As of April 9, 2025, the U.S. Government officially imposed an additional 10% retaliatory tariff for a 90-day period on imported goods from Vietnam. This is a move aimed at reducing the U.S. trade deficit—which reached USD 123.5 billion with Vietnam in 2024. This policy is placing significant pressure on export businesses, especially in key sectors such as electronics, textiles, footwear, and furniture—industries that heavily depend on the U.S. market and account for nearly 30% of Vietnam’s export GDP. The sudden imposition of tariffs, which may increase after the 90-day period, has led many businesses to face the risk of order reductions and supply chain disruptions, potentially forcing them to scale down production or temporarily suspend operations.

In this context, a key legal question arises: when a company is forced to reduce production, how can it lawfully terminate labor contracts? The labor dispute between Ms. Nguyễn Hoàng Thanh T and F Co., Ltd. is a typical example of how Vietnamese companies handle workforce downsizing amid economic difficulties.

Case Background:

• Ms. T was employed by Company F starting from March 8, 2016, under an indefinite-term labor contract, with a monthly salary of VND 24,550,000.
• On July 7, 2023, Company F notified Ms. T of the termination of her labor contract, effective from September 16, 2023, citing restructuring due to a decrease in orders.
• Ms. T filed a lawsuit, claiming that the unilateral termination of her labor contract was unlawful.

Ms. T’s Demands:

• Reinstatement at the company.
• Compensation for wages during the period of unemployment (10 months): VND 245,500,000.
• Compensation for unlawful unilateral termination (2 months’ salary): VND 49,100,000.
• Social insurance (SI), health insurance (HI), and unemployment insurance (UI) contributions during the 10-month unemployment period: VND 52,782,500.
• Total compensation claimed: VND 294,600,000.

Company F’s Arguments:

• The company presented evidence proving that the termination of Ms. T’s contract, as well as those of other workers, was due to a significant decline in orders, impacting production and financial performance. Despite all efforts to recover, operations could not be sustained.
• Company F relied on Articles 42 and 44 of the 2019 Labor Code to assert the legality of the termination due to economic reasons or organizational restructuring, and claimed to have complied fully with all legal procedures.
• The company carried out the following steps:

o Workplace dialogue: Held on June 29, 2023, to discuss restructuring and labor reorganization.

o Meeting with the grassroots trade union: Held on July 3, 2023, to consult on the termination of multiple employees under the labor utilization plan.

o Submission of labor utilization plan: Sent to the Department of Labor – Invalids and Social Affairs on July 26, 2023.

o Notification of restructuring: Sent to the provincial People's Committee on August 14, 2023.

o Notice to the employee at least 45 days in advance.

• Additionally, the company fully paid wages and finalized social, health, and unemployment insurance for Ms. T up to the termination date (September 16, 2023).
• Counterclaim: Company F demanded that Ms. T return VND 11,172,000, which it had to pay in supplemental social insurance contributions following an audit.
• Company F agreed to pay severance compensation of VND 49,100,000.

Court Decisions:

• Trial Court (May 27, 2024) – Thuận An City People’s Court:

o Dismissed all of Ms. T’s claims regarding unlawful termination.

o Acknowledged Company F’s voluntary payment of two months' severance: VND 49,100,000.

o Accepted Company F’s counterclaim: Ms. T must return VND 11,172,000 for the SI back-payment.

• Appellate Court – Bình Dương Provincial Court:

o Ms. T appealed the entire trial court decision.

o Court findings:

- Company F had legitimate grounds for terminating Ms. T’s employment due to economic downturn and declining orders, as supported by financial reports showing reduced profits and economic hardship.

- Procedurally, Company F complied with all legal requirements under Articles 42 and 44 of the 2019 Labor Code. These procedures do not require employee consent.

- At the request of the Social Insurance Authority, Company F was required to pay additional contributions on wage differentials due to previous underpayments—this action was deemed lawful to protect the employee’s entitlements.

o The court upheld the trial court’s ruling.

Key Takeaways:

The case of Ms. T and Company F demonstrates that terminating labor contracts for economic or organizational restructuring reasons is a legal right of enterprises. However, this right cannot be exercised arbitrarily—it must be grounded in specific evidence and follow the lawful procedures.

If companies fail to meet these conditions, they may face serious legal consequences, including:

• Risk of lawsuits and compensation demands from employees: such as reinstatement, back pay, continued insurance contributions, and penalties for unlawful termination. In Ms. T’s case, the total claim was VND 294,600,000.
• Administrative penalties: Under Decree 12/2022/ND-CP, companies may face fines from VND 10–150 million for unlawful termination or failure to fulfill insurance obligations.
• Damage to reputation, work environment, and recruitment efforts: Prolonged labor disputes, especially those reported in the media, can negatively affect a company’s image and ability to attract future talent.

In the face of external economic shocks—such as the U.S.'s new tariff policy—many Vietnamese businesses may be forced to lay off employees to stay afloat. To minimize legal risks and ensure compliance, companies should take note of the following:

• Proactively prepare documentation evidencing economic hardship: Collect data on reduced orders, revenue drops, or tariff impacts (e.g., financial reports, cancellation letters from U.S. clients).
• Diligently follow the legal procedure for contract termination:

o Hold workplace dialogues and properly document them.

o Consult with employee representatives (grassroots union or worker collective).

o Submit labor utilization plans and notify local authorities (Department of Labor / Provincial People’s Committee) at least 30 days in advance.

o Give affected employees at least 30 days’ notice.

The new U.S. tariff policy is creating intense pressure on Vietnamese businesses, risking job cuts and closures. The case of Ms. T and Company F serves as a prime example showing that enterprises can lawfully terminate labor contracts when facing economic hardship and organizational restructuring if:

• The reasons are objective and reasonable (e.g., economic difficulty due to declining orders);
• All procedural requirements under the 2019 Labor Code are strictly followed.

This is an important practical lesson for the business community amid rapidly changing global economic conditions, particularly when impacted by cross-border trade policies like tariffs.

Recommendation: Before making any personnel downsizing decisions, businesses should consult legal experts or labor lawyers to safeguard the rights of both parties and minimize the risk of prolonged disputes.