Is there any risk?
When the first employment contract expires, in order to avoid not remembering to sign the next employment contract, the employer proposes to stipulate the provision to automatically renew the employment contract for the next three years in the first employment contract. Is there any risk?
The Labour Code 2019 does not currently prohibit the parties from entering into the clause to automatically renewthe definite- term employment contract, and the signing of this clause is not included in prohibited acts or in one of the cases where the employment contract is invalid. However, this clause contains many indirect legal risks that make the signed employment contract invalid.
Firstly, according to the current regulations of the Labour Code 2019, an employment contract must be enteredinto in one of two types: an indefinite-term employment contract and a definite- term one. An indefinite-term employment contract is a contract in which the two parties do not determine the term and the time of termination of the contract's validity 2 ; A definite-term employment contract is a contract in which the two parties have
1 Article 2.1(a) of the Law on Social Insurance 2014
Article 12.1(a) of the Law on Health insurance 2008, amended and supplemented by Article 1.1 Law amending and supplementing a number of articles of the Law on Health Insurance No. 25/2008/QH12 in 2014
Article 43.1(a) and Article 43.1.b of the Law on Employment 2013
2 Article 20.1(a) of the Labour Code 2019
a fixed term, the time of termination of the contract's validity within 36 months of the effective date of the contract3.
For a definite-term employment contract, upon the expiration of which the employee and the employer want to continue working, within 30 days of the expiration date of the employment contract, the two parties shall conclude a new employment contract; Before such a new employment contract has not been concluded, the rights, obligations and interests of both parties shall be performed according to the signed contract4. If within 30 days of the expirydate of the employment contract, the two parties do not conclude a new employment contract, the signed employment contract will automatically become an indefinite-term employment contract 5 . Moreover, according to the regulations, the employer is responsible for notifying the employee in writing when the employment contract determines the expiry date6.
Therefore, if the employer fails to notify the employee in writing when the definite-term employment contract expires, the auto-signing clause as set forth will become invalid and the employment contract will become an indefinite- term employment contract according to the provisions of the law.
Secondly, in case two parties enter into a new employment contract which is a definite-term employment contract, it is only allowed to sign one more time, then if the employee continues to work, the two parties must sign an indefinite-term employment
3 Article 20.1(b) of the Labour Code 2019 4 Article 20.2.(a) of the Labour Code 2019 5 Article 20.2(b) of the Labour Code 2019 6 Article 45.1 of the Labour Code 2019
contract 7. Therefore, the signing of a new definite-term employment contract can only be added once. The clause automatically signing an employment contract with a term of 03 subsequent years will be invalidated after the first re-signing of the employment contract.
Thirdly, for employees who hold an managerial positions in an enterprise as the General Director/Director, according to the provisions of the law on enterprise, their term of office will not exceed 5 years 8. Therefore, if the parties sign the clause to automatically renew the employment contract with a definite term of 3 years, it may exceed the 5-year term specified in the provisions of the law on enterprise, and as a result, the employment contract willfall into one of the cases thatare against the law and become invalid.
Fourthly, similar to the tenure of employees holding managerial positions in an enterprise, the term of a foreign worker's work permit is also a risk to the clause of the automatic signing of a definite-term employment contract discussed above. According to regulations, the term of the employment contract for foreign employees working in Vietnam will not exceed the term of the work permit 9 . Thus, if the parties enter into a clause to automatically renew an employment contractwith a definite term of 3 years, it may exceed the term of the foreign worker's work permit, leading to a violation of the law and the employment contract may be declared invalid.
Thus, if parties want to sign the clauseto automatically renewthe definite-term employment contract, the enterprise needs to specify the object of application of this employment contract that only for those employees who do not hold managerial positions prescribed by law, or foreign workers working under a work permit in Vietnam. In addition, the enterprise should clearly
7 Article 20.2(c) of the Labour Code 2019
8 Article 162 of the Law on Enterprises 2020
9 Article 151.2 of the Labour Code 2019
stipulate that the validity of this employment contract will automatically terminate when the contract is automatically renewed for the second time to avoid exceeding the regulation on the maximum number of signings of 02 times as prescribed by law as analysed above. Finally, the enterprise also needs to acknowledge that the employee commitsto know and understand when signing the first employment contract and accept the automatic signing of a new employment contract as a notice without the employer needing to issue any notice in writing.
