he coronavirus outbreak has affected hundreds of thousands of enterprises. As the pandemic continues to expand, many employers in Vietnam may find it hard to maintain healthy working conditions for their employees as well as to finance labor costs. With this in mind we wanted to address how the employment relationship should be dealt with during the coronavirus outbreak.
1. Why it matters
Many employers are seeking different solutions to maintain their business, including narrowing business operation, decreasing employees’ wages and requiring employees to take leave without pay. Employers should take note of some relevant regulations on labor to mitigate risks of non-compliance.
2. Deep dive
On 25 March 2020, the Ministry of Labour, Invalids and Social Affairs issued Official Letter No. 1064/LDTBXH-QHLDTL (Letter 1064) guiding cessation of labour due to the Coronavirus.
a) If an employee is furloughed due to coronavirus she may enjoy wages at a rate agreed with the employer but not less than the minimum area wage. Furloughed workers eligible for such wage agreement include:
• Foreign employees who are not allowed to work per request of the authorities;
• Employees who must cease work due to mandatory quarantine; and
• Employees who cannot work because their employer cannot operate due to other employees being kept in mandatory quarantine or who are not allowed to return to work.
b) Employers who cannot provide sufficient jobs for all of their employees because of Coronavirus may:
• temporarily reassign employees to work not included in their labor contracts;
• suspend labor contract performance if the period of disruption is prolonged enough to affect the employers’ financial capacity; or
• terminate labor contracts in case the employer must narrow their operation.
Suspending performance of a labor contract may be the preferable option as, during the suspension period, no wages or benefits accrue, and the employees can return to work after such period. The difficulty, however, is that suspension requires the agreement of the employee, unless provided for in the labor contract.
Temporarily reassigning employees, though easier to implement as it doesn’t require the agreement of the employee, may be less desirable because reassignment may not exceed a total of 60 work days in any one year, unless the employee so agrees; and the wage for the reassigned role must remain consistent with the previous wage for 30 days, after which it may be decreased but not lower than 85% of the previous wage.
Termination of labor contracts should be the last resort and only used when the employer has to narrow or suspend their operations. In this case, the employer may:
• terminate labor contracts due to economic reasons, applying Article 44 of the Labor Code 2012 – in this case, the employers are required to prepare and implement a labour usage plan;
• terminate labor contracts upon (written) agreement with the employee; or
• unilaterally terminate labor contracts due to force majeure – but this may not be advisable as complicated and time-consuming procedures must be followed.
Of note, when terminating labor contracts, severance payments may be required for working time not covered by unemployment insurance.
c) If the employer decides to decrease employee wages or require employees to take leave without pay, the employer should obtain the agreement of employee in writing. This helps to mitigate the risks of disputes or non-compliance.
d) Finally, the employer should advise employees who are affected to seek enjoyment of their lawful benefits such as:
• Unemployment insurance (in case of termination of employment);
• Sickness insurance, for employees who are in mandatory quarantine;
• Special support from the Government, as the Government has proposed to provide VND 1.8 million per month for employees whose employment is temporarily suspended, VND 1 million per month for those (i) whose labor contracts are terminated but are not entitled to job loss allowance and (ii) do not have labor contracts and lose their jobs for 3 months from April to June.
3. What’s next
The Vietnamese Government has approved an unprecedented Coronavirus aid package of VND 61,580 billion. The draft resolution on the package has been submitted to the National Assembly Standing Committee for their consideration. It is expected that other policies will be issued soon for its implementation. When we know more, we will notify you of relevant provisions and be available to assist you.
COVID-19 and Corporate Governance in Vietnam
While the expansion of COVID-19 in Vietnam has slowed with only two new cases being reported over the weekend (11-12 April) the Government has applied, and may continue to apply various isolation methods for curbing the pandemic including mandatory quarantine of individuals suspected to be infected; closure of almost all flights between Vietnam and overseas territories; and social distancing was implemented. Unfortunately, with the requirements of social distancing limiting meetings to small numbers, many companies face adverse effects to their corporate governance. At the time of writing the general lockdown is scheduled to end on 14 April, it is possible that regional lockdowns may continue and that some form of social distancing that could affect corporate housekeeping will remain in place indefinitely. With that in mind, we address the issue of holding corporate meetings when meetings are prohibited.
1. Convening meetings and passing decisions of General Meeting of Shareholders (GMS), Board of Management (BOM) in shareholding companies and Members’ Council (MC) in limited liability companies
All enterprises incorporated in Vietnam have to comply with relevant provisions under the Law on Enterprises 2014 (LOE 2014) to convene and pass resolutions in meetings of their GMS, BOM, and MC.
During social distancing, it can be difficult, or even impossible in certain circumstances, for enterprises to convene an eligible meeting in compliance with the following requirements set out by LOE 2014:
(i) The meeting location must be within the territory of Vietnam (for GMS meeting), or at the head office of the company or another place (for BOM meeting and MC meeting)
A company may be unable to hold the meeting at its head office or other place specified due to COVID-19. For example, the company’s office may be in a quarantined area, blocked or closed following the Government’s direction.
