Compensation for Breach of Labor Contract: Legal Regulations, Compensation Levels and Procedures 2025

1. Definition and Principles of Compensation for Breach of Labor Contract

1.1. What Constitutes a Breach of Labor Contract?

According to Clause 1, Article 13 of the 2019 Labor Code, a labor contract is an agreement between an employee and an employer regarding employment, wages, working conditions, and the rights and obligations of both parties in the employment relationship.

A breach of a labor contract occurs when one party fails to perform, improperly performs, or incompletely fulfills the commitments agreed upon in the contract. Common examples include:

– The employee unilaterally leaves work without prior notice as required by law;

– The employer unlawfully terminates the labor contract;

– The employee damages or loses company property or equipment.

Correctly identifying a breach is the first step in determining compensation for breach of labor contract, ensuring the legitimate rights and interests of both parties.

1.2. Legal Basis for Compensation for Breach of Labor Contract

The regulations on compensation for breach of labor contract are detailed in the 2019 Labor Code, primarily in Articles 40, 41, 62, and 129, which specify liabilities depending on the type of violation:

(1) Compensation for unlawful termination of a labor contract:

– The employee must compensate half a month’s wage and pay for the unnotified period (Article 40).

– The employer must compensate at least two months’ wage and pay all unpaid wages, insurance, and benefits during the period the employee was unable to work (Article 41).

(2) Compensation for training costs: When the employee violates a post-training commitment, they must reimburse the employer for training expenses (Articles 40 & 62).

(3) Compensation for property damage: When the employee damages or loses company tools, equipment, or property, compensation is based on the actual damage or as provided under internal labor rules (Article 129).

These provisions form the legal foundation for determining liability and compensation, helping both employers and employees handle contract breaches in accordance with the law.

1.3. Key Principles for Determining Compensation

Vietnamese labor law applies three fundamental principles when determining compensation for breach of labor contract:

– Compensation must be based on fault and actual damage: The violating party is liable only if there is proven fault and actual loss.

– Compensation cannot exceed actual damages: The amount payable must not exceed the proven loss, unless otherwise lawfully agreed.

Compliance with the labor contract and internal regulations: If the contract or collective labor agreement contains valid compensation clauses, they will be applied provided they are not contrary to law.

Understanding these principles helps employees protect their rights and enables employers to resolve disputes transparently and lawfully.

2. Latest Regulations on Compensation for Breach of Labor Contract (Vietnam 2025)

The 2019 Labor Code clearly defines the liability for compensation when either the employee or employer breaches the labor contract. Depending on the nature and severity of the violation, the obligations differ to maintain fairness between both parties.

2.1. Employee’s Liability and Compensation Obligations

According to Article 40 of the Labor Code 2019, an employee who breaches a labor contract (e.g., unlawfully resigning or violating commitments) must:

– Forfeit severance allowance: Employees who quit unlawfully are not entitled to severance pay.

– Pay half a month’s wage as compensation: This is the minimum level of compensation for contract breach.

– Reimburse unnotified days: If the employee fails to give the required notice, they must compensate wages equivalent to the number of days missing.

– Repay training costs: Employees who received employer-funded training and resigned before fulfilling their commitment must reimburse all training expenses (Article 62).

– Compensate for property damage: If the employee causes loss or damage to company assets, they must pay for the actual loss as per Article 129.

Thus, compensation by employees is not limited to salary but may include training costs, property damage, and other agreed-upon losses. Adhering to notice periods and contract terms helps employees avoid legal and financial liabilities.

2.2. Employer’s Liability and Legal Responsibilities

When the employer breaches the contract — such as through unlawful termination or unjustified dismissal — Article 41 of the 2019 Labor Code requires the employer to:

– Pay wages and social insurance contributions for the period the employee was not allowed to work;

– Compensate at least two months’ wages under the labor contract;

– Provide severance allowance and additional compensation if the employee agrees not to return to work (at least two months’ wages or more by mutual agreement);

– Pay compensation for lack of notice if the employer fails to provide required notice before termination.

Hence, employers who unlawfully terminate employees are not only required to pay at least two months of wages but must also restore all entitlements lost during the period of unemployment.

3. Common Scenarios of Compensation for Breach of Labor Contract

In practice, compensation for breach of labor contract may arise in various circumstances depending on whether the violation is committed by the employee or the employer.

The table below summarizes common cases and corresponding compensation obligations under the 2019 Labor Code:

Key Notes:

– In all cases, compensation is only determined when fault and actual damage can be proven.

– If the labor contract or internal labor rules contain lawful compensation clauses, these will prevail.

– Employers must retain records, meeting minutes, and evidence to prove losses when claiming compensation.

– Employees should carefully review notice periods, training cost obligations, and material liability provisions before terminating their employment to avoid legal risks.

4. Procedures for Claiming Compensation for Breach of Labor Contract

Both employees and employers have the right to claim compensation for breach of labor contract in order to protect their legitimate interests.

4.1. Procedures for Employees Claiming Compensation from Employers

To request compensation from an employer who has violated the labor contract, the employee should follow these steps:

4.2. Procedures for Employers Claiming Compensation from Employees

To claim compensation from an employee who breaches the labor contract, the employer should proceed as follows:

5. Key Notes and Legal Risks When Claiming Compensation for Breach of Labor Contract

When making a compensation claim for breach of labor contract, both employees and employers must fully understand the legal requirements, evidentiary burden, and statute of limitations to avoid procedural mistakes. Below are essential notes and common risks to consider.

5.1. For Employees

– Difficulty proving employer’s violation: Employees should keep their labor contracts, pay slips, emails, messages, and meeting minutes as evidence to prove violations and actual damages.

