ENFORCEMENT OF NON-COMPETE CLAUSE

LEGAL UPDATE

1. Non-compete Clause in Vietnam

In June 2018 the HCMC People’s Court (the Court) ruled that an arbitral award of Vietnam International Arbitration Centre (VIAC) was correct. In this arbitral award VIAC had awarded an amount of VND205 million to the employer because the employee had violated a non-compete clause in a non-disclosure agreement (NDA).

A non-compete clause prevents an employee from working for a competitor after the employee resigns or is fired. However, in the Vietnamese Labour Code there is no provision on non-compete clauses; therefore an employee and employer have to sign an agreement under the Civil Code related to the non-compete clause, next to a labour contract.

2. The Dispute

The case that led to this important decision was as follows: Shortly after an employee and an employer had signed a labour contract, they sign an NDA prohibiting the employee to work for a competitor within a year after termination of the labour contract, regardless of the reason of termination. The employee nevertheless started working at a competing company which the employer discovered.

3. Dispute Resolution

Subsequently the employer started a procedure before the VIAC as was agreed between parties in case of a dispute. In February 2018 VIAC issued an arbitral award stating that the employee had violated the NDA and had to pay VND205 million, being 3 month’s salary, to the former employer.

The employee did not agree and requested the HCMC People’s Court to overturn the arbitral award arguing that the non-compete clause formed an integral part of her labour contract and therefore was a labour dispute and not a commercial dispute.

The Court argued as follows:

- parties had agreed to choose VIAC to resolve a dispute;
- the employer is engaged in commercial activities and therefore entitled to start arbitration proceedings;
- the employee was conscious, had full legal capacity, and was not forced to sign the agreement; and
- the non‑compete clause does not violate the law nor contravenes social morality.

Based on these arguments the Court judged that parties need to comply with the clauses of the agreement, and dispute had to be resolved through arbitration.

4. Future of Non-compete Clauses

Even though in Vietnam a court decision is not a legally binding precedent, it is an important judgement. It is one of the first cases in which enforcement of a non-compete clause was tested and accepted. In the past, courts decided that the right to work anywhere was a basic right, and could not be waivered by a non-compete clause. The future of non-compete clauses and the freedom of contract principle look promising as these agreements can be successfully enforced in Vietnam.

For more information, please contact:

Mark Oakley / Managing Partner

mark.oakley@acsvlegal.com

Hieu Pham / Special Counsel

hieu.pham@acsvlegal.com

© 2018 ACS Legal Vietnam Limited – All rights reserved

This legal update is not an advice and should not be treated as such.

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