Non-disclosure Agreement Vietnam: New precedent on the legal validity of non-disclosure and non-compete agreements

In a groundbreaking move, the Supreme People’s Court of Vietnam recently issued Decision 364/QD-CA dated 1 October 2023, announcing seven case laws, with case law no. 69/2023/AL (precedent 69) taking centre stage. This decision solidifies authority of arbitration in addressing disputes related to non-disclosure and non-compete agreements.

Precedent 69 involves a case where an employee argued that the non-disclosure and non-compete agreement (NDA) was an integral part of the labour contract and should be within the court’s jurisdiction. However, the court rejected this argument, emphasising the independence of the NDA from the labour contract. The Ecovis experts from ECOVIS Vietnam OC Law explain the reasons for this decision.

Crucially, the court clarified that since the employer is engaged in commercial activities, the dispute with the employee should fall under arbitration, according to the law on commercial arbitration. Importantly, if a party fails to object to the arbitration agreement during the proceedings, they forfeit the right to raise the objection before the court – an aspect highlighted by precedent 69.

The employee, despite later claiming that the arbitration award violated employment laws, lost the right to object due to their non-objection during the arbitration proceedings. The court emphasised the voluntary nature of entering into the NDA, asserting its validity and binding nature between the parties.

We develop legally secure non-disclosure and non-compete agreements for you and your company.

Vu Manh Quynh, Managing Partner, ECOVIS Vietnam OC Law, Ho Chi Minh City, Vietnam

Key takeaways for the employer

Precedent 69 is a pro-arbitration ruling, extending the jurisdiction of arbitration to cover non-disclosure and non-compete agreements, even when in an employment context. The decision also underscores the importance of timely objections during arbitration proceedings, reinforcing the principle that failure to do so results in a waiver of the right to object before the court. This precedent serves as a valuable lesson for foreign investors seeking to hire employees in Vietnam and highlights the significance of understanding and respecting arbitration agreements in employment-related disputes. NDAs should be signed independently of the labour contract with the employee.

Drafting the NDA well brings benefits for both sides

Many companies, and the economy in general, are increasingly recognising the importance of confidential and business-sensitive information. However, the legal mechanisms primarily used to protect these assets still rely on the traditional framework of compensating actual damages. Proving both the violation and the actual damages is not a simple task in court proceedings. If a violation occurs and the employer has to wait until it can demonstrate the damages and demand compensation, it may be too late. Therefore, a valid non-disclosure and non-compete agreement that can be enforced becomes a necessary and valuable legal tool to address and prevent early risks of harm to businesses.

A well-drafted NDA also creates an ethical barrier to limit negative behaviours, unethical business practices, and unhealthy competition, such as

• employees disclosing or selling business secrets and confidential information to competitors
• competitors bribing or enticing employees to disclose business secrets and confidential information, etc.

For further information please contact:

Vu Manh Quynh, Managing Partner, ECOVIS Vietnam OC Law, Ho Chi Minh City, Vietnam
Email: quynh.vu@ecovislaw.vn

Nguyen Nhuan, Partner, ECOVIS Vietnam OC Law, Ho Chi Minh City, Vietnam
Email: nhuan.nguyen@ecovislaw.vn