Understanding the misclassification of employment contracts

The misclassification of employment contracts (labor contracts) may lead to numerous serious consequences and legal risks in the conclusion and performance of employment contracts. The article below sets out the legal provisions concerning the misclassification of employment contracts and addresses several related issues in order to assist individuals and organizations in protecting their lawful rights and interests.

I. Current situation regarding the misclassification of employment contracts

At present, the misclassification of employment contracts remains relatively common, directly affecting the legitimate rights and interests of employees and creating various legal risks for enterprises. Executing an incorrect type of employment contract may result in labor disputes, deprivation of employees’ rights relating to salary, bonuses, and insurance, while employers may take administrative sanctions for labor law violations.

II. Definition of the misclassification of employment contracts

1. What is the misclassification of an employment contract?

Pursuant to Clause 1 Article 13 of the Labor Code 2019, an employment contract is an agreement between an employee and an employer regarding paid employment, wages, working conditions, and the rights and obligations of each party in the labor relationship.

According to Clause 1 Article 20 of the Labor Code 2019, employment contracts must be concluded under one of the following types:

• An indefinite-term employment contract is a contract in which the parties do not determine the duration or the termination date of the contract;
• A definite-term employment contract is a contract in which the parties determine the duration and the termination date of the contract for a period not exceeding 36 months from the effective date of the contract.

Accordingly, the misclassification of an employment contract may be understood as an unlawful act whereby the employer and the employee enter into a contract that does not correspond to the actual nature of the work or contains a contract term inconsistent with the statutory regulations applicable to the employee’s actual work.

2. What are the legal consequences of misclassifying an employment contract?

The misclassification of an employment contract may result in serious legal consequences for the parties, including:

• Administrative sanctions: Employers may be subject to administrative sanctions for entering into an incorrect type of employment contract with employees, with fines of up to 25,000,000 VND depending on the number of employees involved, under Clause 1 Article 9 of Decree No. 12/2022/NĐ-CP.
• Risk of the contract being declared invalid: An employment contract executed under the wrong classification may be declared invalid by the court under Article 49 of the Labor Code 2019 due to violations of legal provisions governing the type of contract entered into.

Therefore, the legal consequences of misclassifying an employment contract include administrative sanctions imposed on the employer and the possibility of the contract being declared invalid.

3. Which cases are considered misclassification of employment contracts?

The misclassification of employment contracts constitutes a violation of regulations governing contract execution. Below are typical cases regarded as misclassification of employment contracts:

• Entering into a definite-term employment contract more than twice: According to Point c Clause 2 Article 20 of the Labor Code 2019, definite-term employment contracts may only be executed a maximum of two times. Upon the expiry of the second contract, if the employee continues working, the third contract must compulsorily be an indefinite-term employment contract, except for employment contracts entered into with persons hired as directors of state-owned enterprises and the cases prescribed in Clause 1 Article 149, Clause 2 Article 151, and Clause 4 Article 177 of the Labor Code.
• Entering into verbal employment contracts in cases where such form is not permitted: Pursuant to Clause 2 Article 14 of the Labor Code 2019, the parties may conclude verbal employment contracts only for contracts with a term of less than one month, except for the cases specified in Clause 2 Article 18, Point a Clause 1 Article 145, and Clause 1 Article 162 of the Labor Code.

Accordingly, the above-mentioned cases are deemed instances of misclassification of employment contracts.

III. Legal regulations concerning the misclassification of employment contracts

1. What is the basis for determining the correct type of employment contract to be executed?

Pursuant to Clause 1 Article 20 of the Labor Code 2019, the determination of the type of employment contract to be executed is based on the contract term, under which employment contracts are categorized into definite-term and indefinite-term contracts.

• An indefinite-term employment contract is a contract in which the parties do not determine the duration or the termination date of the contract.
• A definite-term employment contract is a contract in which the parties determine the duration and the termination date of the contract for a period not exceeding 36 months from the effective date of the contract.

In summary, to determine the appropriate type of employment contract to be executed, the parties should rely on the contractual term in accordance with the above provisions.

3. Can an incorrectly classified employment contract be declared invalid?

Pursuant to Article 49 of the Labor Code 2019, an employment contract shall be invalid in the following cases:

- An employment contract shall be wholly invalid in the following circumstances:

• The entire content of the employment contract violates the law;
• The person entering into the employment contract lacks proper authority or violates the principles for entering into employment contracts prescribed in Clause 1 Article 15 of the Labor Code;
• The work agreed upon in the employment contract is prohibited by law.
• An employment contract shall be partially invalid where only part of its content violates the law without affecting the remaining parts of the contract.

- Pursuant to Article 15 of the Labor Code 2019, as guided by Article 4 of Decree No. 337/2025/NĐ-CP, the principles for entering into employment contracts include:

• Voluntariness, equality, goodwill, cooperation, and honesty;
• Freedom to enter into employment contracts provided that such contracts do not contravene the law, collective labor agreements, or social ethics.

Accordingly, the misclassification of an employment contract may result in the contract being declared invalid if it violates the principles or provisions of labor law. Specifically:

• Wholly invalid: Where the misclassification results from violations of contractual principles (such as lack of voluntariness or fraudulent conduct), the contract may be declared wholly invalid.
• Partially invalid: Where the parties incorrectly determine the contractual term, thereby resulting in the misclassification of the employment contract, but such error does not affect the remaining provisions of the contract.

