Non-Disclosure Agreements (NDAs) and Non-Competition Agreements (NCAs): A Company's Legal 'Shield' in Vietnamese Labor Relations

Attorney (Vietnam Bar)

Managing Partner, NEXORA Law Firm
Attorney (Vietnam Bar)
Mediator, Bankruptcy Trustee, and Independent Auditor

Table of Contents
01 - Overview of NDAs and NCAs
02 - The Legal Framework Under Vietnamese Law and Points to Note
03 - Legal Considerations and Practical Challenges
04 - Trends in Practice and Case Law in Vietnam

In Vietnam, non-disclosure agreements (NDAs) and non-competition agreements (NCAs) are increasingly being adopted to prevent employees from leaking information or engaging in competing activities after leaving a company. However, striking the right balance with an employee's freedom to choose their occupation is an important challenge. This article explains the framework under Vietnamese law, the content of Precedent No. 69/2023/AL, and the key points for drafting effective NDAs and NCAs in practice. NEXORA LAW FIRM has extensive experience drafting, negotiating, and handling disputes over NDAs and NCAs in this field.

In business, data, technology, and corporate strategy are among a company's most vital intellectual assets. If such information leaks externally, it can undermine competitiveness and damage trust with business partners, and in some cases pose a serious risk to the company's very survival.
Managing internal information and preventing leaks is therefore an urgent priority for every company. Among the tools most widely adopted by companies to protect their own interests are:

the Non-Disclosure Agreement (NDA), and
the Non-Competition Agreement (NCA).

That said, these agreements often raise the concern that they may unduly restrict an employee's freedom to choose an occupation. Indeed, viewed from the standpoint of Vietnam's Labor Code and related employment legislation, these agreements require careful handling.

This article examines the validity and limits of NDAs and NCAs based on the current legal grounds and case law, and explains the key points for companies seeking to protect their intellectual assets while avoiding legal risk.

01 - Overview of NDAs and NCAs

1.1. Non-Disclosure Agreement (NDA)

A non-disclosure agreement (the "NDA") is a contract concluded between an employer (company) and an employee, under which the employee undertakes not to wrongfully disclose or use, either during or after employment, confidential information learned in the course of their duties—such as customer information, internal procedures, technical information, or marketing strategy.

An NDA is one of the most basic and important tools for preventing information leaks and protecting a company's intellectual property and business know-how.

1.2. Non-Competition Agreement (NCA)

A non-competition agreement (the "NCA") is a contract under which an employee undertakes, after leaving the company, not to work for a competitor or to establish or operate a competing business.
This type of agreement sets a specific period, geographic area, and industry scope, with the purpose of protecting the company's trade secrets, customer information, and technological advantage.

Specifically, common clauses include:

A prohibition on working in the same industry or for a competing company for a set number of years after leaving
A prohibition on soliciting or approaching specific customers or business partners
Restrictions on launching, investing in, or taking an executive position at a competing business

Common Features and Purpose of NDAs and NCAs

Both agreements are designed to protect a company's confidential information, intellectual property, and business strategy, and are extremely important from the standpoint of information-risk management and maintaining a competitive edge.

That said, an NDA is aimed at "preventing information leaks" while an NCA is aimed at "restricting competitive conduct"—the purpose and scope of application differ, and each must be designed and applied appropriately with this distinction in mind.

02 - The Legal Framework Under Vietnamese Law and Points to Note

2.1. Overview of the Relevant Legislation

In Vietnam, the legal basis for NDAs and NCAs rests primarily on the following legislation.

(1) The 2015 Civil Code — The Principle of Freedom of Contract

Article 3(2) of the Civil Code (Basic Principles of Civil Relations)

"Individuals and legal entities may establish, perform, and terminate their civil rights and obligations on the basis of their free and voluntary will. Agreements and undertakings that are not prohibited by law and do not violate social ethics are valid and binding between the parties, and must be respected by other subjects."

