Some legal issues of Non-Compete Agreement (NCA) and judicial practice of labor dispute in relation to Non-Compete Agreement

1. Legal issues of Non-Compete Agreement in labor field

1.1. How is Non-Compete Agreement defined?

The Labor Code does not define what is a Non-Compete Agreement. When assessing the benefits of the Employer and the Employee in a labor relationship, there is a unification regarding their benefits. If a company wants to operate stably, it will need employees’ contributions. Once the Employee and the Employer have reached the unification of benefits, any competitive relationship will not happen as the Employer’s robust business results will lead to the Employee’s better benefits. Competitive events are aimed at in the course of work, the Employee can get access to business secrets such as customer list information, list of suppliers, affiliated companies, prices, information about transactions, etc., and if this information is “lost” to a competitor of the Employer after the Employee is no longer working, it is likely to cause harm to the Employer. The Employer wishes to preserve their business advantages over enterprises who are also in the same field as The Employer.

Accordingly, Non-Compete Disagreement can be understood as a written agreement between the Employer and the Employee, in which the Employee agree on a voluntary basis that they will not engage in any labor/cooperation relationship as a consultant, an advisor to corporations, other economic organizations that implement or are competent for implementing competitive activities with the Employer, during the period of working for the Employer or after the termination of the labor relationship, with the purpose of protecting crucial information of the Employer which has high economic value.

1.2. How is Non-Compete Agreement regulated?

Non-Compete Agreement is executed based on the agreement of both parties. Therefore, the parties have the right to discuss the contents of this Agreement. Normally, the Non-Compete Agreement includes provisions on confidentiality and non-compete agreement, with main contents as follows:

• Information of the parties;
• Definition of confidential information;
• Commitment to confidentiality and non-disclosure;
• Competition but not manipulation;
•  Punishments for breach of confidentiality;
• General terms and conditions.

1.3 When to apply for a Non-Compete Agreement: before, during or after the labor relationship? 

Starting from the agreement between the Employee and the Employer, both parties are entitled to decide the time of signing and applying to the Non-Compete Agreement. Accordingly, an actual non-compete agreement can be applied before, during, and after the labor relationship. However, Non-Compete Agreement is commonly signed before or at the same time as a Labor Contract with an aim to enable the Employer reasonably “hand over” information, and documents of the company to the Employee. Otherwise, the Employee will have the opportunity to consider and decide whether they should work for the Employer or not. Simultaneously, the Employee will be more aware of their responsibilities when entering a labor relationship.

2. The practice of dispute settlement of Non-Compete Agreements in the labor field.

Currently, the Court and Commercial Arbitration have both received and resolved disputes between the Employer and the Employer relating to the Non-Compete Agreements. Depending on each case, the decisions of authorities can be different. Nevertheless, it is not difficult to reflect and evaluate that, the Court’s opinions on settling disputes of Non-Compete Agreements are not consistent. Specifically:

In accordance with the judgment No.420/2019/LĐ-PT dated May 5th, 2019 about settling a labor contract disputes with competitors, accepted and adjudicated on appeal by the People’s Court of Ho Chi Minh City (hereinafter referred to as “the Court”). In addition to other issues, the Court has found that the contents of the Non-Compete Agreement that the Plaintiff and Defendant signed were “illegal”, on a legal basis as follows:

Clause 1 Article 35 The Constitution 2013:

“Article 35

1. Citizens have the right to work and to choose their occupations, employment and workplaces.”

Point a Clause 1 Article 5 The Labor Code 2019:

“Article 5. Rights and obligations of employees 

1. An employee has the rights to:

a) work; freely choose an occupation, workplace or occupation; participate in basic and advanced vocational training; develop professional skills; suffer no discrimination, forced labor and sexual harassment in the workplace;”

“Clause 1 Article 4 Law on Employment 2013:

“Article 4. Principles of employment

1. Ensuring the right to work and freely choose jobs and workplaces.”

And Clause 6 Article 9 Law on Employment 2013:

“Article 9. Prohibited acts

6. Obstructing, or causing difficulties or damaging to, the lawful rights and interests of workers or employers.” 

Meanwhile, related to the case requesting an annulment of the arbitration award No.755/2018/QĐ-PQTT accepted and resolved by the People’s Court of Ho Chi Minh City. In addition to other issues that the Claimant used to justify the request of annulment of the arbitration award, the Claimant stated that the signed Non-Disclosure Agreement was a “violating of the Employees’ right to work, violating prohibited acts according to Law on Employment 2013…”. Accordingly, the Court relied on the general principles of the Civil Code 2005) the governing law corresponding to the time of dispute settlement), specifically in Article 4, now in Article 3 of the Civil Code, stating that:

“Article 4.- Principles of free and voluntary undertaking and agreement

The right to freely undertake or agree/negotiate on the establishment of civil rights and obligations shall be guaranteed by law, if such undertaking or agreement is not banned by law and/or not contrary to social ethics.

In civil relations, the parties shall act entirely voluntarily and neither party may impose, prohibit, coerce, threaten or hinder the other party.

Lawful undertakings or agreements shall be binding on the parties and must be respected by individuals, legal entities and other subjects.”

The Court found that “Ms. T and Company X voluntarily signed, at the time of signing Ms. T is a person with full capacity as prescribed by law, not forced, deceived, or imposed her will for Ms. T to accept to sign NDA (Non-Disclosure Agreement). Therefore, NDA is effective. It is completely legal for the Arbitral Tribunal to recognize the validity of NDA.”
As mentioned above, there is no provision in the law regulating Non-Disclosure Agreement. Hence, the signing, contents of signing, effective date, and legal value of the Non-Disclosure Agreements will be considered and evaluated according to the point of view, interpretation, application of legal provisions and most important, depending on the protection position for the Employer or the Employee.

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