Do Vietnamese enterprises have the right to unilaterally terminate a service contract when the counterparty breaches its obligations or when cooperation is no longer effective? If termination is carried out unlawfully, enterprises may face compensation claims and prolonged disputes. So what does Vietnamese law stipulate, and how can a service contract be terminated safely and lawfully?
In business operations, service contracts form the legal foundation of cooperation between enterprises and their partners, suppliers, or service providers. However, contract performance does not always proceed smoothly. When services are of poor quality, progress is delayed, or commitments are breached, many Vietnamese enterprises raise the question: do Vietnamese enterprises have the right to unilaterally terminate service contracts, and if so, under what conditions can legal risks be avoided?
In practice, Vietnamese law allows enterprises to unilaterally terminate service contracts in certain circumstances. However, this right is not unlimited. If exercised improperly, an enterprise may be deemed in breach of contract and required to compensate for damages or pay contractual penalties, which can be very costly.
Under the 2015 Civil Code of Vietnam, a service contract is an agreement whereby one party provides services and the other party pays service fees. In principle, contracts must be performed fully and properly as agreed. Nevertheless, the law recognizes specific cases in which enterprises are entitled to unilaterally terminate service contracts.
Specifically, a Vietnamese enterprise may unilaterally terminate a service contract when:
The service provider seriously breaches its contractual obligations;
Continued performance of the contract fails to achieve its agreed purpose;
Other cases as prescribed by law or agreed upon in the service contract.
The key issue lies in determining what constitutes a “serious breach” and whether the termination conditions are clearly stipulated in the contract. Many enterprises act subjectively, relying solely on the perception that “the counterparty is performing poorly,” which often leads to prolonged legal disputes.
Another common question is whether Vietnamese enterprises can unilaterally terminate service contracts without stating any reason. The answer largely depends on the contract’s contents.
If the service contract includes a clause allowing either party to terminate without cause (for example, with 30 or 60 days’ prior notice), the enterprise may terminate in accordance with that agreement. Conversely, if no such clause exists, termination without reason is highly likely to be considered unlawful unilateral termination.
Unilateral termination of service contracts may seem simple but carries significant legal risks. Without proper preparation, enterprises may not only lose their rights but also suffer reputational damage and disruption to business operations and partnerships.
When Vietnamese enterprises unlawfully terminate service contracts, common risks include:
Being required to compensate for damages caused by unlawful termination;
Being subject to contractual penalties as agreed;
Facing lawsuits before courts or arbitration, resulting in prolonged proceedings and legal costs;
Serious damage to business reputation, especially in industries requiring long-term partnerships.
Many enterprises only realize these risks after receiving a lawsuit or a compensation claim, at which point remedial actions are far more costly than preventive measures.
To protect their interests, before deciding to unilaterally terminate a service contract, enterprises should:
Carefully review the service contract, especially clauses on rights and obligations, breach, termination, and damages;
Collect evidence of breaches, such as emails, meeting minutes, progress reports, and invoices;
Comply strictly with notification procedures regarding form, timeline, and recipients as stipulated in the contract;
Assess dispute risks and prepare response strategies in case litigation arises.
In many cases, instead of immediate termination, enterprises may consider negotiation, requesting remedial actions, or amending the contract to minimize legal risks.
In reality, very few enterprises have in-house legal teams capable of comprehensively assessing the risks of unilateral termination. Therefore, consulting enterprise lawyers from the outset plays a crucial role.
Lawyers can assist enterprises in:
Analyzing contracts and identifying legal grounds for termination;
Proposing safe termination strategies to minimize compensation liabilities;
Drafting lawful termination notices;
Representing enterprises in negotiations or dispute resolution proceedings.
DEDICA Law is a professional law firm in Ho Chi Minh City with a highly experienced and reputable team of lawyers. DEDICA has assisted numerous Vietnamese enterprises in service contract advisory, contract dispute resolution, and protection of business interests in complex cases.
Are you facing a similar issue?
If you are uncertain whether Vietnamese enterprises have the right to unilaterally terminate service contracts or are concerned about legal risks, let DEDICA Law accompany you and provide the most suitable legal strategy.
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