as follows:

Fines will be imposed on employers when committing one of the following acts:

• Entering into non-written labor contracts with employees doing jobs with a term of 1 full month or more. That is, even if a company signs a labor contract with an employee through words or actions, it will still be fined.
• Enter into a non-written labor contract with a person authorized to conclude a contract for a group of workers aged 18 or older doing seasonal work or certain work with a term of less than 12 months.
• Signing the wrong type of labor contract with employees; entering into a labor contract that does not fully include the main contents of the labor contract as prescribed by law.

At the same time, based on Clause 1, Article 6 of Decree 12/2022/ND-CP, the penalty level specified in this law is the penalty level for individuals. The fine for organizations is 2 times the fine for individuals. Specifically, the penalty level for companies not signing labor contracts is as follows:

• For violations from 01 person to 10 employees, the company will be subject to a fine from 4,000,000 VND to 10,000,000 VND;
• For violations of 11 to 50 employees, the company will be fined from 10,000,000 VND to 20,000,000 VND;
• For violations of 51 to 100 employees, the company will be fined from 20,000,000 VND to 30,000,000 VND;
• For violations from 101 to 300 employees, the company will be fined from 30,000,000 VND to 40,000,000 VND;
• For violations of 301 or more employees, the company will be fined from 40,000,000 VND to 50,000,000 VND.

Remedial measures

Under Point A, Clause 3, Article 9 of Decree 12/2022/ND-CP stipulates remedial measures for violations of regulations on entering into labor contracts as follows:

• Forcing employers to enter into written labor contracts with employees when entering into non-written labor contracts with employees doing work with a term of 1 full month or more.

Thus, if the company does not sign a labor contract, the company may be subject to administrative sanctions, the level of sanction depends on the number of employees the company violates. In addition to being fined, the company is also forced to apply remedial measures such as signing a written labor contract for those who work for 1 month or more.

For workers

Normally, a company does not sign a labor contract with an employee to avoid paying social insurance and several other obligations, which will lead to disadvantages for the employee. For long-term executives, workers will suffer many of the following disadvantages:

• Not entitled to policies from insurance funds, subsidies from businesses, or trade unions. Not to mention unfortunate risks such as accidents at work or illness, you will not receive any benefits.
• When the employee does not have a labor contract signed by the company, the employee will not be guaranteed benefits according to the provisions of the Law on Social Insurance 2014. Under Article 2 of the Law on Social Insurance 2014, employees who are Vietnamese citizens are subject to compulsory social insurance.
• Because there is no binding contract, the company can unilaterally terminate the labor contract with the employee at any time without having to rely on a basis for unilaterally terminating the labor contract with the employee, which is regulated by Article 36 of the Labor Code 2019.
• When the company does not sign a labor contract, the employee will not enjoy the regimes and benefits prescribed by law such as the right to annual leave, holidays, and the right to enjoy retirement benefits.

For state management agencies

• Causes supply and demand imbalance in the labor market;
• The state has difficulty in statistics and management of the number of workers, the quality of workers, and employers in the market.

If you need advice on labor law, dispute resolution in labor relations, or labor contract in Vietnam, please contact Viet An Law for the most effective support.