New aspects of the Labor Code 2019 on signing labor contracts
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Publishing date:
May 11, 2020

The Labor Code 2019 will take effect as from 1 January 2021 (Labor Code), introducing a range of revisions to overcome certain drawbacks of its predecessor, the Labor Code 2012. Further to our previous update on the Labor Code 2019, we will here focus on some of the most noteworthy revisions relating to the labor contracts, especially the stage of contract signing.

1. Broader definition of the labor contract

While the current Code simply defines labor contract as an agreement between an employee and an employer, the new Labor Code broadens this definition by providing that any agreement between two parties under any name whatsoever, if satisfying all of the following criteria, will be considered a labor contract:

• On the basis of such agreement, one party (A) works for the other party (B);

• The work of A is paid with salaries or wages; and

• A is under the management, executive operation administration and supervision of B.

This may, arguably, extend the governing scope of the Labor Code to other relationships between individuals and companies, such as service contracts for temporary works or for certain special managers/specialists. If this is confirmed by the competent authorities, companies may face a greater burden as they may have to apply employment benefits and obligations, which are being applied to their employees, to these individuals as well.

2. Only 2 types of labor contracts

The new Labor Code eliminates “seasonal or specific job labor contracts with duration of less than 12 months”. Therefore, there are now only 2 types of labor contracts: definite-term contract (with the effective term of no more than 36 months) or indefinite-term contract.

The employer can sign definite-term contracts with an employee for maximum of 2 times, after which an indefinite-term contract must be entered into. However, unlike the current Code which has no exception, the new Labor Code introduces some exceptional cases to this rule, including:

• Labor contracts signed with senior workers and foreign employees: definite-term contracts can be entered into more than 2 times;

• The employee being a leadership member of an organization representing employees: the effective labor contract must be extended until the end of the office term; and

• The person hired as directors in enterprises with the State’s capital contribution: this is to be regulated by a to-be-issued guiding decree.

Of note, the new Labor Code no longer allows the employer to amend the effective term by signing an appendix to the labor contract, so signing a new labor contract for extension is compulsory.

3. Notable changes relating to probation

First, probation will not be applicable to the sole case of definite-term labor contract with the term of under 1 month.

Second, the probationary term can last for up to 180 days (rather than a maximum of 60 days as currently regulated) for employees who are managers (as defined in the Law on Enterprises and Law on Management and Use of State Capital Invested in Production and Business in Enterprises).

Third, the new Labor Code now acknowledges two methods of agreements on probation between parties, which are (i) signing a probationary contract or (ii) signing a labor contract with provisions on probation. Accordingly, in case of satisfactory probationary work, the parties will proceed to enter into a labor contract or continue to perform the signed labor contract respectively. In the contrary case, any signed contract between the parties will be terminated.

It should be noted that as from the Code’s effective date (i.e. 1 January 2021), any labor contracts already signed should be reviewed and amended if necessary to ensure compliance with the new Labor Code. Companies should be well aware of all notable revisions in the new Labor Code for timely compliance and better protection.

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.
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