LAW PROVISIONS ON AUTOMATIC TRANSFORMATION OF LABOR CONTRACT

“Law provision on automatic transformation of definite term labor contract is issued to create the continuity in labor relations and work stability for employees. Whereby, some definite term labor contracts will be automatically renewed, transformed into other types of labor contract with longer-term on the principle of ensuring the employee’s benefit. However, due to the lack of strictness and unification in the application of these regulations, there are different viewpoints on law settlement and application. Thereby, the effect of applying the regulations on automatic transformation labor contract is not as expected”.

From the original provisions of law

This issue is legalized in Clause 3, Article 1 of the Law on the amendment and supplementing some articles of the Labor Code 2002. For a definite term labor contract and a seasonal or work-specific labor contract with a term of fewer than 12 months which the employee still continues to work after the contract expires, within 30 days from the date of the labor contract expiration, the two parties must sign a new labor contract. If the signing is not made, the old one shall naturally become the labor contracts with indefinite term. In cases the newly signed labor contracts are those with definite terms, they can be signed only for an additional period. If the employees continue working, the labor contracts with indefinite terms shall be signed.

After that, this provision is guided in Article 4 of Decree 44/2003/ND-CP[1] with the contents not only guiding the law but also new supplement: “Pending the signing of new labor contracts, the two parties must abide by the signed labor contracts” and "In cases where newly signed labor contracts are those with definite terms, they can be signed only for an additional period of no more than 36 months"

To the Labor Code 2012 with the flawed regulations

The Labor Code 2012 takes effect on May 1, 2013, and will expire from January 1, 2021, when the Labor Code 2019 replaces it. Article 22 of the Labor Code 2012 inherits the previous regulations but had the shortcomings leading to many different viewpoints when settling the disputes during the application:

1. Previously, over the time limit of 30 days, if the new labor contracts are not signed, the concluded labor contracts (included definite term labor contracts and seasonal or work-specific labor contracts) shall automatically transform into the labor contracts with indefinite terms contract. Now, the Labor Code 2012 has a regulation respectively transform as follows: a definite term contract becomes an indefinite term one, a seasonal contract will be transformed into a 24-month definite term one. It can be seen that this regulation is appropriate because it is impossible for an employer to sign an indefinite term contract for seasonal work, the nature of the job for a short time.         

In fact, there are many employers who do not comply with the provisions that only one indefinite term contract should be signed, and the indefinite term labor contract must be signed if the employees continue working for them. It was learned from two labor disputes happened at Kindergarten T (village 2, commune T, district L, province Lam Dong) that[2]:

Ms. Phan Thi V and Mr. Vo Si P both worked at T Kindergarten from 2010 to 2018. During this time, both Ms. V and Mr. P signed consecutively 11 definite term contracts with a term of less than 1 year. In 2018, Kindergarten T terminated the labor contract for the reason of contract expiration. Both Ms. V and Mr. P believed that although the actual contracts of the two parties is the definite term contracts, their contracts have automatically transformed into the indefinite term contracts according to the law provisions. Due to the unlawful termination of Kindergarten T, they required to be compensated for the damages under the case of illegal unilateral termination of the labor contract.

In fact, the competent Courts settling these cases applied the provisions of Clause 2, Article 22 of the Labor Code 2012 to determine that although Ms. V, Mr. P, and Kindergarten T have signed the definite term contracts, “the contract between the parties is indefinite-term labor contract is true to the essence and accordance with the law”. Base on this ground, it was determined that the Kindergarten T’s termination of the labor contracts did not fall into the cases of legal unilateral termination for expiration under Article 36 of the Labor Code. It fell into the case of terminating the indefinite-term labor contract under the provisions of Article 38 of the Labor Code. For ensuring the time limit for prior notice in the case of terminating the indefinite-term labor contract, the Kindergarten T had to bear the compensation obligations according to the laws.

It is learned from the practice of the labor relationship in our country that there are many cases like Ms. V and Mr. P’s. The employees concern the job stable and continuous instead of the kind of labor contracts and the transformer of them. Not so many employees think about protecting their legitimate rights and interests by filing a lawsuit to a competent Court when the labor contract is terminated. The question called is despite the law provision regulated this issue and the administrative sanctions also tend to be more severe[3], those are not the only rule for the strict implementation of the employers.

