Issue 021225 – General Provisions on Job-Loss Allowance

Dear Valued Clients,

Job loss allowance is one of the key obligations imposed on employers to safeguard employees’ rights in cases where employment is terminated due to changes in organisational structure, technology, economic reasons, or corporate restructuring. However, in practice, determining the eligibility conditions, calculation method, and payment responsibilities for this allowance often remains a source of confusion for businesses, particularly in complex termination scenarios.

The following article by ENT Law Company Limited summarises and analyses the current legal regulations on job loss allowance under the 2019 Labour Code and Decree No. 145/2020/NĐ-CP, including its definition, eligibility conditions, calculation method, benefit levels, as well as employers’ payment obligations and applicable sanctions for violations. Through this, businesses may gain a clearer understanding of their legal obligations and proactively develop appropriate compliance solutions to minimise the risk of labour disputes.

1. CONCEPT OF JOB LOSS ALLOWANCE

Job loss allowance is a sum of money that the employer (“Employer”) must pay to an employee (“Employee”) who has worked on a regular basis for at least 12 months and loses his/her job due to changes in organisational structure, technology, economic reasons, or as a result of reorganisation, conversion, merger, division, or transfer of ownership of an enterprise or cooperative.

The purpose of this allowance is to support Employees in stabilising their livelihood, compensate for lost income, and provide them with conditions to seek new employment after job termination.

2. CONDITIONS FOR ENTITLEMENT TO JOB LOSS ALLOWANCE

Pursuant to Article 47 of the 2019 Labour Code (“Labor Code”), an Employee shall be entitled to job loss allowance if all of the following conditions are satisfied:

• The Employee has worked on a regular basis for at least 12 months;
• The Employee loses his/her job due to changes in organisational structure, technology, economic reasons, or due to reorganisation, conversion, merger, division, or transfer of ownership of an enterprise or cooperative.

3. METHOD OF CALCULATION AND LEVEL OF JOB LOSS ALLOWANCE

Pursuant to Article 47.1 of the Labour Code, for each year of service, the Employee is entitled to one month’s salary as job loss allowance; however, the total allowance must not be less than two months’ salary.

The job loss allowance shall be calculated according to the following formula:

In which:

(i)      Period of service eligible for allowance = Total actual working period of the Employee − Period of unemployment insurance contribution − Period for which the Employer has already paid severance allowance or job loss allowance.

• Total actual working period of the Employee for the Employer includes: probation period; period during which the Employee is sent by the Employer for training; period of leave for sickness or maternity in accordance with social insurance laws; period of leave for medical treatment and rehabilitation due to work-related accidents or occupational diseases for which the Employee is paid in accordance with occupational safety and hygiene laws; period of leave to perform civic duties as prescribed by law with payment from the Employer; downtime not caused by the Employee’s fault; weekly rest periods as prescribed by labour laws; paid leave; period of performing duties for a representative organisation of employees in accordance with law; and period of temporary job suspension.
• Period of unemployment insurance contribution includes: the period during which the Employee has participated in unemployment insurance in accordance with law, and the period in which the Employee is not subject to compulsory unemployment insurance but is paid by the Employer, together with his/her salary, an amount equivalent to the unemployment insurance contribution that the Employer would otherwise be required to pay under labour and unemployment insurance regulations.
• The period of service used for calculating job loss allowance shall be calculated on an annual basis (each full 12 months). Any remaining period of less than or equal to 06 months shall be rounded to ½ year, while a remaining period of more than 06 months shall be rounded to 01 full year.

(ii)     Average salary = The average salary of the 06 consecutive months immediately preceding the job loss.

(iii)    Period of service for calculating the allowance for calculating the job loss allowance shall be converted into years (each full 12 months). Any remaining period of more than 06 months shall be rounded up to 01 year, while a remaining period of 06 months or less shall be rounded to ½ year.

(iv)    Salary used for calculating job loss allowance: The salary used to calculate job loss allowance is the average salary of the six consecutive months under the labour contract immediately before the employee loses their job. If the employee has worked under multiple successive labour contracts, the salary shall be based on the average salary of the last six months under the final contract. If the final labour contract is declared invalid because the stated salary is lower than the regional minimum wage announced by the Government or lower than the salary agreed in the collective labour agreement, the salary used for calculation shall be determined by mutual agreement between the parties, but it must not be lower than the regional minimum wage or the salary specified in the collective labour agreement.

Note: Pursuant to Article 8.4 of Decree No. 145/2020/NĐ-CP, the period during which an employee is considered to have “actually worked” for the employer shall be determined in the following cases:

(i)      For wholly state-owned enterprises or enterprises equitised from state-owned enterprises: When terminating a labour contract with an employee who previously worked in state agencies, organisations, units, or state-sector enterprises and transferred to the current enterprise before 1 January 1995, but has not yet received severance pay, job loss allowance, or any one-off allowance upon demobilisation, discharge, or transfer, the employer must take into account both the employee’s actual working period with the current employer and their prior service in the state sector when calculating job loss allowance.The period of actual work in the state sector before 1 January 1995 includes time worked in state agencies, public service units, political organisations, socio-political organisations, armed forces units funded by the state budget, and state-owned enterprises.

(ii)     Where an employee has worked for an employer under multiple consecutive labour contracts and, upon termination of each contract, has not been paid severance pay or job loss allowance, the actual working period shall be the total time worked under all such contracts, excluding any period under a contract that is declared entirely invalid due to legal violations, involves work prohibited by law, results in dismissal as a disciplinary measure, or is unlawfully terminated unilaterally by the employee (if any).

(iii)    Where an employee continues working for an enterprise or cooperative under a labour utilisation plan following separation, consolidation, merger, sale, lease, conversion of enterprise type, or transfer of ownership or rights to use assets, the employer is responsible for determining the employee’s actual working period for the purpose of calculating job loss allowance.

Pursuant to Article 8.2 of Decree No. 145/2020/NĐ-CP, where an employee who has worked regularly for the employer for 12 months or more loses their job, but the working period used to calculate job loss allowance under the above formula is less than 24 months, the employer is still required to pay a job loss allowance equal to at least two months’ salary.

4. EMPLOYER’S RESPONSIBILITY FOR PAYMENT

The Employer is obliged to pay the full job loss allowance to the Employee within 14 working days from the date of termination of the labour contract. In certain special circumstances, this payment period may be extended, but shall not exceed 30 days, including in the following cases:

• The Employer (not being an individual) ceases operation;
• The Employer restructures its organisation, technology, or workforce for economic reasons;
• Division, separation, consolidation, merger, sale, lease, conversion of enterprise type, or transfer of ownership or rights to use assets of the enterprise or cooperative;
• Force majeure events such as natural disasters, fires, war, or dangerous epidemics.

Any delay in payment or failure to pay job loss allowance constitutes a violation of labour laws. The Employer may be subject to administrative penalties in accordance with Clause 2, Article 12 of Decree No. 145/2020/NĐ-CP, depending on the number of affected employees.

In addition to administrative sanctions, the Employer shall be required to pay the full outstanding job loss allowance to the Employee, together with interest on the delayed or unpaid amount, calculated at the highest demand deposit interest rate announced by state-owned commercial banks at the time of sanction, for the act of failing to pay or failing to pay in full the job loss allowance.

As usual, we hope you find this article useful and look forward to the opportunity to work with you in the future.

Sincerely,

ENT Law LLC