Balancing the interests of parties in non-compete agreements to protect trade secrets

Abstract: Non-compete agreements are concluded to protect an enterprise’s trade secrets when employees leave their jobs. However, the application of such agreements remains controversial, as they may restrict employees’ freedom to seek employment. In the absence of specific legal regulations, these agreements may lead to an imbalance of interests between employees and employers. This article examines current legal provisions related to non-compete agreements, highlighting their impacts and the challenges in their implementation. Based on an analysis of the current Vietnamese legal framework on non-compete agreements, the article provides recommendations for developing legal rules governing non-compete agreements, with a view to balancing the interests of employees and employers in particular, and the interests of the labour market in general, with reference to relevant experiences from China.

Keywords: trade secrets, non-compete agreement, balance of interests.

I. Introduction

Among the measures to protect employers’ trade secrets, a "non-compete agreement" (NCA) is one option that employers may choose. This measure is applied when other confidentiality methods, such as technical measures, cannot be implemented. In other words, when an employer holds trade secrets that must be disclosed to employees, for example when employees work on a production line that contains trade secret information, it is necessary to bind employees by certain agreements, including a non-disclosure agreement (NDA) and a non-compete agreement. However, while confidentiality agreements can be made without much controversy, non-compete agreements face some objections, mainly concerning their legality or the possibility that employers may “abuse” them in protecting trade secrets.

At present, the demand for trade secret protection is increasing in the context of trade liberalisation and globalisation. The reason is that gaining access to others’ secrets allows enterprises to save financial resources on basic and applied research, understand the operations of competitors, and focus attention on production and marketing strategies[1]. Therefore, the use of non-compete agreements to protect trade secrets between employees and employers has become common. From this, the issue of balancing the interests of the parties arises and requires legal regulations. This article identifies that balancing the interests between employers and employees in non-compete agreements means that both parties are reasonably protected in their lawful rights and interests, with neither party suffering excessive harm when entering into such an agreement, while also limiting the creation of barriers to job seeking and recruitment in the labour market. Specifically, employers are able to protect trade secrets and prevent unfair competition, while employees receive appropriate financial compensation for restrictions on their freedom of employment, and are only restricted within a reasonable scope and duration as prescribed by law.

Although Vietnamese law has not yet provided official regulations on non-compete agreements, the laws of many countries around the world, typically China, have established regulations governing such agreements with the aim of protecting the rights and interests of both employees and employers. On the other hand, given the societal benefits of non-compete agreements as a tool to protect trade secrets, promote innovation and reduce employee turnover[2], it is evident that non-compete agreements have reasonable grounds to exist. This article also proposes that, in order to minimise potential negative impacts, certain specific solutions should be adopted, including the recognition of the legality of non-compete agreements and the development of legal provisions to control such agreements, on the basis of balancing the interests of employers, employees, and the overall interests of the labour market.

II. Overview of trade secrets and non-compete agreements to

2.1. Definition and protection conditions for trade secrets

According to Clause 23 Article 5 of the Law on Intellectual Property 2005, amended and supplemented in 2009, 2019 and 2022 (the Law on Intellectual Property), “a trade secret is information obtained from financial or intellectual investment activities, which has not been disclosed and is capable of being used in business”. From an economic perspective, a trade secret is a highly valuable intellectual asset that enterprises endeavour to keep exclusively. Protecting trade secrets not only motivates scientific research and technological innovation but also prevents the reduction or loss of competitive advantages of enterprises in the market[3].

The subject matter of trade secrets is the result of financial or intellectual investment in the form of information such as technological information, technical know-how, and business-related secrets, which are any information with business (or commercial) value at present or in the future to the owner that is not known to the public and not easily discoverable. Through the exclusive exploitation of their creative outputs, rights holders are able to establish distribution strategies and control the market for their products in a reasonable manner, providing opportunities for users of such secrets to gain profits over competitors who do not know or do not use them[4].

Vietnamese intellectual property law classifies trade secrets as one of the subject matters of industrial property rights. Pursuant to Point c Clause 3 Article 6 of the Law on Intellectual Property, to establish industrial property rights over trade secrets, the owner must lawfully obtain the trade secret and implement measures to keep it confidential. Accordingly, the law does not require trade secrets to be registered with a competent authority as with other subject matters of industrial property rights (such as patents or trademarks), given their confidential nature. In addition, Clause 3 Article 84 of this Law stipulates the protection conditions for trade secrets, including: (1) Not being common knowledge and not easily obtainable; (2) When used in business, providing the holder of the trade secret with an advantage over those who do not hold or do not use it; (3) Being protected by the owner through necessary measures so that the trade secret is not disclosed and not easily accessible. Regarding condition (3), it can be understood that the law allows trade secret owners to apply measures to protect trade secrets by themselves, including employers entering into non-compete agreements with employees working in their enterprises.

2.2. Application of non-compete agreements to protect trade secrets and the interests of the parties

Non-compete agreements first appeared in Europe in the 15th century, establishing initial precedents and developing key provisions in the 18th century. The important elements of non-compete agreements gradually became clearly defined, with the parties negotiating the duration, geographical scope, and professional fields within the agreement[5] from then until now.