2. The additional provision in Decree 44/2003/ND-CP has been left behind the Labor Code 2012. Thereto, what is the labor relationship between the employee and the employer when the employee continues working for the employer despite the termination of the labor contract? And how we deal with the dispute arising within this period?

Currently, there are 02 different views as follows:

The first viewpoint is that a new labor relationship has arisen between the 2 parties since the old labor contract expired. The definite-term contract has been transformed into an indefinite-term contract and a seasonal contract has been transformed into a definite term contract. The time for signing a new labor contract between the 2 parties is 30 days from the date on which the old labor contract expires.

The second viewpoint is that only when 30 days after the labor contract has expired and the new one is not signed while the employee continues working for the employer can the automatic transformation happen.

In reality, there are many disputes arising from this issue, and the viewpoints of the First Instance and Appellate Courts are also different. Even when the Appellate Judgment was canceled by a Cassation Decision, the Appellate Court does hold up their point of view and objects to the Cassation Decision.[4]

In the author’s opinion, the second point of view is more reasonable than the first one. It is necessary to understand that the period of 30 days after the expiration of the contract is regulated by law so that both parties can consider signing the new labor contract or terminating the labor relationship. Within 30 days, the issues between the two parties will be solved under the old labor contract, according to Decree 44/2003/ND-CP.  If the labor relationship is terminated, the terms and conditions of the old labor contract will be applied.

Provision on transformation of labor contract in Labor Code 2019 is suitable for the labor contract classification:

According to Article 22 of the Labor Code 2012, there are 3 types of labor contracts as follows: indefinite-term, definite-term contract and seasonal or work-specific labor contract with a term of less than 12 months.

According to the Labor Code 2019, there is a change in the classification of labor contracts. Under Article 20 of this Code, there are two types of contracts which are indefinite-term contract and definite-term contract with the term of less than 36 months from the day on which the labor contract takes effect.

The aforementioned change leads to the change of regulation on the contract transformation when it expires but the employees continue working for the employer.

 1. Within 30 days after the labor contract expires, the two parties must sign a new labor contract. During the time when a new labor contract has not been signed, the rights, obligations, and interests of both parties will be performed according to the signed contract.

Thus, the provisions of the Labor Code 2019 have supplemented the ones of Labor Code 2012 and inherit the provisions of Decree 44/2003/ND-CP at the same time. In particular, a contract entered into prior to its expiration will be applied to settle the rights, obligations, and interests of both parties within 30 days after the expiration date.

2. A definite-term contract will become an indefinite-term contract if the new labor contract is not signed after 30 days.

The two parties are allowed to sign a new labor contract, which is a definite term contract, for only one more time. There is no regulation on the term of this contract, so we can understand that the longest term will be 36 months instead of 24 months under the Labor Code 2012.

Thereafter, if the employee keeps working for the employer, an indefinite-term labor contract must be signed, except for the following cases:

- Labor contracts with directors of state-invested enterprises;

- Labor contracts of elderly people according to Clause 1, Article 149 of Labor Code 2019;

- Foreign employee’s labor contract with the term less than the duration of work permit under Clause 2, Article 151 of the Labor Code 2019;

- Labor contract with a member of the management board of the representative organization of employees according to Clause 4 Article 177 of the Labor Code 2019.

It can be understood that the Labor Code 2019 implicitly acknowledges an additional type of labor contract which is a definite-term labor contract for the position’s tenure or specific job. Thereto, the regulation on the contract term is no longer “rigid” with the compulsory term of 36 months or indefinite-term but more flexible in the according to the nature of the job, complying with work permits, or according to the term of work...

It can be seen that the law provisions on the labor contract transformation are gradually improving from time to time on the basis of inheriting the previous regulations and expanding the options for the parties involving in some particular cases. In our opinion, this option also aims to create the solution for the cases where the employer deliberately violated the law and the proactive settlement on the basis of practical legal provisions.