One month post-closing, the sales director and chief accountant — the target’s two key people — resign together, joining a competitor with the customer list. The buyer cries non-compete breach; the employees reply “we signed nothing”. Who’s right? Analysis from the buyer’s side.
Legal basis
- Labor Code 2019 (45/2019/QH14): employment contracts, employee unilateral termination rights — employees may resign with proper notice, no reason needed.
- Civil Code 2015, Articles 385, 418: non-compete undertakings are civil agreements valid if voluntary and lawful.
- Competition Law 23/2018/QH14: competition-restricting agreements — non-competes must not constitute prohibited restrictions.
- Intellectual Property Law (2022 amendments): trade-secret protection — customer lists may qualify as protected trade secrets.
Why buyers usually end empty-handed — 3 reasons
1. No non-compete with the employees. SPA non-competes bind the seller (not to compete with the sold company), not automatically the target’s personnel — they’re not SPA parties. Binding employees needs separate agreements with each.
2. Employees may resign. Under the 2019 Labor Code, employees may unilaterally terminate with proper notice (30–45 days by contract type) without reason. “Quitting right after closing” doesn’t violate labor law.
3. Employee non-competes are constrained. Vietnam has no dedicated employee non-compete regime; post-employment competitor bans risk being deemed restrictions on the constitutional right to work if overbroad in time, geography, or scope.
Buyer protection — 5 defense layers
1. Key employee agreements: pre-closing, sign separate deals with key people — minimum 12–24 month post-closing stays (with retention bonuses) plus reasonable post-departure non-competes.
2. Broad seller non-compete: sellers (often founding shareholders connected to key staff) undertake non-solicitation for 2–3 years — blocking “old boss poaching”.
3. Trade-secret protection: sign NDAs with key personnel; manage customer lists and formulas as trade secrets — taking secrets to competitors violates IP law independently of non-competes.
4. Price mechanics: tie part of the price to key-person retention (e.g., retention-linked earn-outs) — financially motivating sellers to keep people.
5. Diligence checks: review key personnel employment contracts (terms, competition clauses, compensation) during due diligence — early flight-risk detection.
What employee non-compete is reasonable?
International practice and Vietnam trends: 6–24 months post-departure; narrow geography and scope directly tied to former work; with compensation (payments during restriction) — uncompensated non-competes are easily deemed unreasonable. Separate written voluntary instruments with consideration.
Employees taking customer lists to competitors — violation?
Possibly — if lists meet trade-secret criteria (non-public, secured, commercially valuable). Then misappropriation violates IP law — buyers may sue independently, no non-compete needed.
Seller “encouraged” post-closing resignations?
Breach of SPA non-solicitation (if any) — buyers claim contract breach damages. Gather linkage evidence (staff joining seller’s/affiliate companies, coinciding timing…) to prove.
How to structure retention bonuses?
Pay in tranches (e.g., 50% at 12 months, 50% at 24 months) not lump sums — longer stays earn more. Tie to performance metrics, not mere “seat-warming”. Retention costs belong in deal pricing.
Can’t retain people?
Prepare backups: identify replacements early, transfer customer relationships/processes pre-closing, and price in personnel risk (discount for key-person loss risk).
Contact FLAT Law Firm
FLAT Law Firm advises M&A buyers: designing key-personnel retention mechanics, drafting non-competes/NDAs, and handling post-closing departures. Engage from diligence — post-closing key-personnel loss is a valuation risk, not “bad luck”.
This article has been quality-reviewed by the FLAW AI Legal Council