It has been more than a decade since labor outsourcing has been regulated under Vietnamese labor law, and since then, this practice has contributed to changing the labor market, creating opportunities for workers to access jobs, and providing businesses with more options for recruiting and using labor as needed. Currently, the trend of using outsourced labor is being chosen by many companies due to the benefits it offers, especially the reduction of obligations for employers. Instead of having to directly handle issues related to employees, labor outsourcing service companies will assume this role. However, this also leads to the risk of abuse, as some businesses choose the form of service provision contracts instead of labor outsourcing contracts to cut costs.

This article will analyze and elucidate the distinctions between labor outsourcing and service provision. Subsequently, it will provide recommendations for businesses and service providers operating in this field.

1. The differences between labor outsourcing and service provision

According to Article 52.1 of the Labor Code, labor outsourcing refers to a situation where an employee enters into a labor contract with an employer who is a labor outsourcing enterprise, and then the employee is transferred to work under the management of another employer while maintaining the labor relationship with the original employer.

As can be seen, labor outsourcing involves three parties: (i) the labor lessee (Lessee), (ii) the labor lessor (Lessor), and (iii) the employee. Accordingly, the Lessee and the Lessor will enter a labor outsourcing contract, and the Lessor and the employee will enter an employment contract. Specifically:

• The lessor will assume the role of the employer and be responsible for fulfilling duties such as paying wages and imposing disciplinary actions on the employees.
• The lessee shall have the right to manage the work and require the employee to work, comply with the working hours, and abide by the lessee’s labor regulations.
• The employee shall be paid by the lessor and shall perform the work, comply with working hours, and abide by the lessee’s labor regulations.

From a formal perspective, labor outsourcing shares many similarities with the provision of ordinary services, as a service provider, when providing services to a service user, must mobilize its employees to perform the committed work. However, in essence, these two activities have fundamental differences, for example:

Service provision activities

• Is a commercial activity under commercial law.
• The service provider pays the employee according to the labor contract agreement.
• The employee must comply with labor discipline, and labor regulations; follow the lawful management, operation, and supervision of the service provider, and the service provider shall provide services in accordance with the service provision agreement with the service user.
• Has the right to conduct business in any services that are not prohibited.

Labor outsourcing activities

• Is an employment relationship in the form of labor outsourcing under labor law.
• The lessor must ensure that the wages paid to the leased employee are not lower than those paid to the lessee’s employees with the same qualifications, performing the same or equivalent work.
• The employee must comply with labor discipline and internal labor regulations; and must follow the lawful management, operation, and supervision of the lessee.
• Labor outsourcing is limited to certain specific jobs.

2. Risks of labor outsourcing disguised as service provision contracts

The similarity between labor outsourcing activities and service provision activities, as mentioned above, may lead many employers to tend to sign service provision contracts with labor outsourcing organizations. This option brings some benefits such as:

• Not obligated to pay wages to the leased employee as stipulated in labor outsourcing regulations;
• It is possible to enter into agreements to utilize a wider range of services than those restricted under labor outsourcing regulations.
• To reduce the employees’ obligations regarding social insurance, health insurance, etc.

However, this arrangement can be easily identified as a fictitious contract as it conceals the nature of labor outsourcing. Consequently, it is crucial to understand that numerous indicators can be used to identify labor outsourcing relationships, such as:

• Employees of the service provider perform work under the direct supervision of the service user.
• Employees must adhere to the working hours and internal regulations of the service user, not the service provider (the employer).
• The service provider does not engage in any service provision activities. Instead, they merely sign labor contracts with skilled workers to provide the services.

Therefore, before signing a contract, both parties need to clearly define the objective (service provision or labor outsourcing) and comply with the regulations on labor outsourcing. Abusing the similarities between service provision activities and labor outsourcing activities will lead to legal violations, thereby infringing upon the interests of employees related to wages, social insurance, health insurance, as well as regulations on labor outsourcing management. Liability in case of violations will involve both the lessee and the lessor.

Time of writing: 09/08/2024

The article contains general information which is of reference value, in case you want to receive legal opinions on issues you need clarification on, please get in touch with our Lawyer  at  info@cdlaf.vn

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