Ho Chi Minh City, 4 August 2026
The Labour Code permits an employer to unilaterally terminate a labour contract where an employee regularly fails to complete their work. However, this right cannot be exercised solely on the basis of a manager’s subjective assessment, an unsatisfactory result in a single evaluation period, or an employee’s failure to meet key performance indicators (“KPIs”). Instead, the employee’s performance must be assessed against objective criteria set out in the employer’s internal performance appraisal regulations (the “Performance Appraisal Regulations”).
In practice, many labour disputes arise because the Performance Appraisal Regulations contain vague or inconsistent evaluation criteria, fail to define what constitutes “regular failure to complete work,” or have not been issued and implemented in accordance with procedures required by law. While KPIs and PIPs are valuable performance management tools, they serve different purposes and have different legal implications. Another common misconception is that KPIs or Performance Improvement Plans (“PIPs”) can replace the Performance Appraisal Regulations. An employee’s failure to meet KPIs or complete a PIP does not, by itself, constitute a lawful basis for unilateral termination of the labour contract under Vietnamese labour law.
In this Weekly Debrief, we examine the legal role of Performance Appraisal Regulations in supporting an employer’s right to unilaterally terminate a labour contract; the key contents that should be addressed when developing the Performance Appraisal Regulations; the circumstances in which evaluation results may be relied upon as a lawful basis for termination; and the relationship between Performance Appraisal Regulations, KPIs and PIPs. We also share practical recommendations to help employers in developing and implementing the Performance Appraisal Regulations in compliance with the law and mitigating the risk of employment disputes.
1. What is the role of Performance Appraisal Regulations?
The Labour Code does not specifically define what constitutes an employee’s “regular failure to complete work.” Instead, it requires employers to establish criteria for assessing the degree of work completion through their Performance Appraisal Regulations.
In substance, the concept of “regular failure” should reflect repeated or prolonged failure to complete work requirements over a period appropriate to the nature and cycle of the relevant work, rather than a single incident or one isolated unsatisfactory evaluation result. For example, the Performance Appraisal Regulations may provide that an employee will be regarded as regularly failing to complete their work if they fail to achieve the minimum evaluation rating in two consecutive evaluation periods or in two out of the three most recent evaluation periods.
For project-based roles or positions with a longer performance cycle, employers may instead provide that an employee is regarded as regularly failing to complete their work if they repeatedly fail to complete key tasks, milestones or targets within the same evaluation period. Likewise, an unsatisfactory annual evaluation may constitute a valid basis if it reflects repeated, rather than a single isolated incident. The thresholds described above are illustrative only and are not automatically recognised by law. Employers may establish different thresholds or evaluation methods, provided that they are appropriate to the nature of the work and the employer’s operational needs. Regardless of the approach adopted, however, the criteria for determining whether an employee has “regularly failed to complete work” should be established in advance, reasonable, verifiable and consistent with the nature of the work agreed in the labour contract.
Accordingly, the Performance Appraisal Regulations serve as an important legal basis for an employer to identify, record and demonstrate that an employee has regularly failed to complete their work. Depending on its organisational structure and the nature of each position, an employer may establish separate criteria for individual positions or groups of positions, provided that those criteria remain clear, objective, verifiable and accurately reflect the requirements of the relevant roles.
To promote transparency and ensure effective implementation in practice, the Performance Appraisal Regulations should, at a minimum, address the following matters:
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Evaluation criteria relating to the quantity, quality, progress or results of work performed;
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Evaluation periods and the method for determining evaluation results;
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The thresholds or circumstances constituting regular failure to complete work;
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Authority and procedures for conducting performance evaluations; and
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Mechanisms for notifying employees of evaluation results and allowing them an opportunity to provide explanations, raise concerns or requests for reconsideration.
2. When may evaluation results be used as a basis for terminating a labour contract?
The existence of Performance Appraisal Regulations does not mean that every unsatisfactory evaluation result automatically entitles an employer to unilaterally terminate a labour contract. In practice, an evaluation result may only be relied upon as a basis for termination where the Performance Appraisal Regulations have been properly developed and implemented and the employer has satisfied all applicable conditions and procedures under labour law.
To mitigate the risk of employment disputes, employers should pay particular attention to the following matters:
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The Performance Appraisal Regulations must be issued by the competent authority and in accordance with the employer’s internal governance: Employer should review its charter, delegation-of-authority regulations and other internal governance documents to identify the person or body authorised to issue the Performance Appraisal Regulations.
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Statutory dialogue and consultation procedures must be completed: The development of Performance Appraisal Regulations is subject to workplace dialogue requirements. The dialogue should be properly documented in minutes, and its principal contents should be disclosed in accordance with the procedures prescribed by law.
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Evaluation criteria should be appropriate and communicated in advance: The criteria should be consistent with the labour contract, job description and other assigned duties. They should also be communicated to employees before being implemented in practice.
