Author:

• Nguyen Thi Huyen Anh – Senior Asociate
• Nguyen Thanh Hai – Paralegal

In the context of increasingly fierce commercial competition, many businesses need to protect important information such as trade secrets, customer data, business strategies, and technological know-how. During their employment, employees often have access to this confidential information. After leaving their jobs, employees may use the information they accessed to work for competitors or start their own businesses in the same field, thereby directly affecting the interests of the business.

To mitigate these risks, many businesses have adopted Non-compete Agreements to restrict employees from engaging in competitive activities for a certain period after the termination of the employment relationship. However, Vietnamese law currently lacks specific regulations directly governing this type of agreement, which has led to ongoing debate regarding its legal validity and enforceability.

1. What is a Non-compete Agreement?

Vietnamese law has not yet provided an official definition for “Non-compete Agreement” (“NCA”). However, it can be understood as an agreement between an employer and an employee, whereby the employee commits not to engage in activities that compete with the business after the termination of the employment relationship, such as working for a competitor, starting a business in the same field, or using confidential information accessed during employment for competitive purposes.

Typically, NCAs will stipulate basic contents such as the scope of work or industry the employee is restricted from participating in, the duration of the commitment, the geographical scope of limitation, confidentiality obligations, as well as compensation or penalties in case of breach of the agreement. The main purpose of these clauses is to protect the business’s trade secrets, technical know-how, customer data, and other commercial interests.

Although there are no specific regulations directly governing non-compete agreements, the closest legal basis currently recognized is in Clause 2, Article 21 of the 2019 Labor Code. Accordingly: “If the employees’ job is directly related to the business secret, technological know-how as prescribed by law, the employer has the rights to sign a written agreement with the employee on the content and duration of the protection of the business secret, technology know-how, and on the benefit and the compensation obligation in case of violation by the employee.”

In practice, this type of agreement is becoming increasingly common, especially in foreign enterprises or in highly competitive sectors such as technology, finance, insurance, commerce, and professional services. However, as Vietnamese law has not yet provided specific guidance on the scope and limits of application, the validity of NCAs remains a subject of considerable debate in the process of resolving labor disputes.

2. Practical Application of Non-compete Agreements in Vietnam

Currently, NCAs are applied by many businesses, but Vietnamese law still lacks specific provisions on the validity of this type of agreement. In case of disputes, courts often have to balance the protection of the business’s trade secrets with the employee’s right to freedom of labor as stipulated by the Constitution and the Labor Code. Therefore, NCAs are not automatically recognized as valid in all cases. Court practice shows that Vietnamese courts tend to scrutinize non-compete clauses after the termination of employment.

In Judgment No. 420/2019/LD-PT, the dispute arose between U Company and Mr. Phan Thanh B. Mr. B previously worked at U Company in the design field and had signed a confidentiality and non-competition agreement with the enterprise. After resigning, Mr. B moved to work for P Company. Believing this to be a direct competitor and that Mr. B had violated his commitment, U Company sued, demanding that Mr. B cease his employment at P Company.

However, in both trial levels, the Court did not accept U Company’s request. According to the Court’s assessment, the enterprise failed to prove that P Company was a direct competitor because the registered business lines of the two parties differed. At the same time, prohibiting employees from working for other enterprises after resignation is considered a violation of the right to freedom of labor under Article 35 of the 2013 Constitution and Article 5 of the 2012 Labor Code. The Court also stated that when the labor contract is terminated, the non-competition agreement can hardly continue to be absolutely binding on the employee.

Similarly, in Judgment No. 03/2023/LD-PT, TT Company sued Mr. Nguyen Dinh D, demanding compensation for damages due to violation of a non-competition agreement. During his employment, Mr. D was assigned to work at the NS Refinery and Petrochemical Plant and committed not to work there for a period of 12 months from the date of resignation. However, after terminating his labor contract with TT Company, Mr. D signed a direct contract with NS Refinery and Petrochemical Co., Ltd.

At the first instance, the enterprise’s request was accepted. However, on appeal, the Thanh Hoa Provincial People’s Court amended the judgment and dismissed TT Company’s lawsuit. The Court stated that the enterprise failed to prove that Mr. D had disclosed business secrets or caused actual damage. Furthermore, NS Refinery and Petrochemical Co., Ltd. was identified as a partner of TT Company, not a direct competitor. The restriction on the employee working at this unit was therefore considered an infringement on the employee’s right to freely choose employment.

