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Disputes arising from NDA – who volunteer to put the “Wukong’s magical circlet” on?

The article titled: “Disputes arising from NDA – who volunteer to put the “Wukong’s magical circlet” on?” from Lawyer Lac Thi Tu Duy, is published on Sai Gon economic times, dated 12 July 2018.

In the case of a company that has sued its employee (“Employee”) for breaching a Non-Disclosure and Non–Competition Agreement limiting the Employee from working for the company’s competitors (non–competition agreement), several controversial assessments and legal precedents have followed. As made by the Commercial Arbitration Council (CAC), these have delivered different opinions to the concerned parties, especially when such judgments have been “recognized” by a relevant court, including the fact that the assessment by the court refused to accept the defendant’s request for cancelling the said arbitration award. SGET is very pleased to introduce to our readers the arguments which have been delivered by both sides for this case.

Disputes arising from NDA – who volunteer to put the “Wukong’s magical circlet” on?

The necessity of protecting business secrets, technology secrets and information as well as the need of executing and optimizing the non-disclosure and non-competition agreements of the parties involving to labour relations are visible and realistic. Given that, a guiding legal instrument, which can specifically and properly provides for this matter, to be newly issued by the competent authorities, is deemed necessary in order solve this controversial issue.

FROM A CASE IN WHICH AN “EX” IS CLAIMED FOR COMPENSATION DUE TO “MARRYING A RIVAL

After 11 months from the date of separation, in late 2017, Ms. A was sued by her former corporate employer (Company B) at an arbitration centre; then was judged to pay Company B 200 million VND (equivalent to her salaries of 03 months) as compensation for the reason that Ms. A has breached an agreement which she has signed at the time she started to work at that company, restricting her ability her to work for other companies doing the same business with Company B within a period of 12 months after the termination of her labour contract. To defend the rights and benefits of Ms. A, her attorney at law argued that such agreement has to be considered null and invalid as it seriously breaches the employee’s right to freely work and choose her occupation as prescribed and protected by law.[1]

It is ironic that Ms. A used to work as the head of the company’s human resources division; Ms. A thus must have distributed numerous ready-printed non–competition agreements to many newly recruited candidates and asked them to fulfil and execute those documents with their personal information. The question here is how many candidates, who are recruited to work their dream jobs, can be “brave enough” to say no to the agreements, which they assume those are the must-be-signed documents, or at least gently propose the employers amend anything in those ready-made templates? Then on another good day when the Employee already left and moved to another company to work in the position which is more suitable for his/her qualification and experience in profession, the former employer can just state that the Employee have actually worked for a company’s competitor to claim for compensation, being a monetary amount equivalent to salaries of several working months despite the fact that there is actually no specific damage.

WHEN A LABOR DISPUTE IS NOT CONSIDERED AS A LABOR DISPUTE

To determine whether a dispute in relation to a non–competition agreement is a labour dispute or not is significantly important when identifying: (i) the authority of CAC; and (ii) the view of trial and the applicable laws.

Having found that the Non–Competition Agreement signed by Ms. A is a civil transaction separate from the labour contract (Labour Contract) and, thus, any dispute arising should not be viewed as a labour dispute, the CAC stated that it had the authority to adjudicate the dispute between Ms. A and Company B citing the Law on Commercial Arbitration 2010. However, f

First, this is an instrument signed between the Employer and the Employee with terms and conditions completely relating to a certain labour relationship[3], for the purpose of regulating the Employee’s behaviours towards the company’s business secrets during and after the working period at the company. This agreement just can’t be made or exist in itself if the parties to agreement have not participated in a labour relationship in reality.

Second, it is undeniable that the legal matter of non–competition agreement relating to labour relations is regulated in the labour laws. Namely Article 23.2 of the Labour Code 2012 stipulates that: “When an employee performs a job which is directly related to business or technology secrets as prescribed by law, the employer may reach a written agreement with such employee on the provisions on and the duration for protection of a business or technology secrets, and rights, benefits and compensation obligation in case of violation by the employee”. In practice, non-competition agreements are unusually made with terms that are very similar to the said provisions of law.