Based on the characteristics of non-compete agreements, it can be identified that this is an agreement between the employer and the employee under which the employee will not work for competitors, enterprises operating in the same or related industries of the employer during and after the termination of the labour contract, including determining the period during which the employee is bound, the scope of industries, and the geographical area in which the employee is restricted from working. In addition, a non-compete agreement may include a requirement that the employee is not allowed to establish or participate in establishing enterprises in the same industry or field as the employer. In terms of form, this agreement may be established as a clause in the labour contract when the parties enter into such contract, or it may be established as a separate document at a specific time, possibly at the time of entering into the labour contract, during the performance of the labour contract, or before the termination of the labour contract[6]. By entering into a non-compete agreement with employees, employers are able to eliminate or minimise impacts from their own employees because: (i) employees possess confidential information; (ii) employees serve as business tools; (iii) employees are “investment targets”; and (iv) employees are potential competitors[7]. These are the prominent benefits that employers gain from non-compete agreements. Conversely, employees generally do not obtain any direct benefits from such agreements.

First of all, the primary theoretical basis for the conclusion and implementation of non-competition agreements derives from the need to protect employers’ business secrets. Business secret owners may convey their confidential information while still preserving its secrecy if employees undertake to keep such information confidential. After all, this is a common method of sharing secrets, and a confidentiality agreement serves as evidence of the owner’s intention to maintain control over his or her business secrets[8]. In such cases, the business secret owner cannot conduct production and business activities without disclosing the business secrets to employees so that they can participate in production and commercial operations. However, when employees leave their jobs, merely applying confidentiality agreements becomes difficult, especially when they move to work for other employers. By establishing a non-competition agreement with employees, the employer expands the ability to “secure” its business secrets from exposure and easy access, particularly to competitors; or prevents employees from directly setting up another enterprise that competes against the employer.

It should be noted that a non-competition agreement may be combined with a confidentiality agreement. That is, after leaving the enterprise, the employee must also comply with the obligation to maintain confidentiality in addition to the obligation not to compete. The two agreements operate concurrently and complement each other in protecting the enterprise’s business secrets. In the event that an employee leaves and is bound only by a non-competition obligation without a confidentiality obligation, the employee may still be fully able to disclose the enterprise’s business secrets by one means or another.

Next, the provisions on protection against infringement of rights to business secrets serve as an important legal basis for agreements such as non-competition agreements. Point (c) Clause 1 Article 127 of the Law on Intellectual Property stipulates that one act of infringing upon the ownership rights to business secrets is: “Violation of a confidentiality contract or cheating, inducement, bribery, coercion, persuasion, or abuse of trust of the person having the confidentiality obligation for the purpose of accessing, acquiring or disclosing business secrets”. Employers may invoke this provision to combat acts of accessing business secrets when competitors bribe or entice their employees to work for them. At the same time, the provision serves as the basis for handling employees who have entered into confidentiality agreements but commit violations by disclosing the employer’s business secrets to others. This is also an important theoretical foundation for the establishment and implementation of non-competition agreements. However, applying this provision directly is very difficult because it requires proof of the elements of “cheating, inducement, bribery, coercion, persuasion, abuse of trust,” especially when the employer must demonstrate these elements from the perspective of a third party.

In cases where the parties do not have a non-competition agreement, or where the law prohibits such an agreement, the employer will face certain disadvantages, such as: (1) Difficulty in protecting its business secrets when employees leave their jobs; (2) When an employee leaves the enterprise and works for a competitor, the disclosure or exploitation of business secrets by another enterprise may result in the employer losing its competitive advantage in the market, making the competitive environment unhealthy and inconsistent with the spirit of the law in this field. This undermines intellectual property rights - the legitimate interests of the business secret owner. Therefore, non-competition agreements are necessary to protect the business secrets of the owner; however, when put into practice, there remain many significant obstacles.

III. Certain legal issues in concluding non-compete agreements to protect trade secrets

The current situation and legal issues surrounding non-compete agreements in Viet Nam show that these agreements remain controversial in terms of legality in both their formulation and enforcement, and there is a risk that employers may “abuse” such agreements, affecting employees’ interests and the overall development of the labour market.

3.1. The lack of a consistent legal view on the legality of non-compete agreements in dispute settlement practice

As mentioned above, non-compete agreements have not been officially recognized in Viet Nam. The current Labour Code contains provisions that are relatively close to non-compete agreements between employees and employers. Clause 2 Article 21 of the Code provides that: “Where an employee works in a position directly related to trade secrets or technological secrets as prescribed by law, the employer has the right to reach a written agreement with the employee on the scope, duration of protection of the trade secrets or technological secrets, the rights and the compensation in case of breach.” In general, this provision enhances the protection of trade secrets in labour relations. It also limits the employer’s ability to impose restrictions by allowing such agreements only with employees directly involved in trade secrets, rather than with all employees. Although there are guiding regulations regarding this provision, the law has not yet established clear limitations on the substantive content or duration of trade secret protection. Moreover, this provision is not a direct regulation on non-compete agreements; therefore, non-compete agreements between employers and employees may still be declared invalid by courts or commercial arbitration tribunals.

