Practical application of non-compete agreements in labor

Article overview

Non-compete agreements in labor are an important legal tool that businesses use to protect their business interests. In Vietnam, the application of this type of agreement is increasingly popular, but many challenges and uncertainties still exist. The following article by Long Phan will analyze the current situation and legal issues related to non-compete agreements in labor relationships. Please follow along!

Non-compete agreements in labor relations today
Non-compete agreements in labor relations today

What are non-compete agreements in labor relations?

  • According to Clause 2, Article 21 of the Labor Code 2019, employers have the right to agree with employees on the protection of confidential information, business secrets, or technological secrets. This agreement is often made through a document such as a “Non-Disclosure Agreement” (NDA).
  • A Non-Compete Agreement (NCA) is a type of commitment in which an employee agrees not to engage in competitive activities or disclose confidential information that could harm the company’s business interests after the termination of the employment contract. The main purpose of an NCA is to protect sensitive information and maintain the company’s competitive advantage.
  • This agreement must comply with the law, must not violate the employee’s professional freedom, and must ensure a balance of interests between both parties. Limitations on time, geographical scope, and level of compensation are also important factors in the application of NCA.
Regulations on non-compete agreements in labor
Regulations on non-compete agreements in labor

Implementing non-compete agreements in labor in Vietnam

Legal effect

  • Non-compete agreements can violate the employee’s right to freedom of labor, as stipulated in Article 10 and Article 19 of the Labor Code 2019 on the right to work freely and on the right to sign multiple labor contracts.
  • The application of this agreement, if not careful, may violate the principle of freedom to enter into labor contracts according to Article 15 of the Labor Code 2019. If the content of the non-compete agreement is included in the labor contract or appendix, it risks being considered inconsistent with labor law regulations.

When to apply non-compete agreement

Before the employment relationship begins

  • A non-compete agreement signed before working helps employees freely decide whether to participate in work or not, and at the same time be more aware of their responsibilities.
  • The agreement signed during this period is easily considered a civil transaction because there are no labor obligations.

During labor relations

  • If signed during this period, the agreement should be properly integrated into the labor contract or labor regulations.
  • The content needs to include information security and non-competition commitments to handle violations while still in the labor relationship.

After the labor relationship ends

  • The validity of the agreement after contract termination depends on the court’s decision if a dispute arises. This agreement must ensure that it does not violate the basic rights of employees and comply with the principle of fairness.

In short, the application of non-competition agreements must comply with the law and ensure legality, avoiding affecting the labor freedom of employees.

Current practice of applying non-compete agreements in labor

Non-compete agreement in labor relations is a common provision to protect business interests, especially for businesses in highly competitive fields. However, in Vietnam, the application of this agreement still faces many challenges and notable features exist:

  1. The legal basis is not clear
  • The Labor Code 2019 and related legal documents do not have specific regulations on non-competition agreements after termination of labor contracts. This leads to confusion in the application and resolution of disputes when non-compete agreements are violated.
  • Legal regulations only indirectly address the right to confidentiality of business information, protection of technological secrets and prevention of unfair competition.
  1. Legality and limitations of the agreement
  • Some non-compete agreements are often considered invalid if they violate the employee’s right to freedom of labor and freedom to choose a career as prescribed in Article 35 of the Constitution of the Socialist Republic of Vietnam 2013.
  • This agreement is only recognized if it ensures a balance of interests between employees and employers, such as reasonable compensation for employees when restrictions apply.
  1. Applied business practices
  • Businesses tend to apply non-compete agreements to management positions, senior personnel, or those with access to confidential business information.
  • The content of the agreement often stipulates the geographical scope, duration and restricted areas, but is not always clear or legal.
  1. Disputes and handling of violations
  • Disputes related to non-compete agreements often revolve around the legality, level of compensation, and scope of application.
  • Labor tribunals or courts tend to take into account the interests of employees and only recognize non-compete agreements if they comply with the principles of fairness and reasonableness.
  1. Solutions to improve application efficiency
  • Complete the legal framework to specifically stipulate the conditions, limitations and responsibilities of the parties in the non-compete agreement.
  • Businesses need to establish transparent agreements, in accordance with the law and ensure harmonious interests between both parties.

In general, non-competition agreements in Vietnam are gradually being applied in practice, but need significant improvements in terms of law and enforcement to protect the legitimate interests of both employers and employees.

Things to keep in mind when applying non-compete agreements in labor
Things to keep in mind when applying non-compete agreements in labor

Consulting and supporting the development of professional and effective non-compete agreements in labor at Long Phan

Are you having difficulty developing a non-compete agreement in labor that is consistent with the law and maximizes the protection of business interests? Long Phan is proud to provide in-depth consulting services, helping businesses establish non-compete agreements professionally and effectively. We provide comprehensive solutions including:

  • Consulting and supporting the drafting of appropriate and professional non-competition clauses to ensure clarity and ease of understanding in the content of the agreement, avoiding controversy or misunderstanding during the application process.
  • Support the review of contract regulations to ensure that the agreement complies with regulations and does not violate freedom of labor rights.
  • Advise on reasonable limits on time, geographical scope and field of application to ensure the fairness and legality of the agreement.
  • Consulting and supporting the development of appropriate security and non-competition mechanisms to prevent the risk of disclosing confidential information or supporting competitors.
  • Support recommending additional measures, such as reasonable compensation agreements to increase compliance and encourage compliance from workers.

Non-compete agreements in labor are an effective solution to help businesses protect business secrets and maintain competitive advantage. With professional advice from Long Phan, you will build the most optimal and legal terms. Please contact us immediately via the hotline 0906735386 for dedicated and effective support!