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July 9, 2018

Non-Competition Clause Upheld by Vietnamese Arbitral Body and Court

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The People’s Court of Ho Chi Minh City was recently requested to overturn an arbitral decision by the Vietnam International Arbitration Center (VIAC) relating to a non-competition clause. In the end, however, the court ruled that VIAC’s decision was correct, thus upholding a non-compete clause signed between a company and its employee. The decision represents one of the first times in Vietnam in which the enforcement of a non-compete clause was tested. Although it is not a legally binding precedent, it does show that non-compete clauses can potentially be upheld in Vietnam. In previous cases, decisions have come down differently, holding that the right to work anywhere was a basic right.

In the case in question, an employee of a local company had signed an agreement to not work for a competitor in the same field for a period of 12 months after finishing employment with the employer. However, a few months after the employee parted ways with the company, the employer discovered that the former employee was working for a competitor, in contravention of the non-compete clause. The former employer then filed an action at VIAC, the dispute forum stipulated by the parties in relation to the non-compete clause. If the case was considered a pure labor case, the Ho Chi Minh City Court would have had exclusive jurisdiction. However, the non-compete and non-disclosure agreement were considered as being independent from the labor contract.

VIAC ruled in favor of the employer, and then the employee petitioned the Ho Chi Minh City Court to overturn VIAC’s ruling. The court maintained that when concluding the non-competition agreement, the employer and employee had full civil capacity to enter into the agreement, and such civil agreements should be upheld. The employee was required to pay damages for the breach of the agreement.

This decision represents a strong victory in Vietnam for the freedom-of-contract principle, and gives strong hope that anti-competition agreements, and similar agreements such as nondisclosure agreements, can be successfully enforced in Vietnam.

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