In the context of ongoing economic fluctuations, it is essential for businesses to continuously adjust their strategies and management practices to adapt and maintain financial stability. This leads to the need for workforce management that aligns with the company’s business plans. In such circumstances, when situations arise that may call for a settlement agreement, both the employer and the employee must take note of legal regulations as well as market practices to negotiate transparently, harmoniously, and in a manner that benefits both parties.

Let’s explore in more detail the role of a “Settlement Agreement” (or Employment Termination Agreement) in businesses, as well as the legal framework surrounding this matter.

What is a Settlement Agreement?

A settlement agreement is a legally binding but voluntary document that sets out the terms and conditions agreed upon by both the employer and the employee to terminate their employment relationship or resolve disputes between the two parties.

Some practical situations where businesses and employees may need a settlement agreement include: corporate restructuring or workforce reduction, an employee not meeting performance expectations, resolving labour disputes, terminating employment for personal reasons (such as a change of job, health issues), internal conflicts, or incompatibility in the workplace.

Here are a few specific benefits that a settlement agreement brings to businesses:

1. Avoiding legal disputes:

A settlement agreement helps businesses avoid costly and prolonged labour litigation by reaching an agreement with the employee on terminating the employment or resolving disputes amicably.

1. Protecting the company’s image and reputation:

Reaching a settlement agreement helps businesses maintain a positive image with employees and safeguard their reputation in the labour market.

1. Ensuring financial predictability:

By reaching a mutual agreement, businesses can anticipate financial payments to employees, allowing them to proactively manage workforce-related matters. Moreover, settlement agreements can help reduce costs associated with dispute resolution and other legal risks.

1. Maintaining a positive working environment:

Resolving disputes or terminating employment amicably helps preserve stability and harmony in the workplace, preventing tension or negative impacts on the morale of other employees.

When executed appropriately, a settlement agreement not only protects the business’s interests but also maintains a positive relationship with the employee, even after the employment relationship has ended.

Legal Framework Relating to Settlement Agreements

The Labour Code 2019 and Decree 145/2020/ND-CP allow employers and employees to terminate employment contracts based on mutual consent. In addition, related legal documents, such as the Employment Law, the Cybersecurity Law 2018, and Government Decree 13/2023/ND-CP on personal data protection, form the legal framework governing employee rights, unemployment insurance, and the protection of personal data after employment termination.

However, these documents do not provide specific conditions or situations concerning settlement agreements, nor do they outline the rights and obligations of the parties during negotiations or the legal requirements for a valid settlement agreement. Furthermore, current law lacks specific and clear guidelines on protecting employee rights when employment is terminated by mutual agreement or on the necessary elements for a fair settlement agreement.

A settlement agreement is a practical and legal solution that businesses should consider to both protect their interests and respect employee rights. Understanding and applying settlement agreements not only helps companies minimise legal risks but also lays the foundation for sustainable business growth.

To help businesses better understand the process and procedures for implementing settlement agreements, the bilingual book Navigating Settlement Agreements by Lawyer Nguyen Huu Phuoc, Director cum Managing Partner of Phuoc & Partners Law Firm, will be published in early 2025.

This comprehensive guide on settlement agreements provides in-depth knowledge and practical steps for handling complex situations during negotiations.

This book is ideal for: business leaders, HR managers, labour relations officers, in-house legal teams, corporate lawyers, and law students, among others.

🌟 Special Offer: By pre-ordering Navigating Settlement Agreements no later than 10/10/2024, you will receive a 15% discount off and a signature by the author, Lawyer Nguyen Huu Phuoc.

🔗 Table of Contents: https://tinyurl.com/38dhfcws

🔥 Pre-order link: https://tinyurl.com/44c9h8w2