Statutory severance is one of the most frequently disputed items in Vietnamese labor cases. The 2019 Labor Code (Article 46) narrowed the scope compared with 2012, and many employers still have not updated their calculation procedure.
The basic test
An employee qualifies for statutory severance if (1) they have worked continuously for twelve months or more, and (2) the contract is terminated under specific paragraphs of Article 34 — namely those covering expiry, mutual agreement, lawful unilateral termination by the employee, dismissal under Article 36 (i.e. not for cause), and a few more.
Six situations that do NOT trigger severance
Article 46(1) excludes: (a) employees eligible for retirement benefits; (b) employees dismissed for cause under Article 125; (c) employees who unilaterally terminate unlawfully; (d) termination due to death, disappearance, or loss of legal capacity of the employee; (e) termination due to death or loss of capacity of an individual employer; (f) termination because the employee is sentenced to imprisonment.
Severance vs job-loss allowance
Job-loss allowance (Article 47) applies where the employer terminates due to restructuring, technology change, or economic reasons. The rate is one month of salary per year worked (versus half a month for severance). This distinction confuses many disputes — employees sometimes claim both, where the statute permits only one.
Severance pays for years of service. Job-loss allowance pays for the burden of finding new work when the loss is not the employee's fault.
How the calculation works in practice
Formula: (eligible years of service) × (½ × average monthly salary of the six months immediately before termination). Important: time during which unemployment insurance was paid is excluded, because severance and unemployment insurance are mutually exclusive under Article 8 of Decree 145/2020/NĐ-CP. Unemployment insurance contribution started in 2009 — so in practice today, an employee with less than seventeen years of service typically has no severance entitlement, only the unemployment-insurance benefit.
Recommendation: for every termination decision, prepare a service-time worksheet separating the severance-eligible period from the period covered by unemployment insurance. This document is decisive if the employee sues.
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