Lawyer Nguyen Huy Hoang (*)

On June 25, 2018, the Saigon Economic Times published an article titled "Ban on working for competitors - recognized by law". In order to clarify the issues related to the Non-Compete and Confidentiality Agreement ("NDA") that the article mentions, we highlight some legal aspects based on the provisions of Vietnamese law for your reference.

On June 12, 2018, the People's Court of Ho Chi Minh City issued a decision to reject the request to annul an arbitral award by an individual, who is a defendant in an NDA dispute case, which was settled by an Arbitral Tribunal of the Vietnam International Arbitration Centre (VIAC). According to the Decision of the Court, the Award of the Arbitral Tribunal is valid and enforceable, accordingly, the defendant is liable to compensate the petitioner for breach of their non-compete agreement, i.e., the agreement that employee-defendant shall not work for the employer-petitioner’s competitors after the termination of the labor contract between the employee and employer (the "Labor Contract"). The Decision of the Court and the Award of the Arbitral Tribunal, thereby, have affirmed the validity of the NDA, an issue that has been widely debated among lawyers and adjudication agencies regarding the issues: (i) Is the NDA independent of the Labour Contract? (ii) If a dispute arises, whether the Court or Arbitration will have competence (if the parties have an arbitration agreement)?

From the open up of Vietnam's economy, along with the presence of multinational corporations, NDA has also appeared not only in business and trade relations but also in labor relations. NDA clauses can be agreed upon by the parties in commercial contracts, merger and acquisition contracts, labor contracts,... (collectively referred to as the Principal Contract) or it may be a separate agreement. However, it was only with the Award of the Arbitral Tribunal and the Decision of the Court above that the issue of the validity of the NDA and its independence of the Principal Contract, especially the Labor Contract, came into the spotlight.

In this article, we will only mention the relationship between the NDA and the Labor Contract and the competent tribunal when disputes arise regarding NDAs.

 1. Essence of the NDA:

Depending on the content of the agreement of the parties, NDA (whether specified in the labor contract or a separate agreement) usually will include 3 main contents: (i) confidential information, (ii) commitment to confidentiality and non-disclosure, (iii) commitment not to compete (i.e., commitment not to work for competitors) and non-solicitation. Regardless of the agreement between the parties, the essence and purpose of the NDA is to protect and prevent the disclosure of the Employer’s confidential information, which is intangible assets  as stipulated in the Law on Intellectual Property 2005 (amended and supplemented in 2009) ("IP Law"). Accordingly, confidential information, including business secrets, is subject to industrial

property rights, a form of intangible property of the Employer (Article 3.2, IP Law), and must be respected by the parties, including the Employee. Employers have the right to take necessary measures, including establishing NDAs to protect their business secrets (Article 84.3, IP Law). Also under the IP Law, a violation of confidentiality obligations stipulated in the NDA is also considered an infringement of the Employer's rights to business secrets (Article 127.1(c), IP  Law).

 2. Is the NDA independent of the Labor Contract?

As we mentioned above, confidential information, including business secrets, is subject to industrial property rights, a form of intangible assets of the Employer that is subject to the IP Law. However, the Labor Code 2012 ("Labor Code") also stipulates that the Employer has the right to reach a written agreement with the Employee on the content, duration of protection of business secrets, technology secrets, rights and compensation in case of violation by the Employee (Article 23.2, Labor Code). In addition, the Labor Code also stipulates that the Employer has the right to apply disciplinary actions when the Employee commits acts of disclosing business secrets, technology secrets, infringing on the intellectual property rights of the Employer (Article 126.1, Labor Code).

Normally, the contents of the NDA are agreed in the Labor Contract or in the attached annex of the Labor Contract. However, in some cases, the contents of NDA are determined by 1 separate agreement. This Agreement may be concluded together with the Labor Contract or at a different time from the time of signing the Labor Contract (either before or after the signing of the Labor Contract). As in other relationships, in addition to the content mentioned above, there are also provisions on the responsibilities of the Employee, including disciplinary liability and/or compensation for damage when the Employee violates the NDA during or after the end of the Labor Contract. Therefore, the question is whether the provisions (or contents) of the NDA are independent of the provisions of the Labor Contract and the Labor Code (or in other words, whether the NDA is independent of the Labor Contract). In the context of labor relations, under what circumstances will the NDA be considered independent and vice versa?

According to the provisions of the Labor Code, disputes arising in labor relations1  (labor  disputes) will be settled by the Court (Article 200, Labor Code). Meanwhile, a labor contract is an agreement between the Employee and the Employer on paid employment, working conditions, rights and obligations of each party in labor relations (Article 15, Labor Code). Therefore, if the NDA is not independent of the labor contract, then the Court will be the adjudicating authority when a dispute arises between the parties related to the NDA. Conversely, if the NDA is independent of the labor contract, the court or arbitrators (if there is an arbitration agreement) will be the adjudicating authority.

So, is the NDA independent of the Labor Contract?

Whether the NDA is independent of the Labor Contract or not does not depend on whether the NDA is a formal part of the Labor contract or not, i.e., whether the contents of the NDA are located in the Labor Contract (or annexes to the Labor Contract) or in a separate agreement. Whether the content of the NDA, or to be more precise, the exercise of the rights and obligations of the parties as agreed in the NDA and the dispute resolution mechanism when a party violates the NDA is independent of the labor contract, in our opinion, will depend on the parties' legal status when they exercise those rights and obligations and when they resolve disputes in relation to that NDA. More specifically, whether the NDA is independent of the Labor Contract or not will depend on whether the parties, in implementing and resolving disputes related to the NDA, have the status of the employee and employer, or otherwise.