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The evaluation result must satisfy the threshold for “regular failure to complete work”: An employer may rely on an employee’s performance as a ground basis for unilateral termination only where the employee’s performance falls within the circumstances constituting “regular failure to complete work” under the Performance Appraisal Regulations.
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The evaluation must be objective, consistent and supported by evidence: The evaluation process should be conducted objectively and consistently, applied fairly to employees performing equivalent work, and implemented in accordance with the prescribed procedures. The employer should also retain sufficient records, and supporting documents to to substantiate the appraisal results if they are subsequently challenged..
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The conditions and procedures for unilateral termination must be complied with: Even where the evaluation result satisfies termination, the employer must ensure that the unilateral termination is carried out by the competent authority, the applicable prior notice period is observed, and non of the restriction on unilateral termination of the labour contract apply.
Employers should also clearly distinguish between failure to complete work and a breach of labour discipline as these are governed by different legal regimes. An employee’s failure to meet work performance or productivity requirements falls within the scope of performance evaluation and may only constitute a lawful ground for unilateral termination where all statutory requirements have been satisfied. By contrast, a breach of internal labour regulations, including a failure to comply with lawful instruction issued by the employer, should be addressed through the applicable labour disciplinary procedures, provided that the relevant misconduct has been specifically prescribed in the employer’s internal labour regulations in accordance with the law.
3. Court practice and considerations for employers
In First-Instance Labour Judgment No. 01/2024/LD-ST dated 23 April 2024 of the People’s Court of C District, Long An Province, an employer unilaterally terminated the labour contract of a head of sanitation on the ground that the employee had regularly failed to complete their work. To support its decision, the employer relied on weekly meeting minutes, sanitation inspection reports prepared by its quality control department and records showing that the employee had been repeatedly reminded in their work performance.
The Court nevertheless held that the termination was unlawful because the labour contract did not clearly specify the employee’s duties, the meeting minutes contained only general reminders rather than a substantive assessment of the employer failed to demonstrate that the employee’s work performance had been evaluated against the criteria prescribed in its Performance Appraisal Regulations. As a result, the employer was ordered to pay salary, compensation and severance allowance and to fulfil its social insurance obligations for the period during which the employee was unable to work.
This judgment highlights that mere existence of the Performance Appraisal Regulations is not, in itself, sufficient to justify unilateral termination. To exercise the right to unilaterally terminate a labour contract, the employer must demonstrate that the employee regularly failed to complete their work based on the employee’s duties and that performance expectations were clearly defined, prescribed evaluation criteria and procedures. The criteria must also be implemented consistently and fairly, and the employer should retain adequate records and supporting evidence in accordance with its Performance Appraisal Regulations.
4. Can a PIP or KPI replace the Performance Appraisal Regulations?
KPIs are performance indicators used to measure work performance, while a PIP is a plan implemented where employee’s performance falls below the required standard. A PIP typically identifies the areas requiring improvement, the implementation period and the corresponding support measures to be provided by the employer.
Although KPIs and PIPs are both valuable performance management tools, they serve different purposes and have different legal implications from the Performance Appraisal Regulations.
Labour law does not require an employer to place an employee on a PIP before exercising the right to unilaterally terminate their labour contract. Nor does it prescribe any mandatory content or form for a PIP. Accordingly, an employer’s failure to implement a PIP does not automatically render a unilateral termination unlawful, provided that the employer has sufficient legal grounds and has properly complied with the procedures set out in its Performance Appraisal Regulations. Conversely, an employee’s failure to meet KPIs or successfully complete a PIP does not automatically constitute a lawful basis for unilateral termination. KPI or PIP results may only serve as supporting evidence where they have been developed and implemented within the framework of the Performance Appraisal Regulations. Where the employer’s Performance Appraisal Regulations expressly require a PIP as a mandatory step before termination may be considered, the employer should ensure that the PIP process is fully implemented. Failure to comply with its own internal procedures may undermine the consistency of the appraisal process and, consequently, the lawfulness of the unilateral termination.
Conclusion
Performance Appraisal Regulations provide the legal basis for determining whether an employee has regularly failed to complete their work. However, the existence of such Performance Appraisal Regulations is not, by itself, sufficient to establish the lawfulness of a unilateral termination. In practice, the legality of a termination decision will be assessed based on employer’s overall compliance with Vietnamese labour law, including developing, issuing, and implementing the Performance Appraisal Regulations, as well as compliance with all other applicable statutory requirements.
To mitigate the risk of employment disputes, employers should establish and maintain a consistent documentary records throughout the employment relationship, including the labour contract and job description, the Performance Appraisal Regulations, work criteria and targets, periodic evaluation results, records of the employee’s work performance, KPI and PIP documentation, where applicable, the employee’s explanations, and all documents relating to the unilateral termination of the labour contract. A comprehensive and consistently implemented documentation system will not only help employers in maintaining legal compliance but also strengthen their ability to defend their decisions in the event of a dispute.
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See the previous part here: Part 1 | Part 2a | Part 2b
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