In the course of human resource management, applying disciplinary measures against employees who commit violations is inevitable. Among these, “demotion” (removal from office) is a disciplinary form that often leads to major changes in the duties and benefits of the employee. One of the most controversial issues that poses the highest legal risk for enterprises is: Following a demotion, does an employer have the right to unilaterally reduce an employee’s salary?
From a legal standpoint, the line between “adjusting salary according to a new job position” and the act of “unlawfully cutting salary” is very thin. Through this article, we will analyze the legal regulations in detail to help enterprises apply them correctly and mitigate the risks of labor disputes.
1. Legal nature of salary reduction and demotion
Pursuant to Article 124 of the Labor Code 2019 (LC 2019), “demotion” is one of the four forms of labor discipline (reprimand; deferment of salary increment for no more than 06 months; demotion; dismissal). This form is typically applied to employees holding managerial or executive positions who commit violations of the Internal labor regulations to a degree that warrants removal from such positions.
However, regarding the matter of salary, enterprises must pay special attention to clause 2, Article 127 of the LC 2019 regarding prohibited acts when handling labor discipline, which includes: “Imposing fines or cutting salary instead of handling labor discipline.”
This gives rise to a fundamental legal principle: employers are strictly prohibited from using “salary reduction” as an independent disciplinary measure or directly recording a salary reduction in the Decision on Labor Discipline. If an enterprise issues a Disciplinary Decision but applies an additional sanction of salary reduction or salary deduction for that very position within the decision, enterprises is in serious violation of labor laws and risks administrative penalties, while concurrently being required to refund the deducted salary amount.
2. Deal with the employee salary following demotion
Although salary cannot be reduced as a disciplinary measure, the fact that an employee no longer holds their former position will undoubtedly affect their income. From both a legal and practical standpoint, changes in income following a demotion should be divided into three cases:
Case 1: Cutting position allowances
Typically, the income structure of a manager may be divided into: Base salary and position allowance. When an employee is demoted, they no longer hold that position. Therefore, it is legally justified and lawful for enterprises to issue a decision to cease payment of the “Position Allowance.” This is not an act of cutting salary as discipline, but rather the cessation of payment for an allowance tied to a specific position when the conditions for entitlement no longer exist.
Case 2: Adjusting salary according to the new title or job position (Applicable to enterprises that construct salary scales and salary tables based on positions or job positions)
In practice, many enterprises build salary mechanisms based on positions or job positions and determine the corresponding salary level for each title. Concurrently, the Employment Contract, Salary payment regulations, or Appointment Decision may also record that the employee’s salary level is determined on the basis of the position currently held.
In this case, it is necessary to distinguish between reducing salary as a disciplinary measure and adjusting the salary level as a consequence of a change in position following a disciplinary demotion.
Pursuant to clause 2 Article 127 of the Labor Code 2019, enterprises are not allowed to impose fines or cut salary instead of handling labor discipline. Therefore, enterprises must not record a salary reduction as a supplementary sanction in the Disciplinary Decision.
Nevertheless, if following the demotion, the employee is assigned to another title with a lower salary level in accordance with the salary mechanism previously constructed and applied by the enterprise, then the salary adjustment may be justified on the basis of a change in job position rather than an independent form of disciplinary action.
When implementing this adjustment, enterprises need to review all internal grounds and labor records, including:
- The Employment Contract and the agreed contents regarding titles and salary;
- The salary scale, salary table, and Salary payment regulations currently applied at the enterprise;
- Appointment decisions, dismissal decisions, or related human resource management documents;
- The mechanism for determining salary by position or job position that has been consistently applied within the enterprise.
In the circumstance that the demotion leads to a change in the contents concluded in the Employment Contract, the enterprise should consider executing the adjustment procedures in accordance with labor laws to mitigate dispute risks.
Case 3: Reducing the base salary
If the Employment Contract lumps income into a single salary rate (without separating allowances) or if the enterprise wishes to reduce even the employee’s base salary to fit the new (lower) job position following demotion, the enterprise cannot arbitrarily decide to do so.
Pursuant to Article 33 of the Labor Code 2019, salary and job titles are essential contents of an Employment Contract. When wishing to change these contents, enterprises must:
- Notify the employee: Clearly state the reasons, the prospective new job position to be assigned following demotion, and the corresponding salary level for that position.
- Negotiate and execute: Both parties proceed to execute an Addendum to the Employment Contract or enter into a new Employment Contract recording the new title and new salary level.
- Apply the new salary level: Only when the Addendum to the Employment Contract or the new Employment Contract takes effect is the enterprise permitted to pay salary at the lower rate (the salary level of the new job).
Handling circumstances where the employee disagrees with the salary reduction: Pursuant to clause 3, Article 33 of the Labor Code 2019, if the parties fail to reach an agreement, they shall continue performing the existing Employment Contract. This is a practical barrier because if an employee is demoted but refuses to sign the Addendum for a salary reduction, enterprises cannot arbitrarily pay a lower salary. In this scenario, if an enterprise unilaterally transfers the employee to another job with a lower salary without complying with Article 29 of the Labor Code 2019 (Transferring an employee to another job against the Employment Contract), enterprises will face significant legal risks.
3. Legal recommendations for enterprises
To ensure managerial and executive authority while still complying with labor law regulations, we recommend that enterprises implement the following measures:
- Construct a salary mechanism tied to titles and job positions, and separate salary items from allowances: Enterprises should clearly stipulate the salary level for each title and job position in the Employment Contract and salary payment regulations, while separating the base salary from the position allowance. This helps create a clear legal basis when adjusting an employee’s income due to a change in title, and allows enterprises to terminate the payment of a position allowance when the employee no longer holds the corresponding position.
- Provide detailed stipulations in the Internal labor regulations: Specify in detail the violations that warrant the application of disciplinary demotion. In addition, the Internal labor regulations must clearly state: “In the circumstance that an employee is subject to disciplinary demotion, the employee shall not be entitled to the position allowance (if any) from the effective date of the Disciplinary Decision, and concurrently, both parties shall conduct negotiations to execute an Addendum to the Employment Contract to arrange an appropriate new job.”
- Strict process: Clearly separate two independent processes: (1) The sequence and procedures for meeting and issuing the Decision on Disciplinary Demotion; and (2) The negotiation and execution of the Addendum to the Employment Contract to adjust the position and salary level. Absolutely do not combine the direct salary reduction into the Disciplinary Decision.
Time of writing: June 09, 2026
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
Why choose CDLAF’s service?
- We provide effective and comprehensive legal solutions that help you save money and maintain compliance in your business;
- We continue to monitor your legal matters even after the service is completed and update you when there are any changes in the Vietnamese legal system;
- Our system of forms and processes related to labor and personnel is continuously built and updated and will be provided as soon as the customer requests it;
- As a Vietnamese law firm, we have a thorough understanding of Vietnam’s legal regulations, and grasp the psychology of employees, employers, and working methods at competent authorities;
- CDLAF’s team of lawyers has many years of experience in the field of labor and enterprises, as well as human resources and financial advisory.
- Strict information security procedures throughout the service performance and even after the service is completed.
You can refer for more information:
