Legal Enforceability and the Conflict between “Right to Work” vs. “Freedom of Contract”
In the context of an increasingly competitive labor market, Non-Compete Agreements (NCAs) have become a standard instrument for corporations to protect their trade secrets and market position. However, the enforceability of such agreements within the Vietnamese jurisdiction remains a contentious legal issue, often described as a “grey area” due to conflicting statutory interpretations.
This analysis examines the validity of NCAs under the current legal framework, judicial precedents, and provides strategic recommendations for compliance.
1. The Legal Conflict: Statutory Analysis
The validity of an NCA in Vietnam is challenged by the friction between two fundamental legal principles: the constitutional right to work and the civil principle of voluntary agreement.
A. Arguments for Invalidity (The Employee’s Perspective)
The primary legal risk for employers is that NCAs may be deemed null and void for violating the fundamental rights of the employee:
- The Constitution of 2013 (Article 35): Guarantees the right of citizens to work and to choose their profession, employment, and place of work freely.
- The Labor Code 2019 (Article 10.1): Explicitly prohibits any acts that obstruct or deter an employee from exercising their right to work.
- Legal Implication: Vietnamese courts often interpret these provisions strictly, arguing that any contractual term preventing a former employee from joining a competitor constitutes an infringement of their constitutional and statutory rights.
B. Arguments for Enforceability (The Employer’s Perspective)
Conversely, employers rely on the principles of civil law and intellectual property protection:
- The Civil Code 2015: Upholds the principle of “freedom of contract.” If an individual possessing full civil act capacity voluntarily signs an agreement, they are bound by its terms.
- The Labor Code 2019 (Article 4): Recognizes the freedom to negotiate terms not expressly prohibited by law. Crucially, strict regulations regarding the protection of business secrets and technological know-how are permitted.
- Legal Implication: Proponents argue that an NCA is not a deprivation of the right to work, but a voluntary civil commitment to limit specific activities for a finite period in exchange for specific benefits (e.g., employment, high salary, access to confidential data).
2. Jurisprudence and Adjudication Trends
The outcome of an NCA dispute heavily depends on the dispute resolution body selected in the agreement.
A. The People’s Courts: Protective Approach
Vietnamese Courts have historically adopted a pro-employee stance.
- Trend: Judges frequently invalidate NCAs, classifying them as restrictive covenants that violate the Labor Code. The prevailing view in many judgments is that the right to work is absolute and cannot be waived via contract.
- Consequence: In such cases, the former employee is often released from the obligation to pay damages despite breaching the non-compete clause.
B. Commercial Arbitration (e.g., VIAC): Contractual Approach
Arbitration tribunals tend to adopt a more commercial perspective, favoring the “freedom of contract” principle under the Civil Code.
3. Criteria for Enforceability (The “Reasonableness” Test)
To maximize the probability of enforcement, an NCA must satisfy specific criteria of reasonableness and fairness. A blanket ban is rarely enforceable.
A. Economic Consideration (Compensation)
This is the most critical factor. An NCA without compensation is likely to be deemed unconscionable.
- Principle: If the employer restricts the employee’s ability to earn a living in their field of expertise, the employer must provide financial compensation for that limitation.
- Practice: Employers should pay a “non-compete allowance” (e.g., 50% – 100% of the gross salary) during the restricted period.
B. Reasonable Scope (Temporal and Geographical)
- Duration: The restriction period must be finite and reasonable (typically 6 to 12 months). Indefinite or excessively long periods (e.g., 2-5 years) are generally rejected.
- Geography & Competitors: The restriction should be limited to specific geographical areas where the employee actually worked and to a specific list of direct competitors. A global or nationwide ban is often considered excessive.
C. Nexus to Trade Secrets
The NCA should be explicitly linked to the protection of Business Secrets (as defined under the Law on Intellectual Property).
- Drafting Strategy: Instead of broadly banning “working for a competitor,” the clause should prohibit “working in a capacity that inevitably requires the use or disclosure of the Employer’s confidential information.”
4. Strategic Recommendations for Employers
To mitigate legal risks and enhance enforceability, corporations should implement the following measures:
- Drafting Precision: Avoid generic templates. The NCA must be tailored to the specific role of the employee, clearly defining “Competitors” and “Confidential Information.”
- Separate Civil Agreement: Execute the NCA (and Non-Disclosure Agreement – NDA) as a separate civil contract distinct from the Labor Contract. This strategy aims to shift the dispute resolution mechanism from Labor Law (protective of employees) to Civil Law (respecting agreements).
- Financial Consideration: Explicitly state the compensation payable to the employee during the non-compete period.
- Dispute Resolution Clause: Where legally permissible, designate Commercial Arbitration as the dispute resolution body to ensure a more balanced interpretation of contractual obligations.
CONCLUSION
While Vietnamese law does not explicitly prohibit Non-Compete Agreements, their enforceability is not guaranteed. To survive judicial scrutiny, an NCA must be carefully drafted to balance the employer’s need for trade secret protection with the employee’s constitutional right to work, necessitating reasonable limitations and adequate financial compensation.
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1. Lawyer Vu Thi Phuong Thanh, Ha Noi Bar Association
Email: vtpthanh@tlalaw.vn
2. Lawyer Tran My Le, Ha Noi Bar Association
Email: tmle@tlalaw.vn
Nguyen Hien Mai