Question 47: If Employees and Employers have an agreement that Employees will not work for Employers’ competitors in a certain period after they resign, and if they violate the agreement they must pay compensation to Employers, and such violations are agreed to be settled by arbitration at the Vietnam International Arbitration Centre (VIAC), then is the VIAC a competent agency to settle this dispute? If the VIAC has the authority to settle the dispute, and the arbitral award forces Employees to pay compensation to Employers, is this award against Article 10 of the Labor Code and Article 9 of the Employment Law with respect to the Employee’s freedom to engage in any employment?

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Is it correct that the VIAC has the authority to settle disputes related to the agreement that Employees will not work for Employers’ competitors in a period after resignation (Agreements in restraint of competition)?

The VIAC is an arbitration centre which operates according to the Commercial Arbitration Law and relevant guiding documents. So, the VIAC has the authority to settle the disputes arising from: (i) commercial activities; (ii) disputes in which at least one party has commercial activities; and (iii) other disputes[1]. With respect to the authority to settle disputes over the agreement in restraint of competition, there are now two points of view:

According to the first point of view, the agreement in restraint of competition will be considered as a civil agreement which relates to commercial competition and is completely independent of LCs. In other words, if a dispute arises from the agreement in restraint of competition, it will not be considered a labour dispute but a civil dispute in which one party (Employer) has commercial activities. Thus, the VIAC definitely has the authority to settle disputes over the agreement in restraint of competition if the parties agree that the agency to settle disputes is the VIAC. In practice, cases with the same nature have been accepted by the VIAC and arbitral awards have been made. In practical legal proceedings, when settling disputes over the jurisdiction of the VIAC in similar cases, some courts also maintain the above point of view.

On the other hand, the second point of view contends that the agreement in restraint of competition arises from the employment relationship, so it must be considered an integral part of LCs. Therefore, disputes over the agreement in restraint of competition will not be considered civil disputes which can be settled under the jurisdiction of the VIAC even though the parties choose it as the dispute-settling agency.

If the VIAC has the authority to settle the dispute, is the arbitral award forcing Employees to pay compensation to Employers against Article 10 of the Labor Code and Article 9 of the Employment Law with respect to the Employee’s freedom to engage in any employment?

Similar to the matter of the VIAC’s jurisdiction as mentioned above, whether the agreement in restraint of competition violates the Employee’s freedom to engage in any employment or not is still being debated. Accordingly:

The first point of view refers to a principle of civil law that agreements are made based on voluntariness, equality, goodwill, cooperation and honesty; therefore, the fact that Employees sign an agreement in restraint of competition is construed as they voluntarily renounce their freedom to engage in employment specified in Article 10 of the Labor Code and Article 9 of the Employment Law. So, when Employees violate the agreement, they are obliged to compensate Employers.

While the second point of view contends that the agreement preventing Employees from working for Employers’ competitors in a certain period after resignation violates the Employee’s freedom to engage in employment specified in Article 10 of the Labor Code and Article 9 of the Employment Law. Although the parties are free to enter into agreements and Employees are fully aware of the consequences of the agreement in restraint of competition, Employees have no choice but to sign that agreement to be able to sign LCs with Employers because they are in a weaker position than Employers in negotiating LCs. Furthermore, the agreement in restraint of competition is signed within the term of LCs so it must be considered an integral part of LCs; therefore, it arises from the employment relationship. As a result, the acceptance of the agreement in restraint of competition will, in the spirit of the Labor Code and the Law on employment, seriously violate the Employee’s freedom to engage in employment.

If the second point of view is accepted, the Employee’s right is better protected, who are in a weaker position in the employment relationship. However, this point of view cannot preserve the fairness in a civil relation in general. Especially, this can tremendously affect the healthy competition in light of the fact that Employers cannot control the disclosure of trade secrets from former Employees though the agreement in restraint of competition has been signed.

Since there is still much controversy over the jurisdiction to settle disputes over and the contents of the agreement in restraint of competition, the legal risk of signing such agreements is inevitable. Particularly for the subsidiaries of multinational corporations, Employers should consider and communicate the possible legal risks to their corporations before signing the agreement in restraint of competition.

[1]Article 2 Commercial Arbitration Law