Personnel reduction has become a trend in recent years due to economic and political factors. This wave is increasingly strong when businesses are facing financial difficulties or the decline in market demand leading to many businesses having to reduce personnel  to save costs and maintain competitiveness.

I. What is personnel reduction?

“Personnel reduction” is not a legal term. Instead, this phrase is commonly used in social life to describe the phenomenon of enterprises terminating labor contracts with many employees at the same time; at least 02 people.

Reducing personnel can also mean changing the structure of an organization and business, specifically changing the number of employees, terminating labor contracts for many personnel and workers at the same time.

Thus, the essence of personnel reduction is the termination of labor contracts in accordance with the labor law.

II. In what cases can businesses reduce personnel?

Enterprises and organizations can reduce personnel if they fall into the cases specified in Article 42 Labor Code 2019, which are: (1) Changes in structure and technology; and (2) For economic reasons. Specifically, as follows:

1) In case of change in structure and technology:

(i) Changing organizational structure, reorganizing labor;

(ii) Changes in production and business processes, technology, machinery, and equipment associated with the employer’s production and business lines;

(iii) Changing product or product structure;

2) In case of economic reasons:

(i) Crisis or economic recession;

(ii) Implementing the State’s policies and laws when restructuring the economy or implementing international commitments

In case many employees are at risk of losing their jobs or having to quit their jobs, the enterprise must develop and implement a labor use plan according to the provisions of Article 44 of the Labor Code 2019.

III. Order and procedures to conduct personnel reduction

Personnel reduction is the termination of labor contracts by enterprises at the same time with many employees. This means that this event affects the rights and interests of employees. Therefore, enterprises cannot arbitrarily reduce personnel at will. Even if the enterprise falls into the above cases that they can reduce their employees, the enterprise also needs to comply with the following notes before the personnel reduction is considered to be legal.

Accordingly, when starting to reduce personnel, businesses need to ensure the following procedure:

Step 1: Develop a labor use plan

The main contents of the labor use plan include:

Number and list of workers who continue to be employed, employees are retrained to continue to be employed, employees are transferred to work part-time;

• Number and list of retired employees;
• Number and list of employees who must terminate their labor contracts;
• Rights and obligations of employers, employees and related parties in implementing labor employment plans;
• Measures and financial sources to ensure the implementation of the plan.

Step 2: Enterprises exchange opinions with grassroots trade unions or organizations of employees at enterprises.

Accordingly, after developing a labor use plan, the enterprise must exchange opinions with the grassroots union or employee organization at the enterprise. And the labor use plan must be publicly notified to employees within 15 days from the date of approval.

Step 3: Notify in writing to the Provincial People’s Committee and the employees

The dismissal of employees shall only be carried out with 30 days’ notice to the provincial-level People’s Committee and the employees.

The contents of the notice include the following:

• Name and address of the enterprise and its legal representative;
• Total number of employees; number of employees to be laid off;
• Reasons for the employee’s resignation; the time when the employees being laid off;
• Estimated funding for unemployment allowances.

Step 4:  Notice of termination of labor contract

The enterprise must notify the employee in writing of the termination of the labor contract when the labor contract is terminated in accordance with the provisions of the Code.

If the employer is not an individual who terminates its operation, the time of termination of labor activities is counted from the time of issuance of the notice of termination of operation.

Note: Clause 2, Article 36 of the Labor Code 2019 requires enterprises to notify employees in advance of the termination of labor contracts as follows:

• At least 45 days for indefinite-term labor contracts;
• At least 30 days for a definite-term labor contract with a term of between 12 months and 36 months;
• At least 03 working days for labor contracts with a definite term of less than 12 months.

This advance notice only does not need to be made when falling into the cases specified at Points d, e, Clause 1, Article 36 of the Labor Code 2019.

Step 5: Payment of unemployment allowance to employees

After notifying the termination of the labor contract, the enterprise must pay the unemployment allowance to the employee. Accordingly, employees who receive job-loss allowances from enterprises when they have worked regularly for that enterprise for a full 12 months or more but lose their works fall into the 5 cases mentioned above.

The working time for calculating unemployment allowance is the total time the employee has worked for the enterprise minus the period of time the employee has participated in unemployment insurance.

The level of unemployment allowance calculation is the average salary of 06 consecutive months according to the labor contract according to the provisions of Article 47 of the Labor Code 2019.

IV. Legal consequences when an employer cuts staff not in accordance with the law

As stated above, the essence of personnel reduction is the termination of labor contracts. Therefore, in case the enterprise violates, or fails to take any of the steps mentioned above, the enterprise may be considered as unilaterally terminating the labor contract illegally and must suffer the consequences specified in Article 41 of the Labor Code 2019 as follows:

(i) Must accept employees back to work according to the signed labor contract; must pay salaries, pay social insurance, health insurance and unemployment insurance premiums during the days when the employee is not allowed to work and must pay the employee an additional amount equal to at least 02 months’ salary under the labor contract.

(ii) In case the employee does not want to continue working, in addition to the amount payable specified in Clause 1 of this Article, the employer must pay the severance allowance as prescribed in Article 46 of this Code to terminate the labor contract.

(iii) In case the employer does not want to receive the employee back and the employee agrees, in addition to the amount of money to be paid by the employer as prescribed in Clause 1 of this Article and the severance allowance as prescribed in Article 46 of this Code, the two parties shall agree on an additional compensation for the employee but at least equal to 02 months of salary according to the labor contract to terminate the labor contract.

In addition, enterprises are also subject to administrative fines for illegally terminating labor contracts with a fine of from VND 2,000,000 to VND 40,000,000 and must take remedial measures as prescribed in Clause 3, Article 6 and Article 12 of Decree 12/2022/NĐ-CP.