Under this principle, NDAs and NCAs concluded between employer and employee are also considered valid, provided they do not violate the law or social ethics.
In other words, a genuine agreement based on the parties' free will has legal effect as a contract.

(2) The 2019 Labor Code — The Employee's Freedom to Choose an Occupation

Articles 5 and 10 of the Labor Code set out the following as fundamental rights of the employee:

Article 5(1)(a)
"An employee has the right to work, and to freely choose their occupation, place of employment, and job."
Article 5(2)(a)
"An employee has the obligation to perform the labor contract, the collective labor agreement, and any other lawful agreement."
Article 10(1)
"An employee has the freedom to work for any employer, in any location, so long as this is not prohibited by law."

These provisions make clear that an employee's "freedom to choose an occupation" is a constitutionally guaranteed fundamental right.
An NCA, by its nature, restricts this freedom, and therefore requires careful design and application.

(3) The 2013 Law on Employment — Fundamental Principles of Employment

Article 4(1) of the Law on Employment

"The employee's right to work and to freely choose an occupation and place of employment shall be guaranteed."

This provision is positioned as a fundamental principle guaranteeing "freedom of employment" throughout the employment relationship.
Accordingly, a clause such as an NCA that restricts post-employment activity is likely to be found valid only where it is limited to a reasonable period, scope, and subject matter.

(4) The 2005 Intellectual Property Law (as amended) — Protection of Trade Secrets

The Intellectual Property Law clearly defines rights relating to trade secrets and prohibits wrongful use or disclosure by third parties. Companies may rely on this provision as the basis for entering into an NDA and for claiming damages in the event of a breach.

Summary: Balancing Freedom of Contract Against the Employee's Freedom

Under Vietnamese law, two legal principles coexist:

"Freedom of contract" on the one hand, and
The employee's "freedom to choose an occupation" on the other.

Accordingly, when designing and implementing an NDA/NCA, it is essential to strike a balance within the bounds of contractual freedom, without unduly restricting the employee's freedom. An NCA in particular tends to be upheld in practice only where the period, geographic area, scope of duties, and the reasonableness of the consideration are clearly defined.

03 - Legal Considerations and Practical Challenges

Balancing the Employee's "Freedom to Choose an Occupation" Against Contractual Restrictions

Vietnam's Labor Code and Law on Employment clearly guarantee an employee's right to freely choose their occupation, place of employment, and employer. Accordingly, a contract that includes restrictions on this freedom—particularly a non-competition agreement—carries the risk of being found invalid as "contrary to labor principles" unless carefully designed.

Relationship to, and Need for Separation from, the Labor Contract

While the 2019 Labor Code permits the inclusion of a confidentiality clause in an agreement between employer and employee, there is no express provision addressing non-competition agreements (NCAs).

Accordingly, for NDAs and NCAs to function effectively, the following points require attention:

Do not include the NDA/NCA within the labor contract or its attachments.
Under Article 15(2) of the Labor Code, a clause in a labor contract that restricts an employee's freedom of employment may be found contrary to the principles governing labor contracts.

For this reason, it is recommended that NDAs and NCAs be concluded as an "independent civil contract," separate from the labor contract.

In this case, the contract is treated as a "civil agreement based on free will" under the Civil Code, and is recognized as a legally valid agreement provided the parties sign voluntarily and there is no fraud or coercion (Civil Code, Articles 3, 385, etc.).

Furthermore, Article 5 of the Labor Code provides that employees have an "obligation to comply with lawful agreements," meaning that once an NDA/NCA is lawfully concluded, the employee bears an obligation to perform it.

The Significance of Clearly Distinguishing NDAs/NCAs from the Labor Contract

Keeping the NDA/NCA separate from the labor contract makes it easier to:

Clarify the legal character of the matter when a dispute arises (treating it as a civil contract)
Identify the competent authority (whether it is a labor dispute or a civil dispute)

In particular, in cases involving a breach of an NCA, disputes frequently arise over the interpretation of the scope of competition, similar business, and geographic scope, and courts and arbitral bodies tend to reach differing conclusions.

