Venture North Law Firm

Vietnamese law has no clear-cut distinction between an employment relationship and a commercial relationship, service agreement, thus individuals can be service providers.

Short answer: Yes, subject to some mitigants of risks as discussed below.

Vietnamese law has no clear-cut distinction between an employment relationship and a commercial relationship (e.g. service agreement). It is because the definitions of employment relationship and employment contract in the Labour Code 2019 are unclear and broad. For instance,

(1)        The Labour Code 2019 defines “employment relationship” as social relations arising during the hiring and employment of workers and during wage payment as between employees, the employer, organizations representing the parties and the competent State agency. Under the Commercial Law 2005, “provision of services” is defined as a commercial activity whereby one party (hereinafter referred to as the service provider) is obliged to provide services to another party and receives payment; and whereby the party using the services (hereinafter referred to as the client) is obliged to pay the service provider and to use the services in accordance with an agreement. These definitions are broad and not specific enough to distinguish such relationships. In both cases, there will be an engagement and payment between the hiring party and the hired party.

(2)        The definition of an employment contract under the Labour Code 2019 can cover service agreements. Specifically, the Labour Code 2019 provides that “if the parties have an agreement with a different name but such an agreement still indicates the agreement on a paid job, on the management, instruction and supervision by one party, then such an agreement is deemed to be an employment contract”.

(3)        The Labour Code 2019 defines an “employer” as an enterprise, agency, organization, co-operative, business household or individual who hires or employs labour pursuant to a labour contract; and in the case of an individual, the employer must have full legal capacity for civil acts. Without further clarification, it is not clear what is difference between an employer and a party using the services.

Due to the ambiguity of law, if a foreign company engages a Vietnamese individual to provide a long-term service with monthly payments and regular working hours, there is a risk that a Vietnamese court may recharacterise this service agreement as an employment contract. We are not certain how a court would make such a determination, but in our view, it is likely to depend upon a number of factors such as the extent to which the hiring party exercises control over the individual service provider’s work, the extent to which the hiring party bears the responsibility and risks for the individual, and the extent to which the individual is treated in a manner similar to that in which the hiring party treats their employees.

To mitigate the above risk, the hiring party in a service agreement may consider:

(1)        drafting the service agreement in a manner that makes it clear that the Vietnamese individual has control over how he/she performs his/her services and bears own risks for his/her services;

(2)        providing express statements in the service agreement that the relationship between them is a commercial relationship, not an employment relationship, that it is not subject to the provisions of the Labour Code, and that the individual will not represent or claim that he/she is an employee of hiring party; and

(3)        as a prudent approach, requesting the individual to obtain a business registration certificate and to represent in the service agreement that the individual enters into this agreement as a household business. This is because under the Commercial Law 2005 and the Enterprise Law 2020, upon providing the services to the foreign company, the individual may be considered as conducting “commercial and/or business activities” and would be required to conduct the business registration in the form of a “household business” and obtain a business registration certificate.

In practice, many Vietnamese individuals provide services without a household business registration certificate and may be reluctant to obtain such certificate because of administrative burden. It is also uncommon for a foreign company to request a household business registration certificate from an individual service provider upon hiring him/her in Vietnam.

This post is written by Hoang Mai Hang and edited by Hoang Thi Thanh Thuy.

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