Non-disclosure agreement after termination of labor relationship – Viewpoint from a real dispute case

Date: 26 July 2021

Writer: Thao Nguyen

A non-disclosure agreement (“NDA”) is commonly used as one of the tools to protect the business’s secret, technical know-how in recent years. However, Vietnamese prevailing law does not provide any specific regulation on the NDA. Therefore, there are some conflicting opinions on practical dispute settlement on whether the NDA is recognized. Through this Article, BLawyers Vietnam will introduce a real dispute on NDA to provide you more information about such an agreement.

1. How does Vietnamese law regulate the NDA?

The prevailing Labor Code provides only one regulation on the NDA which is in case of employees doing works directly related to the business secret, technical know-how, employers can reach a written agreement with the employees on contents and terms, interests, and compensation for the employees’ violations. Therefore, employers have the right to enter an NDA with employees to protect the information after the termination of the labor contract. This is a lawful agreement because any commitment and agreement on a free and voluntary basis, neither violates regulations nor is contrary to social ethics shall be bound by contracting parties and must be respected by other subjects.

Nevertheless, the labor law also provides that employees can freely choose an occupation, work for any employer in any location. Such a regulation leads to an issue is that whether NDAs which include clauses limiting employees’ rights to choose an occupation to protect business secrets might be declared invalid due to the law violation content.

2. Real dispute settlement regarding the NDA after the termination of labor contract

To comprehend the validity of the NDA in practice, let’s take a look at the dispute below.

a. Dispute summary

Company X and Ms. T signed the NDA, which specifies:

(i) Regarding work, Ms. T cannot perform “similar occupation or occupation similar in nature” with the one that Ms. T is performing at Company X;

(ii) Regarding time limit, Ms. T is restricted during “the recruitment process or working at Company X and within 12 months after terminating the recruitment or the labor contract”;

(iii) Regarding competitors [of Company X], Ms. T cannot work for “units at the present or in the future will compete with the business of Company X and/or its affiliates and partners”.

In November 2016, Company X and Ms. T completed the labor contract termination. However, in April 2017, Ms. T started working for Company S – an X’s competitor. Because Company X and Ms. T agreed on the jurisdiction for dispute settlement of Vietnam International Arbitration Center (“VIAC”), Company X filed a lawsuit at VIAC requesting Ms. T to make a compensation amount of 3 months’ salary equivalent to VND205,197,300 as agreed upon in the NDA.

(iv) VIAC’s Arbitral Tribunal accepted all Company X’s requests due to the following reasons:

(1) Company S and Company X have the same business line;

(2) Position of Ms. T at Company S is similar in nature to the position of Ms. T at Company X;

(3) Position of Ms. T at Company X makes Ms. T knows and should know many aspects of “confidential information”;

(4) Ms. T is still in the limitation of restrictive time under the NDA;

(5) The agreement on the value of damages caused by violations under NDA is voluntary and not contrary to the law.

(v) After VIAC issued the arbitral decision, Ms. T filed a lawsuit at a Court with the request to set aside the entire content of that decision. One of the reasons for Ms. T was that the NDA violated the regulation on her right to work as an employee. However, the Court assessed that the NDA signing is voluntary, Ms. T was not forced or deceived to sign the NDA, the NDA was concluded by parties with due competence. Therefore, the Court refused Ms. T’s request on the setting aside of the VIAC’s decision.

b. Takeaways from the above dispute

The opinion of the VIAC’s Arbitral Tribunal and the Court is grounded. Because freedom to choose an occupation is the right of the employee, not obligation and employee may agree with the employer about not using or limiting her right with the purpose of getting a job or receiving another benefit from the employer. Once the parties signed the NDA, they must comply with it. Thus, recognizing the validity of the NDA is justifiable.

The law does not specifically regulate the content of the NDA but in fact, dispute-resolving bodies usually examine the following contents: limitation about duration, geographic location, position, competitors, and compensation amount.

Additionally, the judicial authority often relies on the business line to identify competitors with corporations that have signed NDA.

Should you have any questions about the above contents, please revert to BLawyers Vietnam at consult@blawyersvn.com. We are more than happy to hear from you!

Maybe you want to read:

Dissolution of enterprise during the Covid-19 pandemic: 7 remarkable matters

6 things employers cannot do towards employees during the Covid-19 pandemic

Legal notes before entering labor agreement (from 01 January 2021)

Updated: How is illegal one-sided termination of labor contracts by employers pursuant to the law of Vietnam?

blawyersvn-cta-image

Request a consultation

To schedule a meeting with BLawyers Vietnam’s attorneys, please call us or complete the intake form below. We will respond within 24 hours.

  • This field is for validation purposes and should be left unchanged.