On 18 August 2023, the Justice Council of the Supreme People’s Court announced the passing of a new series of official judicial precedents which shall have binding effect on all Courts in Vietnam.
One noteworthy case is the Precedent derived from Decision No. 755/2018/QD-PQTT dated 12 June 2018 of the Ho Chi Minh City People’s Court (the “Precedent”), relating to a dispute between a multinational corporation’s subsidiary in Vietnam (the “Company”) and its former employee, the first alleged that the latter breached her obligation under a non-compete agreement.
In the case, the Company was advised and assisted by lawyers Nguyen Huy Hoang, Nguyen Van Thai, and Doan Thanh Binh (Bross & Partners) as counsels and representative during arbitration and court proceedings. The case was a rather unique one for three reasons: (i) it was resolved in favour of the Company against the common perception that non-competes are unenforceable; (ii) it was heard by a commercial arbitral tribunal, not a labour court’s tribunal; and (iii) the review tribunal of the Ho Chi Minh City People’s Court later confirmed the legality and enforceability of the arbitral award.
The Precedent has resolved the long debate over whether commercial arbitrators have competence over non-compete disputes and can be briefed as follows:
- Facts: The employee and the employer agree in writing that, after resigning from the current job, the employee shall not work in a similar position or compete with the employer for a certain duration and any related disputes shall be resolved through commercial arbitration.
- Solution: The Court shall determine that the non-compete agreement is independent from the labour contract and related disputes are within the competence of commercial arbitration.
- Statutory bases:
- Articles 2.2, 13, and 35.4 of the Law on Commercial Arbitration 2010;
- Article 3.2 of the Civil Code 2015; and
- Article 6 of Resolution No. 01/2014/NQ-HDTP of the Justice Council of the Supreme People’s Court.
It can be seen that the Precedent confirms and clarifies the solution under Article 4.3(b) of Circular No. 10/2020/TT-BLDTBXH of the Ministry of Labour - Invalids and Social Affairs, which provides that if an employee breaches his/her trade secret protection agreement with the employer after the employment has ended, the case shall be resolved according to “the civil law and other relevant laws”, rather than labour law. In other words, post-employment breaches of non-competes shall be resolved as civil or commercial disputes, in which case commercial arbitrators can have competence if agreed by the parties, rather than labour disputes under the specialized proceedings of the Labour Code.
Though the Precedent does not set out substantive rules about the legality of non-competes, which still await to be settled by legislation, it demonstrates the progressive and more open view of the Vietnamese judicial system towards this kind of agreement. In our opinion, the tendency to be more open to non-competes is in line with the advancement of the information economy. Data and information are increasingly sensitive and important that any leakage can seriously damage a firm. Though it is up to the company to actively protect confidentiality, risks are unavoidable as certain employees need to obtain certain senstive information to perform their work.
The employee nowadays is not only the weaker party in relation to the employer, they can also make strong impact on the company when taking up (and leaving) senior managerial roles, acquiring (and selling) equity in the firm, building their own enterprise or linking with others’ businesses. The law certainly must protect the weaker side, but if the strong can still be seriously undermined by the weaker, the strong should also be protected. Non-competes, if regulated with care and consideration, can prevent firms’ damage from happening before it’s ‘too late’ and meaningfully reduce risks relating to data breaches, trade secret misappropriation, operational disruption, unfair competition, or unethical practices.