Disputes over Compensation for Damages Caused by Employees in Vietnam

1. Overview of Employee Liability for Compensation

When employees, during the course of their work, cause damage to assets, tools, or equipment, or breach contractual commitments (e.g., confidentiality, training, unlawful termination), disputes may arise between employers and employees regarding compensation for damages.
A labor compensation dispute occurs when the two parties fail to agree on the extent, method, or timing of compensation.

It should be noted that compensation for damages caused by employees involves both labor law and, in certain cases, civil (non-contractual) liability.

1.1. Key Legal Foundations

According to Article 129 of the 2019 Labor Code, employees are liable for compensation if they damage tools, equipment, or cause loss to the employer’s property.

If an employee loses assets entrusted to them or consumes materials in excess of prescribed limits, they must compensate partly or entirely based on market value or the company’s internal labor regulations. If a liability contract exists, compensation must comply with its terms.

In cases where damages are caused by an employee while performing assigned duties, the Civil Code 2015 allows that the employer may first be held responsible to compensate, and then has the right to recover the amount from the employee at fault.

The statute of limitations for filing a civil claim for non-contractual damages is three years (Article 588, Civil Code 2015).

Under labor law, Decree No. 145/2020/NĐ-CP provides detailed procedures for handling compensation for damages between employees and employers.

1.2. Limitations and Applicable Conditions

If the damage results from a minor, unintentional mistake and the value of the damage does not exceed 10 months of the regional minimum wage, the maximum compensation is limited to three months’ salary, which may be deducted from monthly wages.

Wage deductions for compensation cannot exceed 30% of the employee’s actual monthly pay after statutory deductions (insurance, taxes).

If damages exceed the above limit (serious cases), compensation must follow internal regulations, a liability contract, or a specific written agreement between the parties.

Exceptions: Employees are not liable for damages caused by force majeure events such as natural disasters, epidemics, or fires that were unforeseeable and where the employer took all reasonable preventive measures.

Factors such as personal circumstances, financial capacity, degree of fault (intentional or unintentional), and actual extent of damage may be considered to adjust the compensation amount.

2. Procedures for Handling and Resolving Compensation Disputes

When compensation disputes arise between employers and employees, compliance with proper procedures and recognition of each party’s rights and obligations are crucial to ensure fair and efficient resolution.

2.1. Internal Procedures and Initial Handling

• Written Explanation Request: When an incident occurs, the employer must request the employee to submit a written explanation of the event.

• Compensation Meeting: At least five working days before the meeting, the employer must notify the employee and relevant parties (such as an appraiser, if any) of the time, venue, involved individuals, and details of the alleged damage.

• Issuing a Compensation Decision: After the meeting, the employer issues a decision specifying the cause, extent, timeframe, and method of compensation and sends it to all meeting participants.

• Salary Deduction or Payment Agreement: If the compensation amount falls within the legal limit (e.g., ≤ three months’ salary), monthly deductions can be applied. Otherwise, the employee must pay per the agreement or face legal action.

2.2. Dispute Resolution When No Agreement is Reached

As a general rule, individual labor disputes must go through labor mediation before being referred to the Labor Arbitration Council or Court, except for disputes over compensation, severance, or benefits upon termination — which do not require mandatory mediation.

The Court has jurisdiction to resolve disputes over compensation for damages in employment relationships (whether mediation is required or not).

For claims, parties must note the limitation periods: under labor law, the time limit for requesting mediation is six months from the date the right or interest was infringed (for individual disputes).

For disputes involving civil liability, the limitation period is three years from the date the affected party knew or should have known of the infringement (Article 588, Civil Code).

3. Key Considerations When Facing Compensation Disputes

3.1. Basis for Determining Compensation Amount

• Actual Damage: The most critical factor, including the value of damaged property, restoration costs, and replacement expenses.

• Employee’s Fault: Intentional violations justify higher compensation claims by the employer.

• Employee’s Financial Circumstances: Courts may consider financial hardship as grounds for reducing compensation.

• Contractual Commitments: Clear agreements on liability and compensation terms in labor or liability contracts can serve as the legal basis for claims.

3.2. Common Risks and Preventive Strategies

• Failure to comply with proper procedures (e.g., lack of notification, no meeting, or missing decision) may invalidate the employer’s claim.

• Labor regulations and employment contracts should clearly define terms on property liability, confidentiality, and training commitments to avoid disputes later.

• Preserving evidence (records, photos, invoices, valuation reports, employee statements) is crucial in court proceedings.

• Litigation strategy: When filing a lawsuit, parties must identify the correct legal basis (Labor Code or Civil Code), select the competent court, and present strong arguments supported by evidence of damage, fault, and reasonableness of the claim.

4. Conclusion

Disputes over compensation for damages caused by employees are common in Vietnamese enterprises. Establishing clear legal bases, transparent internal handling procedures, and specific contractual agreements on liability are effective ways to minimize such disputes.

In the event of a dispute, filing a claim within the statute of limitations, selecting the competent court, and providing solid evidence of actual damage and fault are essential steps to protect the rights and interests of both employers and employees.

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