(ii) The minimum number of participants to convene a meeting
If the number of meeting participants is less than the minimum thresholds provided by law (e.g., at least 51% of charter capital represented by attending shareholders for convening the first GMS meeting, at least 65% of charter capital represented by attending MC members for convening a MC meeting, and at least three-forth (3/4) of the total number of BOM members for convening the BOM meeting), the meeting may not be convened. Due to social distancing, some meeting participants, especially those who live overseas, are unable to directly join the meeting to constitute a quorum for convening the meeting.
(iii) The vote-counting must be witnessed by the Supervisory Board or of shareholders not holding managerial positions in shareholding company
Witnessing the vote-counting process and making a vote-counting record will be difficult, if not impossible to implement, even if the GMS meeting is held via online conference, because the Supervisory Board or shareholders not holding managerial positions are required to be present with the BOM’s members at the place of vote-counting.
(iv) A meeting minute must have signatures of the meeting chairman and the meeting secretary
Due to the effects of social distancing, it is difficult to get the signatures of both the chairman and secretary if one or both of them do not participate in the same place as the meeting.
2. Effects on management activities by the company’s managers
Social distancing leads to absences of many important managers within the territory of Vietnam. There will be more severe consequences if the absent managers are concurrently the legal representatives of the enterprise as LOE 2014 requires that there must always be at least one legal representative residing in Vietnam to maintain business continuity. The implementation of centralized quarantine or entry suspension prevents managers from entering Vietnam and directly participating in corporate management activities, specifically:
(i) Joining meetings of BOM, MC, and GMS
This obligation belongs to Chairman of BOM, Chairman of MC, members of BOM, members of MC, and the Director/General Director in partnerships. The scheduled meetings may be required to be convened during the managers’ leave or quarantine. Further, either the Chairman of BOM or Chairman of MC is usually required to host these meetings.
(ii) Signing meeting minutes, resolutions or decisions within their authority
This obligation belongs to Chairman of BOM, Chairman of MC, members of the MC in state-owned enterprises and partnerships, and the Director/General Director in partnerships. Without joining any meeting for information obtaining or accessing to sufficient documents, the Chairman and Directors are unable to physically and timely sign necessary approval documents. This is especially difficult for state-owned enterprises and partnerships for which the minutes must be signed by all the participating members. Even remote attendance does not resolve the necessity for obtaining the signatures of attendees.
(iii) Signing agreements within their authority
This obligation belongs to all individuals holding managerial positions authorized on behalf of the company to sign the company’s transactions, especially the Director/General Director. In case those managers stay overseas or are quarantined, the signing process cannot go smoothly as there is no representative having competent authority to execute important commercial contracts.
(iv) Reporting and publishing corporate information.
This obligation belongs to managers being the legal representative or authorized representative in state-owned enterprises and joint-stock companies. As required, the managers shall timely provide written reports of the enterprise’s periodic information to the competent authority. However, the Government’s policy during social distancing limits their movements and access to important information, like financial statements, so it may be difficult to directly collect, evaluate and issue reports in writing.
Failing to fulfil the above-mentioned obligations may lead to dismissal of those managers, especially the positions of Chairman of MC, and Chairman of BOM. The Director/General Director and BOM members may also be sued by shareholders for failing to fully and timely execute any BOM’s resolution leading to damages to the company.
3. Possible solutions for facilitating corporate governance operations in social distancing situation
It is possible to hold corporate meetings via teleconferences or by way of collecting written opinions. In case the meetings are held online, the affected companies also need to develop an information technology system which allows electronic voting (e-voting) for meeting participants and electronic signature (e-signature) for the meeting chairman and the meeting secretary. The company’s charter and internal corporate governance regulations (in case of a public company) also may need to be modified to recognize the validity of the online meeting, e-voting, and e-signature system. This may prove difficult as most template charters in Vietnam require their own meetings and voting. However, a good precedent was reported that FPT, a famous technology corporation in Vietnam, has successfully organized its online GMS meeting on 08 April 2020. Following FPT’s footstep, Sacombank, a big private bank, also decided to place its 2020 GMS meeting on 24 April 2020 in form of online meeting.
Regarding management activities, the managers, who are subject to entry suspension and/or quarantine, may consider using electronic signatures to sign on meeting documents or contracts concerning the enterprises’ business and operation. This may present some difficulties in enforcement, however, as though the law has been in place for years now, some courts in Vietnam still struggle to understand and apply the e-signature rules. Management may also consider authorizing another person in writing to perform all respective rights and obligations during an absence. This may be done using a power of attorney, which should specify the scope of authorized work and the time limit so as to avoid abuse of power. In case there is no authorization made by the managers, the BOM or the MC may convene a meeting to appoint one of the remaining members to temporarily implement the rights and obligations of such managers. This solution is only effective in limited cases where the absent manager is the Chairman of BOM or the Chairman of MC.
While the general solutions for corporate governance dilemmas in this time of social distancing tend to fall to teleconferencing, e-signatures, and remote authorizations the acceptability of these measures may or may not be applicable to any given company. While the law—as of 2014—allows for these solutions to be implemented, if they are not included in the charter and governing documents of the company, they could be subject to court judgments against their validity. There may be other solutions available, but they will have to be determined on a case by case basis with consultation between the managers and legal and considering the individual charter of the company.
This briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For legal advice, please contact our Partners.
By Mr. Bui Ngoc Hung – Partner