What are legal reasons for restructuring an enterprise pursuant to labor laws?

Restructuring with legal reasons should be a concern for the enterprises. Why? Because the restructuring of an enterprise affects the rights and interests of employee(s) working for the enterprise.

Through this article, BLawyers Vietnam will present 03 reasons for restructuring an enterprise in accordance with the labor laws.

1. Reason for changes in structure and technology

An enterprise changes structure and technology in the following cases:

  1. Changes in the organizational structure, personnel rearrangement: for this reason, the enterprise reorganizes the workforce in departments and divisions including rotation, labor cutdown, or recruitment of more employees.
  2. Changes in processes, technology, equipment associated with the employer’s business lines: an enterprise changes processes, technologies, machinery, and equipment such as the transition from manual to modern machines leading to the workforce did not have enough expertise to use. At that time, the enterprise has no choice to replace the old workforce or organize retraining.
  3. Changes in products or product structure: the enterprise makes product changes or business line changes including completing and upgrading products. The change of enterprise’s business products greatly affects the use of labor. For example, an enterprise is manufacturing plastic products that switch to confectionery production shall lead to many employees involved in plastic products manufacturing being laid off and the enterprise must recruit new employees having suitable qualifications.

Read more: What factors will affect the outcome of labor dispute settlement at the Court?

2. Economic reasons

The following cases are considered restructuring for economic reasons:

  1. Economic crisis or depression: based on the general situation of the Vietnamese economy or the business investment enterprise sector, an enterprise is forced to proceed with restructuring.
  2. Implementing the State’s policies and laws when restructuring the economy or fulfilling international commitments: when Stare’s policies and laws or international commitments issued leading to the affected economy, forcing an enterprise to restructure to conform to the current situation and legal regulations.

Read more: 18 important Q&As about Internal Labor Regulations (ILRs) under Vietnamese law

3. Reasons for full division, partial division, consolidation, merger of the enterprise; sale, lease, conversion of the enterprise; transfer of the right to ownership or right to the enjoyment of assets of the enterprise

In case the enterprise divides, consolidates, merges, leases, converts types, or transfers ownership, the property rights of the enterprise are the legal reasons, legally clear, and easiest to prove.

However, such reasons are likely to lead to a change in business owners that also means changing employers. This affects the rights of workers because the labor contract they are signing with the employer is that the old enterprise is no longer available.

If the enterprise restructures according to the above reasons affecting the employment of a large number of employees, the employer shall develop a labor utilization plan in accordance with laws.

Read more: What should employers in Vietnam note when they restructure workforce after M&A deals? 

Should you have any questions about the above contents, please revert to BLawyers Vietnam at consult@blawyersvn.com. We are more than happy to hear from you!

Date: 24 March 2022

Writer: Thu Tran

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