Legal Risks Specific to NCAs

Because current law contains no provision expressly governing post-employment NCAs, the following points are frequently contested in judicial practice:

The scope of a "competing company"
The definition of "similar business"
The reasonableness of the "geographic scope and duration"

Accordingly, where the contract language is ambiguous, there is a risk that it will be found invalid outright.

Practical Points and Recommendations

When designing and concluding an NDA/NCA, companies should pay particular attention to the following points.

(i) Free will

The contract should clearly state that the employee signed voluntarily, and that there was no coercion, fraud, or misunderstanding.
This clause is often overlooked, but it is an important basis supporting the contract's validity when a dispute arises.

(ii) Setting a reasonable scope (time, geography, duties)
Duration: In principle, one year or less is preferable; an extension may be justified only for specific managerial or confidential positions (with reasons stated).
Geographic scope: Limited to the area where the company actually operates or has a substantial interest.
Scope of duties: Clearly specify "similar business" or "specific competitors."

(iii) Separation from the labor contract

The NDA/NCA should be prepared as an independent document, not attached to the labor contract.

(iv) Dispute resolution clause

The contract should clearly specify the arbitral body or competent court, to expedite handling in the event of a dispute.

(v) Damages clause

Clearly define the method for calculating damages and the scope of compensation in the event of a breach.

04 - Trends in Practice and Case Law in Vietnam

Practical Trends Prior to the Precedent

In Vietnam, the validity of non-disclosure agreements (NDAs) and non-competition agreements (NCAs) had long remained unclear, with courts reaching differing conclusions.

In particular, based on Article 35 of Vietnam's Constitution (citizens' freedom to choose an occupation and employment) and Articles 5 and 10 of the Labor Code (the employee's right to freely choose employment), there have been cases in which NDAs/NCAs were found invalid as "restricting the employee's fundamental freedoms."

A representative example is the Thanh Hoa Provincial People's Court, Judgment No. 03/2023/LD-PT (January 10, 2023), in which a contract containing NDA/NCA clauses was found to constitute "an extension of the restrictions under the labor contract" and was not upheld, as contrary to the principles of labor law.

Precedent No. 69/2023/AL — The First Case Recognizing the Validity of NDAs/NCAs

On August 18, 2023, Precedent No. 69/2023/AL, approved by the Judicial Council of the Supreme People's Court, formally recognized the legal effect of NDAs/NCAs—a landmark development.

In this precedent, the court held as follows:

"Where an NDA/NCA is concluded as a civil contract independent of the labor contract, it is legally valid so long as it complies with the principles of the Civil Code."

In other words, the precedent made clear that an NDA/NCA is recognized as a valid civil contract where the following three conditions are satisfied:

The contract is concluded separately from the labor contract;
The agreement is voluntary and based on the free will of the parties; and
The agreement does not violate the principles of the Civil Code (free will, good-faith performance, and compliance with social ethics).

The Legality of Dispute Resolution Through Arbitration

This precedent is also significant in that the parties chose commercial arbitration as the dispute resolution body.
Under Article 2(2) of the 2010 Commercial Arbitration Law:

"A dispute between parties where at least one party is engaged in commercial activity may be resolved through arbitration,"

and it was held legally appropriate to characterize an NDA/NCA as a civil/commercial contract.

Conclusion — Making Use of the NDA/NCA as a Legal "Shield"

Non-disclosure agreements (NDAs) and non-competition agreements (NCAs) are effective legal tools for protecting a company's intangible assets—intellectual property, customer information, and business strategy.

Although current law contains no detailed provisions on NCAs, where the following are ensured:

That the agreement is based on voluntary consent;
That the contract content is clear and reasonable;
That it is concluded separately from the labor contract; and
That the interests of both parties are balanced,

it can be enforced by courts and arbitral bodies.

Accordingly, an NDA/NCA is not an unreasonable restriction on employees, but rather a legal "shield" for corporate defense, recognized both in law and in practice.