United States: New Regulation Provides More Favorable Conditions For Employment Agencies In Vietnam

Co-authored by: Tran Le Luu Phuong

New regulations provide more favorable conditions for establishing and operating employment agencies in Vietnam, though fail to clarify conditions for foreign investors.

On 23 May 2014, the Government of Vietnam issued Decree No. 52/2014/ND-CP ("Decree 52"), which entered into force on 15 July 2014 to replace of Decree No. 19/2005/ND-CP as amended and supplemented by Decree No. 71/2008/ND-CP (collectively, "Decree 19"), introducing changes to the current regulations on employment service activities in Vietnam.

Conditions for obtaining licenses loosened

Any enterprise planning to engage in the employment service sector must place a deposit of VND 300 million with the commercial bank where it has opened its main account. The cash deposit shall be used to settle risks and compensation claims that might arise during the enterprise's course of operation. The same deposit requirement was also in place in the old Decree 19, but Decree 52 stipulates further conditions and restrictions on the refund and withdrawal of the deposit.

Besides the deposit requirement, two other conditions have to be complied with for operation licenses to be granted:

  1. Enterprises must have stable head offices and branches with a term of at least 3 years (36 months); if the premises are leased from a landlord, the term of the lease must be at least 3 years (36 months).
  2. The enterprise must have at least three qualified employees of college level or higher, who have full civil act capacity and have clear backgrounds.

A quick comparison reveals that the conditions for obtaining a license under the new Decree 52 are less stringent compared to those under Decree 19. Specifically, Decree 19 imposed an additional condition in respect of the facilities required for the granting of a license, namely (i) a room for consultancy activities, (ii) a room for labor introduction and supply, (iii) a room for activities relating to labor market information which was to be fully equipped with computers, telephones, faxes and emails and other labor market data, as well as other facilities for the purpose of serving the clients. In addition, Decree 19 required at least five qualified employees of college level or higher, as compared to three qualified employees under Decree 52.

Hence, except for a stricter requirement on the deposit of VND 300 million, the new Decree seems to facilitate enterprises planning to engage in employment service activities by loosening licensing conditions.

Duration of Licenses Increased

In terms of the duration of the operation licenses, Decree 52 is also more favorable to enterprises working in this service sector as licenses are provided for a longer duration of 5 years, followed by 5 more years for each subsequent extension of the license. This is in comparison to the previous 3-year validity period of the license followed by 3 more years for each subsequent extension under Decree 19.

Scope of Employment Service Activities Broadened

The new Decree also broadens the scope of employment service activities that an enterprise may undertake. Specifically, Article 3 of Decree 52 provides that an employment service enterprise may:

  1. Give advice to employers and employees, including advice to laborers on selection of jobs, training level, learning institutions that are compatible with their capacity and demands, examination skills, job-generating and job-searching in and out of the country, as well as advice to employers in respect of recruiting, managing and developing manpower.
  2. Recommend jobs to laborers who are in need of employment as well as recruit and supply laborers to meet the employers' demand. This includes enterprises which are granted permits for bringing Vietnamese laborers to work abroad pursuant to their contracts.
  3. Collect, process, forecast and supply information on the labor market.
  4. Organize training for laborers.
  5. Implement projects and programs on employment.

The expanded description of the scope of employment service activities under Decree 52 provides a better guideline for enterprises planning to enter this field as compared to Decree 19.

Implications for Foreign Investors in Vietnam

Vietnam's 2007 WTO Service Sectors Commitments do not regulate foreign investment in the employment services sector. Decree 52 does not provide guidance on foreign investment either. Previous guiding regulation to Decree 19 provided that foreign-invested enterprises would not be excluded (Circular 27/2008/TT-BLDTBXH amending and supplementing Circular 20/2005/TT-BLDTBXH guiding Decree 19/2005/ND-CP). However, licensing authorities will probably wait for further guidance with regard to the in-effect Decree 52. As such, the licensing authorities will have complete discretion to permit or reject applications by foreign-invested enterprises. In practice, the authorities rarely permit foreign investment in such cases.

Besides the need for more certainty with regard to foreign-invested enterprises, the new Decree provides more detailed guidelines and creates more favorable conditions for the employment service sector in Vietnam in general.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.

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