4. How are employees’ rights protected when an employment contract is misclassified?

Where an employment contract is misclassified, employees’ rights are protected by law as follows:

• A definite-term employment contract shall be converted into an indefinite-term employment contract: Where a definite-term employment contract expires and the employer fails to execute a new employment contract within 30 days from the expiry date, such contract shall automatically become an indefinite-term employment contract according to Point b Clause 2 Article 20 of the Labor Code 2019.
• Employees have the right to request the Court to declare the incorrectly classified employment contract invalid: Pursuant to Article 49 of the Labor Code 2019, where the employer intentionally misclassifies the contract in order to evade obligations or deceive the employee, the employee is entitled to request the Court to declare the contract invalid on the grounds that its content violates the law or that the contract breaches the principles governing contract execution.
• Employees’ rights during the period pending re-execution of the contract: Pursuant to Article 10 of Decree No. 145/2020/NĐ-CP, where an employment contract is declared wholly invalid, the employee and employer must re-enter into an employment contract in accordance with legal regulations. Accordingly, the rights, obligations, and interests of the employee from the commencement date of work under the invalidated employment contract until the execution of the new contract shall be handled as follows:
• If the rights and interests of each party under the employment contract are not lower than those prescribed by law or the applicable collective labor agreement, the rights, obligations, and interests of the employee shall continue to be implemented in accordance with the invalidated employment contract.
• If the employment contract contains provisions relating to the rights, obligations, and interests of the parties that violate the law but do not affect the remaining contents of the contract, the employee’s rights, obligations, and interests shall be implemented in accordance with Clause 2 Article 9 of Decree No. 145/2020/NĐ-CP.
• The period during which the employee works under an employment contract declared invalid shall still be recognized as the employee’s working period with the employer for the purpose of implementing labor-related entitlements in accordance with law.

IV. Questions regarding the misclassification of employment contracts

1. Is it mandatory to re-execute the contract upon discovering that the employment contract has been misclassified?

Pursuant to Point c Clause 3 Article 9 of Decree No. 12/2022/NĐ-CP, the remedial measure applicable in cases where an incorrect type of employment contract has been executed with an employee requires the employer to re-execute the appropriate type of employment contract with the employee in accordance with Clause 1 Article 20 of the Labor Code 2019. Therefore, the parties are required to re-execute the contract upon discovering that the employment contract has been misclassified.

2. What should an employee do first upon discovering that the employment contract has been misclassified?

Upon discovering that an employment contract has been misclassified, the first action the employee should take is to notify the employer and request amendment or re-execution of the contract in compliance with legal regulations. Specifically:

• Immediately notify the employer: The employee should promptly discuss the matter directly with the employer or send a written notice/email requesting amendment or re-execution of the contract so that it accurately reflects the nature of the work and the appropriate contract type.
• Execute an appendix or a new contract: The parties should execute an appendix to the employment contract or enter into a new employment contract to amend the incorrect contents pursuant to Clause 2 Article 33 of the Labor Code 2019, as guided by Article 9 of Decree No. 337/2025/NĐ-CP.
• If the employer refuses to amend the contract or intentionally enters into an incorrect type of contract to evade obligations, the employee has the right to:
• File a complaint: Submitting a complaint to the Inspectorate of the Department of Home Affairs where the enterprise operates.
• Initiate legal proceedings: The employee has the right to file a lawsuit with the People’s Court to protect their lawful rights and interests according to Article 186 of the Civil Procedure Code 2015 (amended and supplemented in 2025). Accordingly, agencies, organizations, and individuals have the right to initiate a lawsuit themselves or through lawful representatives (collectively referred to as plaintiffs) before a competent court in order to request protection of their lawful rights and interests.

3. Is an employee required to continue working if the employment contract has been misclassified?

Pursuant to Clause 1 Article 33 of the Labor Code 2019, as guided by Article 9 of Decree No. 337/2025/NĐ-CP, during the performance of an employment contract, if either party requests amendment or supplementation of the contract contents, such party must notify the other party at least 03 working days in advance regarding the contents to be amended or supplemented.

Pursuant to Clause 9 Article 34 of the Labor Code 2019, an employee has the right to unilaterally terminate the employment contract and must provide prior notice in accordance with Article 35 of the Labor Code.

Based on the above provisions, employees are not obligated to continue working if they discover that the employment contract has been misclassified. Depending on the specific circumstances, the employee has the right to request the employer to re-execute the appropriate type of contract or to unilaterally terminate the contract.

4. How can risks be avoided when entering into the correct type of employment contract?

Misclassifying employment contracts often leads to significant legal risks for enterprises and adversely affects employees’ rights and interests. Below are several measures to help avoid such risks:

• Clearly distinguishing the types of employment contracts: Parties should thoroughly understand the regulations governing definite-term and indefinite-term employment contracts in order to select the appropriate contract type and avoid violations resulting in administrative sanctions.
• Reviewing and standardizing contract templates: Enterprises should review all employment contracts and standardize contractual clauses to ensure compliance with legal regulations and practical requirements. Spreadsheets or human resource management software should be used to monitor contract expiry dates and the number of contracts executed with each employee.
• Accurately classifying the nature of the work: It is the most important step in selecting the appropriate type of contract in accordance with the law. For work of a regular and long-term nature, the parties must execute either an indefinite-term employment contract or a proper definite-term employment contract from the outset.

V. Why should you seek legal consultation from NPLaw regarding issues related to the misclassification of employment contracts?

The above information is provided by NPLaw to address common concerns relating to the misclassification of employment contracts. With a team of experienced lawyers and legal specialists, NPLaw provides reputable and professional legal services, ensuring the best protection of the lawful rights and interests of clients. If you require legal assistance, you may contact NPLaw for consultation and support.

The above information is for reference purposes only. For detailed advice regarding specific cases, please contact NPLaw Firm for immediate consultation.