Through the practice of dispute resolution and adjudication in Viet Nam, it can be seen that there is still no consistency in the interpretation and enforcement of non-compete agreements. Below are several court judgments and arbitral awards demonstrating differing views on such agreements.

The first view holds that non-compete agreements comply with legal regulations and are legally recognized. In First-instance Judgment No. 09/2010/LĐ-ST dated 10 December 2010 on a labour contract dispute issued by the People’s Court of District Đ, Province L., the Court recognized the non-compete agreement - provided as a clause in the labour contract - as a type of civil transaction voluntarily entered into by the parties in accordance with Article 122 of the Civil Code 2005 (the law applicable at that time). Aside from court proceedings, several arbitral awards also acknowledge the legality of non-compete agreements. For instance, Arbitral Award No. 75/17 HCM dated 19 February 2018 of the Viet Nam International Arbitration Centre upheld the legality of the confidentiality and non-compete agreement, requiring the employee to compensate the employer for damages resulting from breach of the non-compete obligation. The employee submitted a petition requesting the People’s Court of City H. to annul the arbitral award; however, in Decision No. 755/2018/QĐ-PQTT dated 12 June 2018 on a civil matter relating to the “Request for annulment of arbitral award”[9], the Reviewing Council rejected the employee’s request. This decision was later developed into Precedent No. 69/2023/AL.

A significant turning point in the legal treatment of non-compete agreements in Viet Nam is the issuance of Precedent No. 69/2023/AL by the Council of Justices of the Supreme People’s Court on the jurisdiction of commercial arbitration to resolve disputes over confidentiality and non-compete agreements, which indirectly acknowledged the legal validity of such agreements. The Precedent affirms that a non-compete agreement is independent from the labour contract if its legal effect continues after the termination of the labour contract[10].

The second view considers non-compete agreements to be inconsistent with the law. In recent years, there have been several judgments declaring non-compete agreements between employers and employees to be legally invalid. In Appellate Judgment No. 03/2023/LĐ-PT dated 10 January 2023 of the People’s Court of T. province on compensation for breach of a labour contract[11], the basis for the Court’s conclusion that the non-compete agreement is inconsistent with legal provisions and therefore has no legal validity lies in Article 35 of the Constitution 2013 regarding the citizen’s right to choose occupation, employment, and workplace; and Articles 5 and 10 of the Labour Code 2019 regarding the right “to freely choose employment, to work for any employer and at any place not prohibited by law”. These provisions have also been referred to in many other judgments relating to disputes over non-compete agreements. According to this perspective, when employees and employers conclude a non-compete agreement to protect trade secrets, it may negatively affect the legitimate interests and “deprive the right to work” inherently enjoyed by employees. This perspective asserts that a non-compete agreement conflicts with the right to freely seek employment, which is one of the fundamental human rights. Instead of being free to seek a job that suits their competence, qualifications, and profession, employees are “forced” to exclude applying to/ establishing/ participating in enterprises operating in the same industry or field as the employer with whom they have a non-compete agreement. However, under current law, there is no provision prohibiting the parties from concluding non-compete agreements; therefore, this judicial view is unreasonable. Moreover, from the outset, employees have had the right to “choose” employment when entering into labour contracts with employers, and have agreed to participate in the non-compete agreement. At most, the subsequent agreement only restricts part of the employee’s right to choose employment within a certain period and scope.

Given the above judicial practice, non-compete agreements remain an issue without a unified interpretation and application, creating a risk of being unrecognized and unenforceable when disputes arise between employees and employers, especially in court proceedings. The main reason originates from the fact that this type of agreement has not yet been officially recognized in legal normative documents. Another reason is that current Vietnamese law tends to lean toward the protection of employees, who are considered the weaker party in labour relations; therefore, when considering clauses such as non-compete agreements, the rights and interests of employers are unintentionally not balanced with those of employees. Specifically, employees are legally protected in non-compete agreements, while employers and their trade secrets are not protected in the same spirit as the law on intellectual property.

According to the authors, non-compete agreements play an essential role in protecting trade secrets when employees leave their jobs. The authors agree with the first viewpoint, which accepts the legal validity of non-compete agreements concluded between employees and employers. However, the second viewpoint, which argues that such agreements may deprive employees of their right to work, is also meaningful in practice as it protects their legitimate need for employment and income. Therefore, the common direction proposed by the authors is that non-compete agreements should be recognized as legally valid and that legal provisions should be developed to regulate these agreements in order to balance the rights and interests of employees and employers.

3.2. Risks of employers "abusing" non-compete agreements causing negative impacts of employees and the labour market

Globally, non-compete agreements are often closely examined regarding the legitimacy of the interests that employers seek to protect, as well as the reasonableness of restrictions imposed on competitive activities after employees leave their jobs. This is the key point for controlling such agreements from being “abused” by employers, and is the point of balance for the interests of employees, employers, and the common interests of the labour market.

