A non-compete agreement is a tool that many businesses employ to protect trade secrets (“TS”) and technological secrets (“TechS”) during the time an employee (“EE”) is working at the company and after the employee leaves.
From a legal perspective, non-compete agreements remain a subject of debate because they somewhat restrict employees’ rights to “work, choose occupations, employment, and workplace.”
However, in practice, many businesses still sign non-compete agreements with employees to ensure business operations as well as to enhance employees’ sense of responsibility.
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What is a non-compete agreement?
A non-compete agreement is understood as a commitment between an employee and the employer (“ER”), either as a standalone document or as a clause within the employment contract (“EC”), in which the employee agrees not to work, directly or indirectly, for the employer’s competitors for a specified period after the employment contract is terminated. Current labour law does not specifically regulate non-compete agreements.
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Legal grounds supporting non-compete agreements
Although not specifically regulated in current law, certain legal provisions indirectly support the legality of these agreements:
According to Article 3.2 of the 2015 Civil Code, individuals and legal entities may establish, implement, and terminate civil rights and obligations on the basis of free, voluntary commitments and agreements, provided they do not violate prohibitions of the law and are not contrary to social ethics. Furthermore, under Article 198 of the 2005 Intellectual Property Law, as amended by Article 1.76(a) of the 2022 Intellectual Property Law, intellectual property rights holders have the right to:
- Apply technological measures to protect rights, provide rights management information, or use other technological measures to prevent infringement of intellectual property rights;
- Request organisations and individuals who infringe intellectual property rights to cease the infringement, remove and delete infringing content on telecommunications and Internet networks, apologise, publicly correct, and compensate for damages;
- Request competent state authorities to handle intellectual property rights infringements according to legal provisions.
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Legal grounds not supporting non-compete agreements
On the other hand, certain provisions in Vietnamese law protect employees’ right to work freely:
2019 Labour Code (Article 5.1(a)): Stipulates that employees have the right to freely choose their employment and workplace. 2013 Constitution (Article 35.1): Protects citizens’ rights to freely choose occupations and workplaces. 2013 Employment Law (Article 9.6): Prohibits actions that obstruct or restrict the legitimate rights of employees. 2013 Employment Law (Article 4): Ensures the right to work and the freedom to choose employment.
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Benefits of non-compete agreements for businesses
Although legally controversial, non-compete agreements provide important benefits to businesses:
Protecting trade secrets, technological secrets, and reducing competition risk: Ensuring that employees do not use the business’s trade secrets and technological secrets for competitors after the employment contract is terminated. Legal basis: These agreements can serve as evidence in dispute resolution, minimising legal risks for businesses.
Conclusion
The non-compete agreement is an important measure that helps protect business interests, particularly in highly competitive industries. However, when applying this agreement, businesses should be cautious to avoid infringing on employees’ freedom to work as stipulated by Vietnamese law.