According to the provisions of the Labor Code, a Labor Contract is an agreement between the Employee and the Employer on paid employment, working conditions, rights and obligations of each party in labor relations (Article 15, Labor Code). Also according to the Labor Code, when  the Employee’s job is directly related to the Employer’s business secrets or technology secrets  as prescribed by law, the Employer has the right to reach a written agreement with the Employee on the content, duration of protection of business secrets, technology secrets, rights and compensation in case of violation by the Employee (Article 23.2 of the Labor Code), and apply disciplinary actions when the employee discloses business secrets, technology secrets, infringes upon the intellectual property rights of the Employer (Article 126.1 of the Labor Code). In addition, according to the Labor Contract, the Labor Contract will terminate upon expiry of the term (Article 36.1 of the Labor Code).

Obviously, according to the above provisions, in the event that the Labor Contract is valid, the rights and obligations and dispute settlement (if any) related to the NDA of the parties will have to be done as between an employee and an employer. Therefore, their rights and obligations, including dispute settlement, must first be exercised on the basis of the Labor Contract and the Labor Code. Therefore, in case the Employee violates the confidentiality and non-competition regulations stipulated in the NDA, the Employer has the right to take disciplinary measures to dismiss and request compensation from the Employee. In case the Employee does not voluntarily pay compensation, the Employer will only be able to sue the Employee to the competent Court to claim compensation because this is a form of labor dispute. On the other hand, the Employee, in this case, believing that the Employer applies disciplinary action in contravention of the agreement and provisions of labor law, has the right to initiate a lawsuit to the competent Court.

On the contrary, when the Labor Contract has been terminated, the exercise of the rights and obligations of the parties related to the agreements stipulated in the NDA, including dispute settlement, will not be in the capacity of the employee and the employer anymore, because at

this time the Labor Contract has been terminated, i.e., the labor relationship no longer exists. Therefore, the parties cannot apply sanctions as prescribed by the Labor Contract and the Labor Code to exercise their rights and obligations, including dispute settlement. A specific example in this case is, the Employer cannot apply disciplinary actions when the Employee commits acts of disclosing business secrets, technology secrets, infringing on his/her intellectual property rights because the labor relationship has been terminated. In this case, they will have to exercise their rights and obligations as parties in civil relations. Therefore, the governing law in this case is not the Labor Code. The jurisdiction in this case is the Court of competent jurisdiction or arbitrators, subject to the arbitration agreement of the parties at the NDA.

 3. Does a non-compete agreement, i.e., an agreement not to work for a competitor after termination of the Labor Contract, not protect the interests of the Employee?

As mentioned, not only in Vietnam, confidential information, i.e., business secrets are subject to industrial property rights, a form of intangible assets of Employers that they have to spend years to acquire. Such trade secrets may be disclosed by the Employee while the Employee is still working or when the Labor Contract has been terminated. Therefore, the nature and purpose of the non-compete agreement is to protect the business secrets of the Employer which has been stipulated not only by the IP Law but also by the Labor Code. Specifically, Article 22.3 of the Labor Code stipulates that "When an employee works directly related to business secrets or technology secrets as prescribed by law, the employer has the right to reach a written  agreement with the employee on the contents and duration of protection of business secrets, technology secrecy, rights and compensation in case of violations by employees". Obviously, it is the Labor Code that stipulates that the Employer and the Employee can agree on a time limit to protect business secrets. This period may coincide with the term of the Labor Contract or may  be extended as long as the agreement is established voluntarily. The Employer reserves the right to take necessary measures, including establishing NDAs to protect its trade secrets. In contrast, the Employee, as a party to the NDA, has the right to sign or not sign the NDA. And once they have signed NDAs, they must respect the Employer's ownership of trade secrets.

In fact, in Vietnam, companies, especially multinational companies, do not establish NDAs with all Employees, but only with a few Employees, who will hold the Employer's business secrets. Therefore, when an Employee discloses business secrets during his working time or after the Labor Contract is terminated, especially to competitors, the consequences are very unpredictable. Therefore, the establishment of NDAs, including non-compete agreements, is essential.

Finally, in our opinion, whether the NDA is independent of the Labor Contract or not is not at all based on the time of signing the NDA. Therefore, whether the content of the NDA is contained in the Labor Contract (or the annex attached to the Labor Contract) or a separate agreement will not determine the exercise of the rights and obligations of the parties in relation to the agreements stipulated in the NDA, including dispute resolution, whether it is independent of the Labor Contract or not, but rather the status of the parties at the time of implementation of the such rights and obligations, for example, if the dispute is related to an NDA at the time the Labor Contract is valid, when the parties to the dispute are the Employee and the Employer, then it should be identified as a labor dispute and will be resolved by a competent Court; on the contrary, if the dispute is related to the NDA at the time the Labor Contract has been terminated, the parties to the dispute shall not be deemed as the Employee and the Employer, so the dispute is not a labor dispute and will be resolved by a competent Court or arbitrator (if there is an arbitration agreement).