A non-compete agreement is considered “abusive” and may be deemed invalid if it contains the following elements: (1) An excessively long duration; (2) An overly broad scope of effect; and (3) The employer fails to prove that the non-compete agreement is necessary to protect its trade secrets. According to the authors, “abuse” also includes the following situations: The non-compete agreement is applied to all employees in the enterprise, regardless of whether such employees have any connection to the trade secrets; The restrictions on employees’ right to employment under the agreement are disproportionate to the trade secrets being protected. For example, the employer “forces” the employee to protect its trade secrets by prohibiting them from working for any other enterprise in the same business sector for as long as 10 to 20 years, causing the employee’s professional skills to gradually diminish due to not being utilised for a long period of time. Or the employer applies a non-compete agreement while the scope of the trade secrets known by the employee is insufficient to create any adverse impact on the enterprise if disclosed or used by a competitor. Notably, the lack of financial compensation or the provision of inadequate compensation. Financial compensation is one of the important factors that “offsets” the employee in a non-compete agreement, allowing the interests of the employer and the employee to be balanced to a certain degree. If a non-compete agreement does not include financial compensation, the employer’s interests will reach the maximum without regard to the damage that the employee has suffered in order to protect the employer’s trade secrets.

From the above analysis, according to the authors, in order to determine a reasonable non-compete agreement aimed at protecting trade secrets and capable of balancing the interests between the parties, the following criteria shall be included: (1) The grounds for the existence of the non-compete agreement, in which the trade secrets to be protected must truly constitute trade secrets as defined by law; (2) The degree and scope of the non-compete agreement must be appropriate; and (3) The existence of adequate financial compensation. These criteria may help to identify the “boundary” to distinguish a “reasonable” non-compete agreement from one that is “abused” by enterprises.

An “abusive” non-compete agreement may create significant barriers for employees in seeking employment after the termination of the labour contract. If a non-compete agreement is not regulated, it may also lead to a “waste of human capital” when employees, especially highly skilled employees, are “forced” to remain “unemployed” because they cannot work to contribute to the economy with their labour. At the same time, this “indirectly” hinders other enterprises in the same sector from recruiting workers, particularly in cases of labour shortages. In a market context, such “abuse” will result in a waste of “intellectual resources”, since the market has recruitment demands and employees are capable of meeting those demands, but labour cannot be utilised effectively. This is precisely the reason why the law needs to regulate and control non-compete agreements to ensure that the “private interests”, i.e., the employer’s need to protect its trade secrets, do not affect other “private interests” of employees and the “public interests”, i.e., the establishment of a healthy labour market without waste of resources.

IV. Certain solutions to ensure the balance of interests between the parties in non-compete agreements

To ensure that non-compete agreements are recognized, effectively enforced, and capable of balancing the interests of employees, employers, and the common interests of the labour market, according to the authors, the law needs to incorporate non-compete agreements into legal regulations and set out necessary criteria in such agreements to determine their limits. Below, the authors present several proposals as suggestions for developing legal provisions on these agreements, through the study of certain experiences from China.

4.1. Legislative solutions: Developing provisions on non-compete agreements

Firstly, regarding legal validity, non-compete agreements should soon be officially recognized as legally valid documents and governed by the legal regulations of Viet Nam. According to the authors, the provisions on non-compete agreements should be regulated under labour law. In practice, without an employment relationship, there would be no non-compete agreement between the employee and the employer. Similar to China, non-compete agreements are directly regulated in the Labour Contract Law 2008 (amended and supplemented in 2012), demonstrating the connection of this agreement with the employment relationship between the employee and the employer. Specifically, Article 23 of this Law stipulates: “The employer and the employee may agree in the labour contract on protecting trade secrets and keeping confidential matters relating to the employer’s intellectual property rights. For employees who have the obligation to maintain confidentiality, the employer may include a non-compete clause in the labour contract or a confidentiality agreement […]”.

Regarding the form, non-compete agreements must be made in writing. To ensure flexibility, a non-compete agreement may constitute a part of the labour contract or an independent document concluded during the formation and performance of the labour contract, provided that it is lawfully agreed upon by the parties and contains all essential elements as required by law, including: purposes, duration and scope of compliance, financial compensation, basic rights and obligations of the parties. Above all, this agreement shall only be applied where it is genuinely necessary to protect the legitimate interests of the employer[13], if the employee’s breach of the agreement would cause negative impacts and affect the employer regarding market competitiveness, finances, or intellectual property assets of the employer.

Next, non-compete agreements should be monitored by competent State authorities through a registration mechanism, serving as a supervisory tool in the formulation and enforcement of non-compete agreements to ensure effective implementation and a balance of interests between the parties. Registration may be considered the legal basis for the validity of non-compete agreements, meaning that agreements not registered with competent authorities shall be declared invalid. However, where a non-compete agreement has not been lawfully registered but one or more parties have performed at least two-thirds of their obligations under the agreement, such agreement shall not be declared invalid upon request of such party or parties. For instance, if the employer has fulfilled more than two-thirds of the financial compensation obligation under the non-compete agreement for the employee, although it has not been registered with competent authorities, the agreement shall not be declared invalid upon the employer’s request. This approach is consistent with Article 129 of the Civil Code 2015 on invalid civil transactions due to non-compliance with form requirements. Pursuant to this proposal, the authority responsible for registering non-compete agreements between employers and employees shall be the provincial State labour administration authority. This authority has suitable functions and duties in labour administration in the locality where the employer is headquartered and is capable of monitoring the formulation and enforcement of non-compete agreements between employers and employees. Such a proposal would enable competent authorities to have sufficient grounds to adjudicate and settle disputes between employees and employers relating to non-compete agreements.