However, the point here is not about whether the commercial arbitrator was trying to “win” in court or not, but rather, when the type of dispute is changed from a labour dispute to a civil or commercial dispute, technically, the civil and commercial provisions of law will be referred for the resolution of the case. Consequently, there shall be in deed a difference in the judgment to be issued.

Besides, the necessity of protecting the legitimate rights and interests of the Employees who are generally considered the more vulnerable party in the relationship between workers and “bosses”; labour regulations are generally more in favour of the Employees. Meanwhile, the “civilization” or “commercialization” of labour disputes could have the Employees losing such advantage offered by the labour laws since civil and commercial transactions are only to be made based upon the basis of freedom, fairness and equality.

WHEN DOES A NON–COMPETITION AGREEMENT INFRINGE  EMPLOYEES’ RIGHTS?

With the basic purpose of protecting business secrets, confidential information and technology of Employers, non–competition agreements are somewhat of an “add-on” with a provision that the Employees must not work for any of the Employers’ competitors after their separation for a period of time. Is it really true that this commitment was made based in a “completely voluntary spirit” as well as the contents therein “do not violate the prohibition of law” in any aspect as concluded by the CAC and as the ground when it accepted the Employer’s claims for compensations?

  • “Completely voluntary transactions”

With the conclusion that the non–competition agreement was executed based on a “completely voluntary spirit” (not just “voluntary spirit”) given by the CAC, I am not so sure that the CAC had taken enough time to clarify with the parties whether or not there was “a completely voluntary spirit” when the parties were executing this agreement, or whether or not there was any unequal effect that influenced the “completeness” of this volunteering. It is my view that the CAC might have based its assessment that there was no sign of threat or coercion at that time or the Employee could not prove that she was threatened or coerced to sign this Non–Competition Agreement, to say the document was executed upon a “completely voluntary spirit”.

This opinion may only be acceptable if this transaction is merely a civil or commercial transaction or it is of a bilateral nature, where there are certain rights corresponding to obligations. Conversely, it must not be easy for the judges/arbitrators to come to the assessment that the Employees were in a “completely voluntary spirit” when signing an agreement which only sets forth their obligations (without any corresponding rights) and the sanction with the amount equivalent to several salaries of working months when they put themselves into the Employees’ position in labour relationship; meanwhile, the Employee could be easily in breach of this commitment as there shall be only “competitors” of the former company everywhere after leaving.

  • Not being contrary to laws and social morals

Despite that the genuine value of the transactions which are made based on a completely voluntary spirit in respect of law, the law also prescribes that the right of freedom in making agreement could be abused, thus setting a boundary for these cases. Clause 3 of Article 50 of the Labour Code 2012 stipulates that in cases where a part or the whole of a labour contract provides for the employee’s benefits lower than those prescribed in labour laws, such part or the whole of the labour contract shall be considered null and invalid. In addition, Clause 6 of Article 9 of the Law on Employment prohibits conduct including: “Obstructing, or causing difficulties or damage to, the lawful rights and interests of workers or employers”. Given those provisions of law, it appears that the Employees’ right to freely choose their occupation and employment is a basic right that cannot be negotiated or exchanged in any way. Therefore, reaching any agreements prohibiting the Employees from working for other employers after separation, for whatever reason or for how long, must not be permitted, regardless of whether the concerned parties were in a “completely voluntary spirit” or not. Each Employee has specific professional skills and experiences accumulated during his/her previous education and working which are only suitable for certain kind of jobs and positions.

Should the enterprises want to protect their business or technological secrets, there are already provisions that can prohibit Employees from disclosing any and all information received or possessed by the Employees during their working periods. Aespective sanctions may accordingly be imposed on the Employees’ act of violation upon the basis of “a picture is worth a thousand words”.

[1] Article 35 of the Constitution, Article 49 of the Civil Code, Article 5 of the Labor Code and Article 9 of the Law on Employment

[2] Clause 7 of Article 3 of the Labor Code 2012 stipulates that: “A labor dispute means a dispute over rights, obligations or interests which arise between the parties from labor relations”

[3] Clause 6 of Article 3 of the Labor Code 2012 defines labor relations with a broad implication: “is a social relation arising from the hiring or employment and salary payment between an employee and an employer”