Distinguishing Types of Employment Contracts to Avoid Risks for FDI Enterprises

Date: 2026.03.20

Correctly distinguishing contract types: Avoid risks for FDI enterprises

In recent years, Vietnam has intensified labor compliance inspections, especially for FDI enterprises. According to reports from the Inspectorate of the Ministry of Labour – Invalids and Social Affairs (MOLISA), one of the most common violations is the misuse of employment contract types, leading to legal violations, dispute risks, and administrative penalties.

Foreign enterprises often face difficulties due to differences between Vietnam’s employment contract framework and that of their home countries.
This article provides accurate and comprehensive guidance in accordance with current laws, helping enterprises correctly distinguish contract types and avoid risks.

1. Vietnam now recognizes only two types of employment contracts

Under the Labor Law 2019, the concept of a “seasonal labor contract” has been abolished. Currently, only the following two types exist:

🔹 Fixed-term employment contract

– Duration: up to 36 months

– Applicable to: new employees, short-term projects, market-testing positions

– May be renewed only once; thereafter, it must be converted into an indefinite-term contract

🔹 Indefinite-term employment contract

– No expiration date

– The most stable form of contract

– The type most favored by courts when resolving labor disputes

Note for foreign enterprises:
Signing multiple consecutive short-term contracts (3–4 contracts in a row) is not lawful in Vietnam.

2. When should short-term contracts be used? When should long-term contracts be used?

✔ Use a fixed-term contract when:

– An employee has just joined the company

– The job is temporary or project-based

– The enterprise needs time to assess employee performance

✔ Use an indefinite-term contract when:

– The job is stable and long-term in nature

– The employee has already signed two consecutive fixed-term contracts

– The position is a key role requiring long-term commitment

Using the wrong contract type may cause the enterprise to lose lawsuits when handling disciplinary actions or contract termination.

3. Is a probation agreement considered an employment contract?

Under Articles 24–25 of the Labor Code:

– A probation agreement is not an employment contract

– However, employers are required to enter into a written probation agreement

– Probationary salary must be at least 85% of the official salary

– Probation periods are capped as follows:

+ 180 days: managerial or highly specialized positions

+ 60 days: technical or professional positions

+ 30 days: unskilled or general labor

Many companies fail to separate probation agreements properly → leading them to be treated as employment contracts, with full benefits applied from the start.

4. Employment contracts must have a Vietnamese version – mandatory

Under Article 14 of the Labor Code:

– Employment contracts must include a Vietnamese version

– Japanese/English versions may be attached

– In the event of a dispute, the Vietnamese version is the legal reference

FDI enterprises often use bilingual contracts where the Vietnamese content does not fully match the foreign-language version → this presents a significant risk during inspections and litigation.

5. What risks arise from using the wrong contract type?

❌ Inability to impose disciplinary measures

If a fixed-term contract is incorrectly applied, the enterprise may lose its legal basis to discipline or terminate employment.

❌ Courts rule against the enterprise

Many labor disputes from 2022–2024 show that courts often favor employees when enterprises use incorrect contract types.

❌ Retroactive social insurance contributions

Social insurance contribution obligations are directly linked to contract type and contractual remuneration.

❌ Administrative penalties under Decree 12/2022/ND-CP

Fines may range from VND 4 million to VND 75 million, depending on the severity of the violation.

6. Guidelines for selecting the appropriate contract type

A. For enterprises newly entering Vietnam

– Use fixed-term contracts during the first 1–2 years

– After two evaluation cycles, convert key personnel to indefinite-term contracts

B. For Japanese enterprises

Due to lean operational models and the “right person – right job” approach, Vietnamese experts recommend:

– Clearly separating job descriptions within contracts

– Using indefinite-term contracts for core personnel

– Retaining justification records when repeatedly signing fixed-term contracts

C. For project-based or seasonal labor

– Sign fixed-term contracts of less than 12 months

– Clearly specify the “temporary” nature of the work

– Avoid abusing short-term contracts for stable, long-term jobs

7. Contract documentation FDI enterprises must retain for inspections

According to Labor Inspectors, mandatory documents include:

– Bilingual employment contracts (with Vietnamese version)

– Contract appendices for changes in salary or position

– Probation agreements

– Job descriptions

– Probation evaluation forms

– Payroll records, timesheets, and overtime records

– Records of changes in contract type

Missing any of the above documents may expose the enterprise to risks during inspections.

Correctly distinguishing contract types helps FDI enterprises operate safely

Choosing the correct employment contract type is the first step for enterprises to:

✔ Avoid labor disputes
✔ Ensure compliance with Vietnamese law
✔ Reduce the risk of penalties during inspections
✔ Build a transparent and professional HR environment

For FDI enterprises—especially Japanese companies, where discipline and compliance are highly valued—establishing standardized contract procedures from the outset is the key to sustainable operations.

Enterprises may consider using Back Office Outsourcing services to ensure all employment contracts are standardized and risks are effectively controlled.