Clear and detailed legal recognition of non-compete agreements not only serves the interests of employers but also those of employees, enabling them to understand how to protect their lawful rights and interests[14]. Accordingly, employers will rely on statutory provisions to formulate and implement non-compete agreements lawfully and within the limits permitted by law. Meanwhile, with legal provisions on non-compete agreements, employees are able to review and identify whether any terms proposed by the employer are inconsistent with legal requirements. On that basis, employees may raise suggestions to protect their own interests from the outset of the negotiation stage[15].

4.2. Solutions for defining the scope and establishing criteria to determine the reasonableness of non-compete agreements

To develop a legal system governing non-compete agreements in Viet Nam, several legal aspects must be carefully addressed. Among these, determining the reasonableness of the agreement and preventing the employer’s “abuse” of such agreement are key factors. This requires policymakers to comprehensively consider elements such as scope, geographic scope, duration of application, parties involved, and the corresponding financial compensation mechanism for employees. These elements should be established based on the principle of freedom of contract, while the law must determine the limits within which the parties may agree to ensure reasonableness and balance[16]. Through the analysis of relevant provisions under Chinese laws in this field, the authors propose suggested solutions for defining the scope and determining the reasonableness of non-compete agreements in Viet Nam as follows:

a) Scope

The scope-related elements of a non-compete agreement, including geographic scope, duration, and the affected parties, are among the most crucial components of such agreements. The Labour Contract Law of China allows employers and employees to freely agree on non-compete obligations, provided that such agreements do not violate the law. This regulation is relatively broad and lacks essential limitations. Restrictions on geographical scope within non-compete agreements and their connection to an actual “competitive relationship” have been abolished. Notably, in the initial draft of this Law, geographical restrictions of a non-compete agreement could only be applied within a territory that would have an actual competitive relationship with the employer’s trade secrets and commercial interests.[17] According to the authors, Viet Nam’s legislation should adopt a similar approach, meaning that limits to contractual freedom regarding these elements must be established.

Regarding geographic scope, a non-compete agreement should only be limited to areas where the enterprise is actually operating, and must be closely connected to the enterprise’s “legitimate business interests”.[18] Without statutory limits on geographical scope, employers may impose non-compete obligations on employees even in areas where the employer has no actual business operations. For instance, a company operating only in the Mekong Delta region could still require a former employee not to work in the same industry nationwide.

With respect to duration, although the parties may agree on the timeframe for compliance, there must be a statutory limit. In this regard, lawmakers may consider referring to the time restriction established under Chinese law.

Under the Labour Contract Law of China, the maximum duration of a non-compete agreement is two years from the termination or cancellation of the labour contract, and is limited to situations where “the employee works for an employer producing/operating products of the same type, or engages in the same type of business as the former employer; or establishes an entity producing or operating products of the same type or engaging in the same type of business as the former employer”. A two-year period is viewed as “safe”[19]: it is not overly long to seriously affect employees’ rights, while still sufficiently protecting the employer’s trade secrets and technological information. In practice, trade secrets and technological know-how may become outdated and are frequently updated during business operations. Trade secrets such as business strategies, advertising plans, or client information also have shorter commercial value, serving specific needs and strategies within a particular period.

Importantly, duration must be directly linked to financial compensation: the longer the non-compete period, the greater the financial compensation that must be provided.

Regarding the affected parties, a non-compete agreement must clearly define “competitors” and identify the benefits that may be obtained by competitors through hiring the employee, as well as establish a direct connection between those benefits and the signed non-compete agreement. In addition, the “confidential information” protected under the agreement must be identified as trade secrets in accordance with intellectual property law. This prevents employers from binding employees to information that the employer merely considers “confidential”, despite not meeting the legal conditions to be regarded as trade secrets, thereby placing employees at a disadvantage and restricting their freedom of employment.

b) Bound parties

The parties to a non-compete agreement are those who directly perform and are directly affected by such agreement, including the employer - the owner of trade secrets - and the employee - who knows or has access to the employer’s trade secrets. However, as mentioned earlier in this article, not every employee has a connection to those trade secrets. This requires the law to clearly determine which categories of employees may be subject to non-compete agreements, thereby preventing unnecessary restrictions on other employees.

