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Notes when Signing Labor Contracts from 2021

“The new Labor Code 2019 and the guiding documents have been in practice for a long time, many businesses have planned and embarked on the adjustment to internal documents related to labor including labor relations that arise before and after the time the new law took effect. To apply regulations correctly and in favor of enterprises, enterprises need to pay attention to some of the following issues.“

Have the enterprises determined the exact type of labor contract to sign?

Labor Code 2019 has eliminated the seasonal labor contract or labor contract with a term of less than 12 months, and currently only two forms of labor contract are present – definite term and indefinite term. For definite term labor contracts, the minimum duration is not prescribed but only capped at a maximum of 36 months. This regulation is completely superior and flexible for enterprises compared to the provisions of the old labor law (the Labor Code 2012 recorded a definite labor contract with a minimum term of 12 months). This change is also considered to be meeting the needs of the enterprises by helping enterprises solve personnel problems in a short time without necessarily signing a labor contract for 12 months or more.

When the labor contract determines the expiration time limit but the employee continues to work, the enterprises must sign a new labor contract within 30 days from the expiration of the labor contract. If the time limit expires and the two parties do not sign the new labor contract but the employee continues to work, the labor contract becomes an indefinite-term labor contract. A maximum of 2 definite labor contracts may be signed only, except in some special cases. The appendix must not be used to adjust the duration of the labor contract.

Particularly for regulations on types of indefinite-term labor contracts, there is no difference between the new and old labor laws.

The parties are allowed to use electronic means to make labor contracts

In addition to the method of establishing a traditional contract in writing, the Labor Code 2019 has recognized specific laws, thereby accepting the signing of labor contracts electronically in the form of data messages in accordance with the law on electronic transactions.

To apply correctly, we should refer to the provisions of the Law on Electronic Transactions 2005, according to which data messages will be shown in the form of electronic data exchange, electronic documents, emails, telegrams, faxes and other similar forms as prescribed by specialized laws from time to time. It is pertinent to note here that in order for such data message to be binding on the parties and as a basis for later settlement, the establishment  of a labor contract by data message must follow a certain process that meets the other conditions set by the Law on E-Transactions.

Is labor relation compulsory based on a document called “Employment Contract”?

Currently, the Labor Code stipulates that if two conditions are met including (1) the performance of paid employment, wages and (2) the management, administration, and supervision of a party, it is considered that such labor contract does not depend on what the parties name the agreement. In the past, enterprises often used agreements such as collaborator contracts, service contracts, etc. to hide from the obligations such as social insurance, health insurance, unemployment insurance, etc. These forms of agreement will now be considered as labor contracts if state agencies consider and find that the agreement between the parties meets the above conditions. It must be noted that this also indirectly leads to the re-call of the obligations of the parties considering the labor relationship such as social insurance, tax, labor declaration, etc.

These are considered major changes that directly affect the labor contract between the parties. So, it is necessary to review the assigned and paid relationships such as collaborator contracts and labor contracts signed before the new law takes effect to ensure that your business is complying with the regulations. Develop internal processes for the establishment of labor contracts electronically to avoid discretion between departments in the enterprises. In addition to reviewing labor contracts, it is also necessary to compare the labor policies that businesses are currently applying under the new regulations. This is because the new labor law issued many flexible policies as well as increased rights for enterprises.