On June 18, the National Assembly of Vietnam adopted a new labor code that will take effect on May 1, 2013. One of the most notable aspects of the new labor code is a provision allowing for the “sublease of employees” — a practice that is essentially a hybrid of temporary staffing and labor outsourcing — while adding protections for those workers.

Subleasing of employees is already popular in Vietnam’s industrial areas, especially among the manufacturing and construction sectors in Hanoi, Ho Chi Minh City, Dong Nai, Binh Duong, and Can Tho provinces. Despite this, however, the subleasing of employees has been illegal up to now. Traditionally, the government had taken the view that, while this form of labor supply benefits business, outsourced employees would be exploited. This is because the hiring company (typically a foreign company with operations in Vietnam), does not have to pay high salaries and provide correspondingly high statutory insurance schemes, which would need to be provided if they employed the workers directly. Instead, the company providing the employees, usually a local company, pays the sublet employees low salaries and provides minimal insurance schemes, while enjoying the high leasing fees themselves.

Employee protections. In order to deal with this supposed imbalance, the new labor code stipulates that the employee lessor must pay a sublet employee a salary equal to the salary the employee lessee pays for its own employees at the same level, job or position of equal value as the sublet employee. In addition to the salary, the employee lessor must pay statutory payment allowances and insurance for the sublet employees.

At work, the sublet employee will receive instructions from the hiring company. They must follow the hiring company’s work rules and collective labor agreements provided by the employee lessee. However, in the case of a breach, the employee lessor will act as the real employer of the sublet employee, and has the power to impose disciplinary measures against the violating employee. The new labor code also requires a deposit from the hiring company prior to obtaining a license to lease labor.

Uncertain enforcement. There still remains some uncertainty as to how the new labor code will be applied. For instance, the code is silent on the possibility of any renewal of the labor sublease agreement. Also, there is no clear statement on how the Vietnamese labor authorities can enforce the mandatory requirement that the salaries paid to the sublet employees by the employee lessor be equal to (or more than) the employees of the employee lessee.

However, despite these shortcomings, the new subleasing regime does reflect some willingness by the Vietnamese legislature to overcome the inflexibility that lies with long-term hiring.