perspectives on compensation disputes related to the material liability of employees, compensation disputes related to the material liability of employees in Vietnam, disputes related to the material liability of employees in Vietnam, material liability of employees in Vietnam,

Perspectives on compensation disputes related to the material liability of employees in Vietnam

Material liability is a distinctive concept in the field of labor. Unlike types of damages in commercial and civil fields, which dictate that compensation includes both material and moral aspects, as well as potential benefits, material liability only arises when an employee causes direct damage to the employer’s property. This does not cover indirect damage or future losses such as reputation, honor, or intangible assets like patents, copyrights, or trademarks.

During their employment, for various reasons, employees may cause material damage to the assets of the enterprise. The employee’s actions may be unintentional or deliberate; however, this factor will not be legally considered but only serves as a supplementary factor when the employer decides to claim compensation.

Similarly, other factors such as the employee’s negligence or lack of responsibility in performing tasks are not clearly regulated and depend on the specific labor regulations of each enterprise, without legal value affecting the level or timing of compensation.

From a legal perspective regarding compensation related to employees’ material liability in Vietnam, applying material liability to employees depends on various factors. It is not simply that if an employee causes property damage during their labor, the employer can impose labor discipline and claim compensation by deducting the employee’s monthly salary until it matches the caused damage.

This article will analyze the legal concept of material liability in the labor relationship between employees and employers, the conditions for employers to apply material liability to employees, the level of compensation for material liability, and some notes on the practical application of material liability.

Legal Regulations on Material Liability

To apply material liability, employers must first have specific legal grounds for material liability stipulated in the company’s labor regulations. Point h, Clause 2, Article 118 of the Labor Code 2019 No. 45/2019/QH14 (the “Labor Code 2019“) stipulates that material liability is one of the main contents that must be specified in the labor regulations.

It is important to note that although labor regulations are a mandatory requirement for every company, including those with fewer than 10 employees (and must be documented for companies with more than 10 employees), the contents of the labor regulations do not necessarily have to follow a specific standard or template.

Therefore, if material liability is not stipulated in the labor regulations, the employer cannot use this basis to claim compensation or require material liability payments from the employee.

Once the regulations have been established, communicated, and acknowledged by the employee, the employee is responsible for adhering to the labor discipline stipulated therein. If the employee fails to comply or does not fully perform their duties, causing damage to the employer, they must bear the corresponding legal consequences, including material liability as specified in the regulations.

Conditions for Applying Material Liability

To apply material liability, employers need detailed legal grounds specified in the company’s labor regulations. However, this is not the only condition.

A more practical factor for applying material liability, given that most businesses have detailed regulations, is the ability to demonstrate a causal relationship between the employee’s violation and the resulting damage to the employer’s tangible assets.

The disciplinary violation by the employee must have a direct impact leading to material damage to the employer. If the causal relationship between the employee’s actions and the employer’s damage is unclear or non-existent, the employer cannot impose material liability on the employee.

Therefore, if it is determined that the employee did not commit any wrongdoing and merely followed the job requirements accurately, they will not be liable for compensation. This also applies in cases where the damage was caused by objective, unforeseeable, and unavoidable incidents, even if the employee took all necessary and possible measures.

Level of Material Liability Compensation

The Labor Code 2019 does not specify exact compensation levels when applying material liability. The code distinguishes between non-serious, serious, and particularly serious damages but only clarifies that non-serious damage is when the value does not exceed 10 months of the regional minimum wage as announced by the Government at the employee’s workplace (Clause 1, Article 129).

However, there is no clear basis for serious and particularly serious damages as stated in Clause 2, Article 125. Employers can define these levels and compensation requirements in the labor regulations, subject to employee agreement.

In cases where an employee causes non-serious material damage valued at no more than 10 months of the regional minimum wage, the maximum compensation is three months of actual salary, not exceeding the actual damage caused.