Under the Labour Contract Law of China, an employer may only enter into a non-compete agreement with senior management, senior technicians, and employees with confidentiality obligations towards the enterprise. Employers are not permitted to impose non-compete agreements on other employees. According to researchers, China’s non-compete framework appears more balanced than those in other emerging markets. Chinese law promotes labour mobility for the vast majority of its workforce, while concurrently protecting enterprises’ interests by allowing restrictions on employees who are considered “more valuable”[20]. Current Vietnamese law already provides for confidentiality obligations related to trade secrets for groups of employees whose work directly involves trade secrets (as noted in Section 3.1, Part III). This forms a foundation for lawmakers to further develop regulations concerning the employees who may be bound by non-compete agreements, ensuring that these agreements are not broadly applied to employees who have no relevant connection.

c) Financial compensation

In a non-compete agreement, the employee gives up their freedom to seek employment in order to protect the employer’s trade secrets; therefore, financial compensation must be a mandatory element of the non-compete agreement. With regard to the essence of “reimbursement”, this can be understood as “purchasing” the employee’s silence for a certain period of time. Based on the experience of the Labour Contract Law of China, the employer is required to “make monthly compensation payments to the employee during the non-compete period after the labour contract is terminated or rescinded”. Accordingly, if employers in China wish to bind employees under a non-compete agreement, they must provide corresponding financial compensation to offset the employee’s loss of opportunities to seek employment as they normally would.

With respect to the method of providing “compensation” to the employee, the experience drawn from the judicial guidelines of the Chinese court system is also highly instructive. According to the Interpretation (I) of the Supreme People’s Court of China on the application of law in the trial of labour dispute cases, effective from 2021[21], where the parties have not agreed on a monthly compensation payment for the employee under a non-competition agreement, the applicable compensation rate is 30% of the employee’s average salary in the 12 months prior to the termination of the labour contract. If such 30% compensation amount is lower than the statutory regional minimum wage at the place where the labour contract was performed, the applicable rate shall be the regional minimum wage. If compensation is not paid within a period of three months, the employee shall have the right to request the competent Court to terminate the non-competition agreement. In China, non-competition agreements are commonly used, and are deemed invalid if no additional compensation is provided[22]. Conversely, when “compensating” the employee, it is also necessary to consider circumstances where the employee breaches the non-competition agreement and causes damage to the employer. The Labour Contract Law of China provides that “if the employee violates the non-competition restriction, the employee must pay liquidated damages to the employer as agreed”. Under the aforesaid Interpretation of the Supreme People’s Court of China, when the employee breaches the non-competition agreement and compensates the employer for damages, the employer has the right to request the employee to continue performing the agreement. During the continued performance of the non-competition agreement, compensation shall continue to be paid until the expiration of the agreed term. In addition, financial compensation under a non-competition agreement should be provided periodically throughout the duration of the non-competition obligation, similar to the statutory requirement under Chinese law. This helps reduce circumstances where the employee receives a lump-sum payment but fails to perform the agreed obligations under the agreement.

It can be seen that China has effectively addressed the issue of the employee’s interests being affected by the non-competition agreement. Not only does it require financial compensation, but it also regulates other noteworthy aspects, such as cases where either party breaches the non-competition agreement, or where the parties fail to specify the amount of compensation - in which case the compensation amount is to be determined accordingly. By establishing a legal framework governing non-competition agreements, China strengthens the protection of the employer’s trade secrets while reducing adverse restrictions on employees. This is a valuable reference point that should be further examined when developing regulations on non-competition agreements in Viet Nam.

In addition to the above-mentioned elements, in the authors’ view, lawmakers should also anticipate situations where the employer’s trade secrets are disclosed to the public through no fault of the employee while the non-competition agreement remains legally valid and in effect. In such circumstances, the agreement should automatically terminate. This is intended not only to relieve the employee from restrictions on job mobility, but also to release the employer from its obligation to provide financial compensation. Once the relevant confidential information has been publicly disclosed, the information subject to protection under the non-competition agreement no longer satisfies the statutory requirements for trade secrets. When the non-competition agreement loses its purpose and rationale, the parties should no longer be required to continue performing the rights and obligations stipulated therein. Accordingly, as a short-term solution, the employer and the employee may proactively include this clause in their non-competition agreement. In the long term, lawmakers should consider developing specific statutory provisions governing non-competition agreements, or establishing a standard contract form that expressly provides for such a clause.

V. Conclusion

Non-compete agreements are commonly used in practice, serving as a binding arrangement between employees and employers to protect trade secrets and technological confidentiality. Such agreements not only affect the rights and interests of employers in their efforts to safeguard trade secrets and confidential technologies, but also directly impact employees’ freedom to seek employment and generate income. Nevertheless, the implementation of non-compete agreements should be limited to the protection of legitimate business interests and only when the employee’s ability to find alternative employment is not excessively burdened, as ultimately the agreement must function as a practical incentive that supports both employers and employees[23]. Based on lessons learned from Chinese legislation and several international studies, in order to effectively regulate non-compete agreements between employees and employers, Vietnamese lawmakers should conduct further research to develop legal provisions that are appropriate to the country’s socio-economic conditions. In particular, it is necessary to recognize the legal validity of non-compete agreements; to focus on establishing fundamental rules; and to develop and promulgate detailed implementing regulations for this type of agreement.