– Failure to comply with notice period: Under Article 35 of the 2019 Labor Code, employees who resign without giving proper notice may be required to compensate the employer for wages equivalent to the number of unnotified days.

– Misunderstanding compensation levels: Compensation must reflect actual damages and must not exceed or contradict lawful agreements between the parties.

– Lack of evidence on training or damages: If the employer claims reimbursement for training costs, employees should review the training agreement and expense documents to ensure accuracy.

– Missing the statute of limitations: According to Article 190 of the 2019 Labor Code, the time limit for claiming compensation or filing a labor dispute lawsuit is one year from the date the violation is discovered. After this period, the Court may refuse to accept the case.

5.2. For Employers

– Improper compensation procedures: Before demanding compensation, employers must conduct a disciplinary hearing in accordance with Article 122 of the 2019 Labor Code. Any procedural error may render the decision invalid.

– Insufficient evidence of employee’s fault: Employers should collect records such as incident reports, invoices, repair costs, attendance sheets, or internal assessments to justify their claim.

– Incorrect calculation of compensation: Compensation must be based on the contractual wage, not the basic wage. Miscalculation may result in disputes or counterclaims.

– Failure to provide proper notice before termination: Employers who unlawfully terminate contracts must compensate at least two months’ wages and pay all outstanding salaries and insurance contributions.

– Incomplete compensation clauses in labor contracts: Many employers use poorly drafted contracts that omit provisions on training costs or material liability. Labor lawyers should always review employment contracts before signing.

6. Legal Consultation on Compensation for Breach of Labor Contract

6.1. When to Seek Legal Support

While parties may attempt to negotiate directly, legal assistance becomes crucial in complex labor disputes, non-cooperation, or disagreement over compensation amounts. A labor lawyer can assess the legal basis, analyze liability and damages, and guide clients through mediation or litigation under the 2019 Labor Code and the Civil Procedure Code.

6.2. Benefits of Consulting a Lawyer

Engaging a labor lawyer ensures that the compensation claim is accurate, fair, and legally compliant. Specifically, a lawyer will:

– Analyze the labor contract to determine each party’s legal responsibility;

– Assess actual damages and violations to establish the legal grounds for compensation;

– Guide clients in preparing complete documentation and evidence;

– Represent clients during negotiation, mediation, or litigation proceedings.

This minimizes legal risks, litigation costs, and reputational damage for both employees and employers.

6.3. Lawyer’s Role in Each Stage of the Compensation Dispute

Depending on the stage of the case, a labor lawyer may provide different forms of support:

– Internal stage: Review contracts and evidence, propose negotiation strategies.

– Mediation stage: Attend sessions with labor conciliators, ensuring compliance with the law.

– Litigation stage: Draft lawsuits, compile evidence of damages, and represent clients in court to defend their lawful rights.

6.4. Labor Law Services at LexConsult & Partners

With extensive experience in labor law and dispute resolution, LexConsult & Partners provides comprehensive support for both employers and employees in:

– Advising on employment contracts, discipline, compensation, and dismissal;

– Drafting legal documents, complaints, and conciliation minutes;

– Representing clients in negotiation and litigation before the Court.

We are committed to delivering practical, transparent, and cost-effective legal solutions that protect clients’ interests and reduce legal risks in all employment relations.

7. FAQ – Common Questions About Compensation for Breach of Labor Contract

Is compensation required if an employee resigns without notice?
→ Yes. Under Article 40 of the 2019 Labor Code, an employee who unilaterally terminates a labor contract without proper notice must compensate half a month’s wage and pay for unnotified days. If a training contract exists, the employee must also reimburse the training costs.

How much must an employer pay for unlawful termination?
→ According to Article 41, the employer must:

– Pay wages and insurance for the period the employee was not allowed to work;

– Compensate at least two months’ wages;

– If the employee does not return, pay severance and an additional two months’ wages minimum as agreed.

Does an employee have to compensate for damaging company property?
→ Yes. Under Article 129, employees who damage or lose company property must compensate based on actual loss or internal rules. The employer and employee may agree to deduct compensation from salary, but employees must retain at least 70% of their monthly income.

Is compensation available for unlawful dismissal?
→ Yes. Unlawful dismissal is considered an unlawful termination, requiring the employer to reinstate the employee, pay back wages and insurance, and compensate at least two months’ wages.

Must employees repay training costs if they leave early?
→ Yes. Under Article 62, employees who breach post-training commitments must reimburse all training expenses, including tuition, materials, travel, living support, and wages paid during training.

When can employees claim compensation from employers?
→ Employees can request compensation if the employer:

– Unlawfully terminates the labor contract;

– Fails to pay wages, insurance, or severance;

– Dismisses or disciplines the employee improperly.

What is the time limit for claiming compensation?
→ One year from the date of discovering the violation (Article 190, Labor Code 2019).

Can parties agree on a different compensation amount?
→ Yes, but such agreements must comply with the law and not unduly disadvantage employees. Unlawful clauses may be declared void by the Court.

How is compensation calculated?
→ Based on contractual wages, unnotified days, unfulfilled training commitments, and actual material losses. Errors (e.g., using basic instead of contractual wage) may lead to disputes.

Can employees hire a lawyer to claim compensation?
→ Absolutely. A labor lawyer can guide the process, prepare documents, and represent employees during mediation or court proceedings — ensuring compliance, efficiency, and protection of legal rights.

More than one-third of all labor disputes in Vietnam involve compensation for breach of labor contract, highlighting the importance of understanding the relevant laws and procedures.
Determining the correct compensation, legal basis, and party responsibilities is crucial to minimize risk and safeguard rights.

For proper and effective handling, both employees and employers should consult a labor lawyer before negotiating or filing a lawsuit.