Outsourcing to Vietnam through the New Labor Code

August 2, 2012 Posted by Vietnam Briefing Reading Time: 3 minutes

By Gherardo Liguori

Aug. 2 – The new Labor Code was introduced by the Vietnamese National Assembly on 18 June 2012 and it shall take effect on 1 May 2013.

The first instance of a Vietnamese Labor Code was in 1994, during the early days of the doi moi (economic reforms) transition. The new June 2012 iteration of the Labor Code has not yet come into effect, and thus it is impossible to analyze the consequences of its implementation. However, taking the legislation at face value, it is already possible to make some predictions about its impact, particularly regarding the completely new provisions on labor outsourcing. As Vietnam Briefing has already underlined in its past article “Vietnam Ratifies New Labor Code,” this is the very first time that outsourcing is officially recognized under the Labor Code.

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The central goal of the amendments to these regulations is increased protection for outsourced employees. In the legislation itself, the specific provisions that mention outsourcing can be found in Section 5, article 53-58. Here, there are a few major points to note.

Article 56.5 aims to ensure that “the outsourced employee’s salary is not lower than that of the outsourcing party’s employees at equal levels, doing the same or equivalent job,” and further on in article 58.3 this right is codified. The issue of equality between outsourced and regular employees is reiterated in article 57.2 which states that the working conditions of outsourced employees cannot be worse than the working conditions of the non-outsourced employees of the same company doing equivalent jobs.

Article 54.2 delineates regulation for duration of contracts, stating that the maximum outsourcing duration is 12 months. However, the legislation here is ambiguous and does not have clauses relating to renewing of contracts. This could lead to an arbitrary use of the law by the government. Since these issues are critical to understanding of outsourcing, government participation is highly necessary to create concrete legislation deciding whether or not it is possible to renew a contract and according to which conditions.

The government should make every effort to clear up these ambiguities as outsourcing parties should be able to understand in advance which sectors the government allows for outsourcing and what specific regulations pertain to those sectors. This will streamline the process of outsourcing, increase efficiency for companies considering Vietnam, and benefit the Vietnamese and global economies. Ultimately, these revisions to the Labor Code should usher in an increase in outsourcing to Vietnam.

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