This compensation can be deducted monthly if no alternative agreement is reached, but it cannot exceed 30% of the employee’s monthly salary after mandatory social insurance, health insurance, unemployment insurance contributions, and personal income tax (Clause 3, Article 102). This ensures that the employee retains sufficient income for daily expenses and prevents employer abuse.

Additionally, employers should consider the fault, actual damage, and the employee’s family, personal, and financial circumstances when deciding the compensation amount. If the employee cannot manage with 70% of their monthly salary, the parties should negotiate to extend the compensation period with lower monthly payments.

Conversely, if the employee can pay in a shorter period or a lump sum, they may do so, depending on the agreement between both parties.

If opting for monthly payments over a specific period, the employer can set up commitments or contracts with collateral to ensure compliance, preventing the employee from unilaterally terminating the contract or liquidating assets to avoid compensation.

These details should be specified in the Compensation Decision between the parties, outlining the damage amount, cause, compensation level, time frame, and form of compensation. This decision must be sent to all parties involved as per Clause 4, Article 72 of Decree 145/2020/ND-CP.

Compensation Disputes Related to Material Liability of Employees in Vietnam

Contrary to most labor regulations that typically favor the rights of employees, material liability regulations tend to protect the legitimate rights and interests of employers.

Nature of Disputes

According to annual summary reports from the Supreme People’s Court of Vietnam and the list of published judgments/decisions, the majority of disputes related to material liability involve employers as plaintiffs and employees as defendants, rather than the reverse.

This trend is because employees, when realizing they will have to work full-time for a lower salary over a long period to compensate for damages, often choose to resign and unilaterally terminate the labor contract to avoid the financial burden, even if they are the ones who caused the damage to the enterprise.

Legal Mechanisms and Practical Challenges

The current mechanism does not provide employers with stronger measures to claim damages, such as demanding 100% monthly salary compensation or liquidating secured assets, as employees are not required to provide collateral when signing labor contracts.

In some cases, the only significant asset employers can leverage against employees is the social insurance book and their potential impact on the employee’s career in the industry. However, these factors are insufficient to motivate employees to stay with the company during the compensation period.

In civil lawsuits, employers as plaintiffs often find themselves at a disadvantage as employees have more freedom and options to avoid compliance. For example, employees can choose not to cooperate, change their residence and contact details, or relocate to another area for work.

Execution of the judgment is also challenging when there is no secured obligation or collateral to enforce the compensation. These lawsuits often result in low effectiveness but incur costs for employers, including time and effort, distracting from regular business operations.

Employee Vulnerability and Employer Misconduct

In many cases, employees do not pursue lawsuits regarding material liability and accept the losses. Conversely, in some instances, employees are at a disadvantage due to employer coercion related to material liability. Many businesses, particularly in the finance sector, often require employees to have security measures or fulfill compensation obligations when damage occurs.

For example, employers may pressure employees to use personal assets as collateral for transactions requiring secured assets instead of using company funds. This approach forces employees to be more responsible during work but does not guarantee their rights and interests since they bear the risk of compensation before any damage occurs, contrary to the concept of material liability.

Legal Gaps and Recommendations

This issue is becoming increasingly prevalent in the Vietnamese private sector, serving as a legal loophole where employers, typically the weaker party in compensation disputes, exploit the lack of labor law provisions to impose unfair conditions.

To address this situation, Vietnam needs stricter regulations on employer misconduct, stronger deterrent penalties, and clearer definitions of serious and particularly serious damages. Additionally, granting employers the right to enforce stronger measures, such as requiring employees to provide collateral when violating and causing property damage to the enterprise, would help balance the rights and responsibilities of both parties.

Stricter regulations and clear definitions will ensure that both employees and employers are treated fairly, reducing the likelihood of disputes and ensuring that compensation for damages is handled justly and effectively.

ASL LAW is the top-tier Vietnam law firm for Employment and Labor Law. If you need any advice, please contact us for further information or collaboration.

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