Written by Minh Nguyen, Senior Associate
ACSV Law Firm, Ho Chi Minh City
On 30 January 2020, the Director-General of the World Health Organization (WHO) declared that the outbreak of 2019 Novel Coronavirus (2019-nCoV) constitutes a global public health emergency. On 1 February 2020, Vietnam’s Prime Minister announced that the 2019-nCoV-caused epidemic on a nationwide level (Epidemic).
This epidemic is causing massive disruptions to businesses and might impact certain contractual relationships, either with clients or employees.
Through this legal update, we will present you the notable changes in regulations, which might directly affect your daily business operation in Vietnam. We will also discuss certain legal issues that Vietnam-based companies might encounter due to the epidemic.
1. Transport and Commute Restrictions
1.1. Suspension of Flights between Vietnam and China
As from 1 February 2020, all flights of either Vietnamese or foreign airlines with routes between Vietnam and China have been cancelled until the Prime Minister grants reoperation permission If the Epidemic becomes more severe, Vietnam’s Government can consider a temporary closure of airports in Vietnam and suspension of any flights to and from Vietnam.
1.2. Ban to Enter Vietnam
On 31 January 2020, the Prime Minister issued Directive No. 06/CT-TTg (Directive 6), which sets out a number of multifaceted measures to prevent the spread of the 2019-nCoV. Directive 6 provides that the issuance of entry visas to foreigners (Chinese and non-Chinese citizens) who are currently living or have been resided for the past 2 weeks in China must be suspended. Several exceptions are however granted on a case-by-case basis for those who plan to obtain “visas of public affairs”.
Directive 6 also puts a ban on any entry and exit of on-foot travellers across the borders of Vietnam and China for tourism purposes.
2. Isolation of Suspected People with Viral Infection
Any individual who has been in virus-infected provinces of China in the 14 days before entering into Vietnam must be isolated in special facilities arranged by provincial People’s Committees or in their dwellings under a stringent surveillance of competent authorities The same applies to those who transited in or resided in these provinces. Notably, those who are under strong suspicion of carrying the 2019-nCoV shall be set apart and confined in health clinics. Those who enter Vietnam from Hubei, China shall be deemed infected with 2019-nCoV and then be confined in isolation zones. Additionally, those who have been or used to be in a close contact with the suspected might be put under health surveillance. For Vietnamese citizens who are unable to leave China, the Vietnamese Government has liaised and coordinated with the Chinese Government to arrange they can return home. These individuals shall be isolated during 14 days upon their return for health surveillance.
3. Labor Restrictions
On 2 February 2020, the Ministry of Labor, War Invalids and Social Affairs (MOLISA) issued Official Letter No. 01/CD-LDTBXH requiring Vietnam-based companies to temporarily cease accepting Chinese employees or employees from epidemic zones returning to work after the Tet Holiday. If employees already had come back to Vietnam and resumed work, the employers must inform the local health authorities of these cases and carry out health surveillance for such employees within 14 days after their entry into Vietnam. The MOLISA also orders a temporary suspension on granting new work permits to expats coming to Vietnam from epidemic zones.
4. Key Employment Issues
4.1. Obligation on Announcement of Epidemic Status
The 2012 Labor Code imposes obligations on employers to keep employees updated on the status of occupational safety and hygiene at the workplace and to propose solutions to eliminate or minimize relevant health and safety risks at the workplace. It is therefore advisable that employers make an official announcement to all of their employees about the status of the Epidemic and to take the necessary measures at the workplace to prevent transmission of the 2019-nCoV.
4.2. Temporary Assignment of Duties
Due to the Epidemic, a company may encounter a temporary shortage of labor force when its employees are infected or suspected to be infected with the Coronavirus and therefore cannot perform their job. In such event, the 2012 Labor Code allows an employer to temporarily shift an employee to another position to fill in the vacancies, provided that the assignment does not exceed 60 accumulated working days within 1 year, unless otherwise agreed by the employee.
4.3. Work Suspension Wage
If an employee has to temporarily cease working because of an objective reason rather than the fault of the employer (e.g. due to the Epidemic), the employer can negotiate a wage for work suspension with the employee provided that such wage is not lower than the regional minimum wage stipulated by the Government.
4.4. Temporary Recruitment
Should an employee take a long leave due to the Epidemic, the employer can recruit a temporary employee under a labor contract of less than 12 months to fill in the vacancy.
4.5. Overtime Work Due to the Epidemic
According to the 2012 Labor Code an employer has the right to require an employee to work overtime at any day to implement tasks to protect human lives in light of the Epidemic and the employee cannot refuse. This entitlement will likely be invoked by companies operating in the healthcare or pharmacy businesses during the Epidemic.
4.6. Workplace Accidents Due to 2019-nCoV Infection
According to the 2012 Labor Code, a workplace accident is defined as an accident occurred during working hours in connection with job performance and causing bodily injuries or death.
In case a workplace accident happens, a company is required to, inter alia,
• Immediately report fatal cases or serious injury cases affecting at least 2 employees to the inspectorate body of the local labor authority, and take the necessary actions to investigate mild injury cases or serious injury cases affecting only 1 employee; and
• Be responsible for medical expenses of the affected employee(s) and/or compensate the affected employee(s) if the company is found at fault.
Based on the aforesaid definition of a workplace accident, one can argue that where an employee is infected with the 2019-nCoV during working time this will be considered as a workplace accident. This argument might particularly be explored by employees working while in direct contact with 2019-nCoV infected patients such as nurses or doctors. If this argument succeeds, this will be a large financial burden on companies being considered at fault in letting employees be exposed to the 2019-nCoV during working hours. It is advisable for Vietnam-based companies to consult the labor authorities about this issue to envision possible legal risks arisen therefrom.
