Navigating Vietnam’s Labor Landscape: Impacts of the New Trade Union Law

As global manufacturers shift their production focus from China to Vietnam, the landscape of labor and employment in this Southeast Asian nation is undergoing significant transformation. The growing interest from European and U.S. companies is not only driving economic expansion but also increasing the urgency for Vietnam to modernize its labor standards and protect workers’ rights. The recent introduction of a draft Law on Trade Union marks a pivotal moment in this evolution, posing both challenges and opportunities for employers across the country.

The New Draft Law on Trade Union

The draft Law on Trade Union heralds a major restructuring of Vietnam’s trade union framework. This forthcoming legislation is intended to replace the existing trade union laws instituted in 2012 and is expected to be under review during the National Assembly’s eighth sitting in October.

Centralized System Under Pressure

Currently, Vietnam’s trade union system is heavily centralized, governed by the Vietnam General Confederation of Labor (VGCL), which operates as an arm of the Vietnamese Communist Party. This means that all trade unions must function through the VGCL, effectively limiting the autonomy of labor organizations. Recent international agreements, specifically the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EU-Vietnam Free Trade Agreement (EVFTA), challenge this model by incorporating sustainability standards that promote the establishment of independent trade unions, thereby contradicting the existing centralized approach.

ILO Compliance

Both the CPTPP and the EVFTA require Vietnam to align with certain International Labour Organisation (ILO) standards, including the crucial ILO Convention No. 87, which safeguards workers’ rights to form and join independent unions. With a deadline approaching in January 2024, Vietnam finds itself at a crossroads, needing to adapt its labor laws to foster a more democratic and pluralistic union environment.

The Migration of Manufacturers to Vietnam

The increasing migration of manufacturers from China to Vietnam is driven by several key factors that are reshaping Vietnam’s economic landscape.

Rising Labor Costs in China

Labor costs in China have surged dramatically, skyrocketing by over 160% since 2010. This economic pressure has led many Western companies to reconsider their production strategies.

Political Tensions with the West

Ongoing political tensions, marked by sanctions from the EU regarding human rights violations and significant tariffs imposed by the U.S. on Chinese imports, have opened the door for Vietnam as a viable manufacturing alternative. Consequently, this influx of international companies is not only enhancing Vietnam’s economic growth but also placing increasing pressure on the labor market to modernize.

Implications of the New Law for Employers

If enacted, the new trade union law will bring about sweeping changes for employers, necessitating a reevaluation of existing policies and procedures.

Protection Against Discrimination

One of the most significant amendments proposed in the new law involves expanding protections for employees who join or establish unions. Employers would be explicitly prohibited from discriminating against any worker for their union-related activities.

Expanding Trade Union Rights

Under the draft legislation, trade unions will gain enhanced supervisory rights, including the ability to request information from businesses during state inspections. This shift could markedly increase the level of scrutiny companies are subject to regarding labor practices.

Inclusivity in Membership

The draft law proposes to broaden the scope of who qualifies for union membership, extending protections to informal workers and foreign employees, fostering a more inclusive and representative labor environment.

Financial Flexibility for Unions

In a move that acknowledges the realities faced by businesses, the law introduces provisions allowing for the waiver of union fees in circumstances where companies are compelled to halt operations due to force majeure events.

Preparing for Transition: Steps for Employers

Embrace the Possibility of Unionization

With the potential for employees to create independent unions, employers must proactively prepare for this new reality. Revisiting company policies and equipping managers with the necessary tools to foster open communication can mitigate potential tensions.

Compliance Review

Employers should conduct comprehensive reviews of existing policies to ensure alignment with the new law’s requirements. This includes placing a strong emphasis on non-discrimination against union-affiliated employees and providing training to prevent biases in decision-making.

Conducting Self-Audits

Given the anticipated increase in union oversight, it’s essential for employers to proactively conduct self-audits. Ensuring proper documentation and readiness for potential data requests during inspections can promote transparency and compliance.

In this dynamic landscape, understanding and adapting to the evolving labor and employment laws will be crucial for employers looking to thrive in Vietnam’s burgeoning economy.