REFERENCES

1. Constitution of the Socialist Republic of Viet Nam 2013

2. Civil Code No. 91/2015/QH13 dated 24 November 2015 of the National Assembly

3. Labour Code No. 45/2019/QH14 dated 20 November 2019 of the National Assembly

4. Law on Intellectual Property No. 50/2005/QH11 dated 29 November 2005 of the National Assembly (as amended in 2009, 2019 and 2022)

5. Labour Contract Law of the People’s Republic of China 2008, as amended in 2012

6. Interpretation of the Supreme People’s Court of China on Issues concerning the Application of Law in the Trial of Labor Dispute Cases (I), National Database of Laws and Regulations, Judicial Interpretation (2020) No. 26 (2020)

7. Precedent No. 69/2023/AL of the Council of Judges of the Supreme People’s Court dated 18 August 2023 regarding jurisdiction of commercial arbitration in resolving disputes over confidentiality and non-competition agreements

8. Appellate Judgment No. 03/2023/LD-PT of Thanh Hoa Provincial People’s Court dated 10 January 2023 on compensation claim for breach of labor contract

9. Decision No. 755/2018/QD-PQTT of Ho Chi Minh City People’s Court dated 12 June 2018 on civil matter “Request for annulment of arbitral award”

10. Bai, J. Benjamin and Da, Guoping, Strategies for Trade Secrets Protection in China, Northwestern Journal Of Technology And Intellectual Property Volume 9, Issue 7 (2011)

11. Bone, Robert G., A New Look at Trade Secret Law: Doctrine in Search of Justification, California Law Review Vol. 86 No.2 (1998)

12. Do Ha Anh, Dang Huy Hoang, Non-competition agreements restricting the right to employment – Current legal framework and recommendations for improvement, Democracy and Law Journal, (30 September 2023), https://danchuphapluat.vn/thoa-thuan-han-che-quyen-viec-lam-trong-lao-dong-thuc-trang-phap-luat-va-kien-nghi-hoan-thien

13. Doan Van Truong, Valuation Methods for Intellectual Property Rights, Science and Technology Publishing House, Ha Noi (2007)

14. Estlund, Cynthia L., Between rights and contract: Arbitration agreements and non-compete covenants as a hybrid form of employment law, University Of Pennsylvania Law Review, Vol. 155 (2006)

15. Garber, Grant R., Noncompete Clauses: Employee Mobility, Innovation Ecosystems, And Multinational R&D Offshoring, Berkeley Technology Law Journal Vol 28 (2013)

16. Hang Thi Trinh, Huy Duc Nguyen, Non-compete agreement in employment relationship by regulations of some countries and recommendations for Vietnam, VNUHCM Journal of Economics, Law and Management, (Oct, 15, 2022), https://stdjelm.scienceandtechnology.com.vn/index.php/stdjelm/article/view/1003

17. Marx, Matt and Lee, Fleming, Non-compete Agreements: Barriers to Entry … and Exit?, Innovation Policy and the Economy, Volume 12 Issue 1 (2012)

18. Nguyen Le Thanh Minh, Vietnam’s legislation on the protection of trade secrets: Current situation and some recommendations, Industry and Trade Magazine, (14 March 2020), https://tapchicongthuong.vn/phap-luat-viet-nam-ve-bao-ho-bi-mat-kinh-doanh--thuc-trang-va-mot-so-kien-nghi-69596.htm

19. Nguyen Nhat Anh, Trieu Vu Khanh, Non-compete agreements and confidentiality between enterprises and employees: Experiences from France and the United States, and proposals for Viet Nam, Vietnam Lawyers’ e-Journal, (24 May 2024), https://lsvn.vn/thoa-thuan-khong-canh-tranh-va-bao-mat-thong-tin-giua-doanh-nghiep-va-nguoi-lao-dong-kinh-nghiem-cua-phap-my-va-de-xuat-cho-viet-nam-1716476020-a143933.html

20. Pashkov, Vitalii M. and Harkusha, Andrii О., Enforceability of Non-Compete Agreements in Medical Practice: Between Law and Ethics, Wiadomości Lekarskie 2019, tom LXXII, nr 12 cz. II (2019).

21. Assoc. Prof. Dr. Le Thi Nam Giang (Chief Editor), Intellectual Property Handbook – Commentary on Intellectual Property Judgments and Cases, Hong Duc Publishing House, Ha Noi (2020).

22. Quan Hong Cao, Discussing non-disclosure agreements and non-compete agreements in Vietnam’s labor law, VNUHCM Journal of Social Sciences and Humanities, (Nov, 15, 2023), https://stdjssh.scienceandtechnology.com.vn/index.php/stdjssh/article/view/927

23. Rassas, Melissa Ilyse, Oregon’s New Non-Compete Agreement Law, U. Of Pennsylvania Journal Of Business Law, Vol 11:2 (2009)

24. Sean Cooney, Sarah Biddulph, Li Kungang and Ying Zhu, China’s new Labour Contract Law: Responding to the Growing Complexity of Labour Relations in the PRC, UNSW Law Journal Volume 30(3) (2007)

[*] Dr., Head of Business Law Department, School of Law, Can Tho University, Email: npkhoi@ctu.edu.vn, accepted for publication on 28/11/2025

[**] Graduate Student, Cohort K30, School of Law, Can Tho University, Email: nguyenai0147@gmail.com

[1] Doan Van Truong, Methods of Intellectual Property Valuation, Science and Technology Publishing House, Ha Noi, pp. 38, 95, 351 (2007)

[2] Pashkov, Vitalii M. and Harkusha, Andrii О., Enforceability of Non-Compete Agreements in Medical Practice: Between Law and Ethics, Wiadomości Lekarskie 2019, tom LXXII, nr 12 cz. II, 2421, 2422(2019).