4.7. Unilateral Termination of Labor Contract
The 2012 Labor Code allows an employer to unilaterally terminate the labor contract with an employee by a 3-working day advance notice when he/she is sick for a long time i.e. an employee being sick for:
• 12 consecutive months in case of an indefinite-term Labor contract,
• 6 consecutive months in case of a definite-term Labor contract; and
• More than half of the contract term in case of a Labor contract of less than 12 months),
and remains unable to work after having received medical treatment.
Accordingly, an employer may apply this provision when an employee is infected with 2019-nCoV and unable to resume work after a long period of time. Having said that, however, the employer must consider taking the employee back to work after the employee recovers.
An employee can unilaterally terminate the Labor contract with the employer by a 3-working day advance notice if he/she is sick due to being infected with the 2019-nCoV and remains unable to work after having received treatment for:
• 90 consecutive days in case of a definite-term Labor contract, or
• A quarter of the contract term in case of a Labor contract of less than 12 months.
• If the employee is currently working under an indefinite-term labor contract, the advance notice period is 45 days.
4.8 Benefits for Employees Infected with 2019-nCoV
4.8.1. Medical insurance
The Ministry of Health announced on 6 February 2020 that 2019-nCoV infected people or infection suspects will receive free diagnosis, treatment and medicine regardless of whether the person is a medical insurance cardholder or not.
4.8.2. Social insurance
According to the 2014 Law on Social Insurance, when an employee is absent from work for treatment of the disease caused by 2019-nCoV and such employee has been subscribed to a mandatory social insurance package, the employee’s monthly salary will be covered by the State’s social insurance fund at a standard ratio of 75% of the salary of the preceding month before the sick leave. Save for certain exceptions, the maximum period for sickness allowance is from 30 to 70 days per year, subject to the nature of the employee’s job and the number of years the employee has contributed to the social insurance fund.
An employee who has taken all sickness leave days he/she was entitled to in a certain year under the law, but has not yet recovered, is entitled to certain days of leave for convalescence within the first 30 days upon returning to work. The total number of convalescent leave days per year is 5 to 10, subject to the decision of the employer and the Trade Union. Convalescence allowance will be equal to 30% of the basic wage currently being about VND 1.5 million (~USD 64 per month) and will be calculated on a pro rata basis.
5. Key Contractual Issues
5.1. Force majeure and Impediment
Some terms that come to mind when thinking of the 2019—CoV, which business’ owners and managers would like to invoke, are force majeure and impediment. In the 2015 Civil Code force majeure is defined as an event, which is objectively unforeseeable and is not able to be remedied by all permissible and possible necessary measures. Impediment is defined as a hindrance caused by objective circumstances which result in a person with civil rights or obligations not knowing that his or her lawful rights and interests have been infringed, not being able to exercise his or her rights or fulfill his or her civil obligations.
Although the terms force majeure and/or impediment are very commonly used in commercial contracts, there is no exhaustive list under Vietnamese law describing all circumstances these terms cover. Therefore, the question of whether the Epidemic and/or the resulting Government restrictions constitute a force majeure or an impediment from a Vietnamese law perspective can only be answered after examining the specific wording of force majeure and/or impediment clause in the contract. Furthermore, to conclude if a force majeure and/or impediment clause could be invoked to remove liability for the delay or failure to perform certain contractual obligations, one must also answer the following questions:
1. What is the triggering event for force majeure and/or impediment? The event where the Director-General of the WHO declared a global public health emergency for the 2019-nCoV outbreak or the event where Vietnam’s Prime Minister announced the Epidemic in Vietnam or else?
2. Does the affected party have to comply with an advance notice obligation towards the other party?
3. Does the affected party have to oblige to a duty to mitigate the effects of a force majeure and/or an impediment event?
Given the above, Vietnam-based companies should carefully review the wording of force majeure and/or impediment clause in the context of the affected contract and consult with outside counsels if necessary, before relying on the force majeure and/or impediment clause for a contractual performance relief.
5.2. Material Adverse Change
Material adverse change (MAC) is a term stemming from frustration doctrine under common law. It normally means a change in circumstances, which causes the performance of a specific contractual obligation to be detrimental to the obligator’s interest. It is similar to the concept of basic change of circumstances, which was introduced in the 2015 Civil Code. The MAC clause is commonly employed in M&A, loan and financing agreements.
If the Epidemic constitutes a MAC, an affected contracting party is entitled to back out from implementing the contract or to re-negotiate certain terms and conditions of the affected contract. However, similar to the force majeure and/or the impediment clause, the MAC clause might be designed to be conditioned upon certain factors. Therefore, a company seeking for contractual performance relief based on a MAC clause should carefully examine the wording of the MAC clause first.
5.3. Insurance Exposure
The Epidemic could give rise to the invocation of the business interruption clause under an insurance policy. Business interruption is normally defined as a loss of gross profit as a result of interruption to the insured’s business caused by certain perils. Both insurer and insured operating in Vietnam should check their insurance policies to assess the possibility of business interruption claims being filed.
To conclude, although the situation of the Epidemic appears to be under control in Vietnam – so far Vietnam has recorded only 16 cases of virus infection with no fatalities – investors and companies carrying out a business or doing business with companies in Vietnam should take into account the aforesaid Government restrictions and potential legal issues in order to prepare an action plan or a protocol to guide the conduct of employees and relevant stakeholders during the Epidemic.
At the moment, we do not foresee any substantial risk, which might materially affect the conduct of your project or business in Vietnam.
|For additional information contact:
Minh Nguyen / Senior Associate