Scenario: software company “Z.” just lost a suit over an ex-employee taking code to a rival — not for lacking a confidentiality clause, but because its labor-contract clause was a single line: “Employees shall keep company information confidential.” The court: too vague — unidentifiable which secrets, how long, consequences of breach — damages claim dismissed. Z. lost VND 2 billion to a sloppy clause. This article is a 7-point drafting checklist so your labor-contract trade-secret clause isn’t “waste paper” in court. (Breach handling: see our labor-angle article; court injunctions: see our IP-angle article.)
Legal basis: Labor Code Article 21(2) + IP Law
The 2019 Labor Code (Article 21(2)) imposes employees’ duty to protect employers’ business/technological secrets. The IP Law defines trade secrets (3 conditions: non-public, valuable, secrecy measures). The contract clause is the written “secrecy measure” — both the basis for damages claims and proof the company “kept secrets” when seeking injunctions.
7-point checklist for a “tight” clause
- 1. Define secrets: list specifically — formulas, source code, customer lists, pricing strategy, financial data… With an update mechanism (supplementary appendices). “All company information” is overbroad, risking invalidation;
- 2. Confidentiality duties: no disclosure, copying, or off-duty use — during employment too (not just after leaving);
- 3. Post-termination term: how long duties survive resignation (2–5 years typical; longer for core secrets). No stated term = disputes;
- 4. Non-compete: working for rivals barred within a reasonable scope (field, territory) and term post-exit. Caution: overbroad bans (whole industry, nationwide, 10 years) may be deemed unreasonable work-right restrictions — add compensation (% of salary during the ban) to strengthen enforceability;
- 5. Exit handover: return documents/equipment, wipe company data from personal devices — with a signed handover record;
- 6. Breach penalties: specific amounts (e.g., X months’ salary) — enabling fast claims without proving loss;
- 7. Damages: beyond penalties, breachers compensate actual losses exceeding the penalty.
Form: contract clause or standalone NDA?
- Clause in labor contract: compact, directly tied to employment — enough for ordinary staff;
- Standalone NDA: recommended for key personnel (lead engineers, sales directors, chief accountants) — more detailed, and survives labor-contract termination (avoiding “contract ended, clause ended” disputes);
- Best practice: framework clause in the labor contract + detailed standalone NDA for sensitive roles.
3 mistakes that void clauses
- Vagueness: “keep all information confidential” — courts can’t tell what’s protected;
- No sanctions: duties without penalties/damages — breach occurs and… nothing claimable;
- Sign once, forget: promoted employees accessing new secrets without updated appendices — new secrets unprotected.
Frequently asked questions
Can non-competes be deemed work-right restrictions?
Possibly, if scope/term unreasonable. To stand: limit field + territory + reasonable time (usually 1–2 years), and pay compensation during the ban — courts note employer good faith.
Employee never signed a standalone NDA — is the contract clause enough?
Enough if it covers all 7 points above. But standalone NDAs remain advisable for key personnel — more detailed and independent of the labor contract’s life.
What’s a reasonable penalty level?
No statutory level — by agreement. Practice: several months’ to a year’s salary depending on role sensitivity. Excessive levels may be judicially reduced.
How does this differ from the companion articles?
One covers breach handling under employment relations (discipline, damages). The other covers court injunctions from the IP angle. This one: preventive drafting — writing clauses upfront so the other two have “ammunition.”
This article has been quality-reviewed by the FLAW AI Legal Council