The aforementioned judgments show that when considering NCAs from the perspective of labor relations, Courts often focus on protecting the right to freedom of labor of employees and require enterprises to clearly prove the need to protect business secrets, direct competitive factors, as well as actual damages arising from the violation.

However, alongside the labor judgments mentioned above, recent legal practice has recorded another notable approach to confidentiality and non-competition agreements through Precedent No. 69/2023/AL of the Council of Judges of the Supreme People’s Court.

The precedent was developed from Cassation Review Decision No. 755/2018/KDTM-GĐT dated June 12, 2018. In this case, the employee and the enterprise not only signed a labor contract but also separately signed a “Confidentiality and Non-Competition Agreement” (NDA/NCA), which included a clause selecting the Vietnam International Arbitration Center (VIAC) for dispute resolution.

When a dispute arose, the employee argued that the NDA restricted the employee’s right to work and violated labor laws, and therefore could not be recognized as valid. At the same time, the employee also argued that this was a labor dispute and thus not within the jurisdiction of commercial arbitration.

However, the Court did not accept these arguments. One of the notable viewpoints recorded in Precedent No. 69/2023/AL is the assessment of the NDA’s validity based on the principle of freedom of contract between the parties. Accordingly, the Court determined that the NDA was voluntarily entered into between the employee and the enterprise when both parties had full legal capacity and there were no grounds to suggest that the signing was induced by fraud, coercion, or undue pressure. Based on the principle of freedom of contract recorded in the Civil Code, the Court held that lawful commitments made voluntarily must be respected and performed by the parties. Therefore, the Council of Arbitrators’ recognition of the NDA’s validity was deemed to be in accordance with the law.

Besides, Precedent No. 69/2023/AL also recognizes that disputes arising from NDAs may fall under the jurisdiction of commercial arbitration if the parties have a valid arbitration agreement. Thus, the precedent opens a legal basis for businesses to consider drafting non-disclosure and non-competition agreements in a separate written form from employment contracts and choosing commercial arbitration as the dispute resolution mechanism.

It should be noted that Precedent No. 69/2023/AL does not mean that all non-competition agreements are inherently legal or valid. However, the precedent shows that the court has adopted a more balanced approach between the employees’ freedom of labor and the businesses’ need to protect trade secrets and trade secrets and technical know-how. By recognizing the principle of freedom of contract between parties and the jurisdiction of commercial arbitration under certain conditions, the precedent is seen as a signal that the legal perspective in Vietnam is gradually becoming more open to reasonably drafted non-competition agreements aimed at protecting legitimate commercial interests of businesses.

3. The need for a clear legal framework for Non-Compete Agreements

Although dispute resolution practices have gradually formed certain directions, especially through Precedent No. 69/2023/AL, Vietnamese law still lacks specific provisions on the conditions for validity, scope of application, and enforcement mechanisms for non-competition agreements. This leads to dispute resolution bodies potentially adopting different approaches depending on the nature of each case and their interpretation of the law in specific instances.

The absence of a clear legal framework not only increases the risk for businesses in establishing mechanisms to protect trade secrets, trade secrets and technical know-how, and competitive advantages, but also makes it difficult for employees to determine the scope of their rights and obligations after the termination of the employment relationship. In many cases, parties can only assess the validity of the agreement when a dispute has arisen and is being considered by the competent authority.

Therefore, issuing specific legal guidance on NCAs is necessary to create a basis for uniform application in practice. These guidelines can clarify issues such as reasonable duration and scope of restriction, criteria for determining competitive behavior, compensation mechanisms in case of violation, while ensuring a balance between the need to protect businesses’ trade secrets and trade secrets and technical know-how and employees’ freedom of labor.

4. Conclusion

Non-competition agreements are not currently prohibited by Vietnamese law but also lack a complete legal framework to clearly define their validity conditions and scope of application. Dispute resolution practices show two parallel approaches: Labor courts are generally cautious when reviewing clauses that restrict employees’ right to work, while Precedent No. 69/2023/AL recognizes the possibility of non-disclosure and non-competition agreements existing as independent agreements to protect businesses’ trade secrets and trade secrets and technical know-how. In this context, businesses that draft NCAs need to pay special attention to the reasonableness of the scope of restriction, the duration of application, the subjects covered, and the corresponding benefits for employees. Furthermore, separating NCAs into a distinct document and stipulating a dispute resolution mechanism through commercial arbitration can be a considerable solution to enhance the enforceability of the agreement.

However, in the long term, issuing specific legal guidance for NCAs remains necessary to ensure uniformity in legal application and balance the interests between businesses and employees.

Time of writing: June 26, 2026

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