RIGHTS OF EMPLOYEES WHEN THE ENTERPRISE GOES BANKRUPT

1. Legal bases

• Labor Law 2019
• Bankruptcy Law 2014

2. What is bankruptcy ?

Pursuant to Clause 2, Article 4 of the 2014 Bankruptcy Law: "Bankruptcy is a situation in which an enterprise or cooperative becomes insolvent and is declared bankrupt by the People's Court".

In particular, an insolvent enterprise or cooperative is an enterprise or cooperative that fails to fulfill the obligation to pay the debt within 03 months from the payment due date (According to Clause 1, Article 4 of the Bankruptcy Law 2014). One of the mandatory contents of the decision to declare bankruptcy is the termination of the operation of the enterprise. Accordingly, the enterprise will terminate its operation from the date the Court issues a decision to declare bankruptcy.

3. The labor contract is terminated when the enterprise goes bankrupt

- According to Clause 7, Article 34 of the Labor Law 2019

- A labor contract terminates when an employer who is not an individual terminates its operation

- Thus, the case of bankruptcy of an enterprise is a case that leads to the termination of the labor contract between the employee and the employer.

4. Employees' rights when the enterprise goes bankrupt

- According to the provisions of Clause 4, Article 48 of the Labor Law 2019

- In case the enterprise goes bankrupt, wages, social insurance, health insurance, unemployment insurance, severance allowance and other benefits of employees under collective labor agreements and labor contracts shall be prioritized for payment.

- Based on that, when the enterprise goes bankrupt, the employee is entitled to the salary and severance allowance, the types of insurance participated, and other benefits according to  the signed labor contract and labor agreements.

5. Employees are prioritized to settle benefits when the enterprise goes bankrupt

- According to the provisions  of Point b, Clause 1, Article 54 of the Bankruptcy Law: "Salary arrears, severance allowance, social insurance, health insurance for employees, other benefits under signed labor contracts and collective labor agreements".

- With this provision, employees will be  given second priority payment after bankruptcy costs have been paid. However, if after liquidating all the assets of the enterprise, there is only enough or even not enough to pay bankruptcy costs, the employee will not receive any payment.

- Get paid wages for unpaid working days:

+ Within 14 working days from the date of termination of the labor contract, the two parties are responsible for paying in full the amounts related to the interests of each party. In case of bankruptcy of an enterprise, the payment term may be extended but not exceeding 30 days as prescribed in Clause 1, Article 48 of the Labor Code 2019.

+ Accordingly, the company must be responsible for paying the labor salary according to the actual working time that has not been paid salary within the prescribed time.

- Entitled to severance pay

+ According to the provisions of Article 46 of the Labor Code in 2019, an employee who has worked regularly for full 12 months or more at the time of termination of the labor contract will be paid a severance allowance by the employer, unless the employee reaches the pension age.

+ For each working year, employees will be subsidized with half a month's salary.

- Get paid for insurance and other benefits

+ In addition to being paid salary, severance allowance, enterprises must also pay insurance: social insurance, health insurance and unemployment insurance and other benefits for employees according to the signed labor contract and collective labor agreement.

+ Regarding unemployment benefits, the Social Insurance Agency is responsible for paying the employee upon termination of the labor contract. According  to Article 50 of the 2013 Employment Law,  the monthly unemployment allowance of employees is equal to 60% of the average monthly salary paid for unemployment insurance premiums in the 6 months preceding unemployment.

Based on this analysis, when an enterprise unfortunately goes bankrupt, employees are always protected by the law and have their own rights. This not only helps workers get through difficult times but also contributes to ensuring that their work and life are not affected and there are opportunities to find stability and thrive future development.

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For more information, please contact:

Hoang Pham (James) / Managing Partner at: hoang.pham@vselawyers.com

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Attention: This legal update is not an advice and should not be treated as such.