[3] Nguyen Le Thanh Minh, Vietnam’s Law on Protection of Trade Secrets: Current Situation and Some Recommendations, Industry and Trade, (14/03/2020)https://tapchicongthuong.vn/phap-luat-viet-nam-ve-bao-ho-bi-mat-kinh-doanh--thuc-trang-va-mot-so-kien-nghi-69596.htm

[4] Doan Van Truong, Methods of Intellectual Property Valuation, Science and Technology Publishing House, Ha Noi, pp. 38, 95, 351 (2007)

[5] Marx, Matt and Lee, Fleming, Non-compete Agreements: Barriers to Entry … and Exit?, Innovation Policy and the Economy, Volume 12 Issue 1, 39, 39 - 64 (2012)

[6] Do Ha Anh, Dang Huy Hoang, Non-compete and Confidentiality Agreements between Enterprises and Employees: Experience from France, the United States and Recommendations for Vietnam, Democracy and Law, (30/09/2023), https://danchuphapluat.vn/thoa-thuan-han-che-quyen-viec-lam-trong-lao-dong-thuc-trang-phap-luat-va-kien-nghi-hoan-thien

[7] Pashkov, Vitalii M. and Harkusha, Andrii О., supra note 2421

[8] Bone, Robert G., A New Look at Trade Secret Law: Doctrine in Search of Justification, California Law Review Vol. 86 No.2, 243, 257 (1998)

[9] Decision No. 755/2018/QD-PQTT of the People’s Court of Ho Chi Minh City dated 12 June 2018 regarding the civil matter “Request for annulment of arbitral award”

[10] Precedent No. 69/2023/AL of the Council of Justices of the Supreme People’s Court dated 18 August 2023 on the jurisdiction of commercial arbitration in settling disputes over confidentiality and non-competition agreements

[11] Appellate Judgment No. 03/2023/LD-PT of the People’s Court of Thanh Hoa Province dated 10 January 2023 regarding the request for compensation for breach of labour contract

[12] Estlund, Cynthia L., Between rights and contract: Arbitration agreements and non-compete covenants as a hybrid form of employment law, University of Pennsylvania Law Review, Vol. 155, 379, 381 (2006)

[13] Hang Thi Trinh, Huy Duc Nguyen, Non-compete agreement in employment relationship by regulations of some countries and recommendations for Vietnam, VNUHCM Journal of Economics, Law and Management, (Oct, 15, 2022), https://stdjelm.scienceandtechnology.com.vn/index.php/stdjelm/article/view/1003

[14] Quan Hong Cao, Discussing non-disclosure agreements and non-compete agreements in Vietnam’s labor law, VNUHCM Journal of Social Sciences and Humanities, (Nov, 15, 2023), https://stdjssh.scienceandtechnology.com.vn/index.php/stdjssh/article/view/927

[15] Nguyen Nhat Anh, Trieu Vu Khanh, Non-competition and confidentiality agreements between enterprises and employees: Experiences from France and the United States, and proposals for Viet Nam, Vietnam Lawyers Electronic Journal, (24 May 2024), https://lsvn.vn/thoa-thuan-khong-canh-tranh-va-bao-mat-thong-tin-giua-doanh-nghiep-va-nguoi-lao-dong-kinh-nghiem-cua-phap-my-va-de-xuat-cho-viet-nam-1716476020-a143933.html

[16] Pashkov, Vitalii M. and Harkusha, Andrii О., supra note 2422

[17] Sean Cooney, Sarah Biddulph, Li Kungang and Ying Zhu, China’s new Labour Contract Law: Responding to the Growing Complexity of Labour Relations in the PRC, UNSW Law Journal Volume 30(3), 788, 801 (2007)

[18] Id.

[19] Assoc. Prof. Dr. Le Thi Nam Giang (Chief Editor), Handbook on Intellectual Property – Commentary on Judgments and Cases relating to Intellectual Property, Hong Duc Publishing House, Ha Noi, 387 (2020).

[20] Garber, Grant R., Noncompete Clauses: Employee Mobility, Innovation Ecosystems, And Multinational R&D Offshoring, Berkeley Technology Law Journal Vol 28, 1079, 1103 (2013)

[21] Interpretation (I) of the Supreme People’s Court of China on Issues concerning the Application of Law in the Trial of Labor Dispute Cases, National Laws and Regulations Database, Legal Interpretation (2020) No. 26, 12–13 (2020).

[22] Bai, J. Benjamin and Da, Guoping, Strategies for Trade Secrets Protection in China, Northwestern Journal Of Technology And Intellectual Property Volume 9, Issue 7, 351, 369 (2011)

[23] Rassas, Melissa Ilyse, Oregon’s New Non-Compete Agreement Law, U. Of Pennsylvania Journal Of Business Law, Vol 11:2, 447, 473 (2009)