NCA Dispute with Former Chinese Executive: Enforceability

NCA Dispute with a Former Chinese Executive: Enforceability and Handling Strategy

A Chinese executive resigns; three months later they surface at a direct competitor — with client lists and technical know-how. The company pulls out the signed non-compete agreement (NCA). But does that NCA actually bite? And how do you enforce against someone who has gone home? Two questions that must be answered together.

Contents

• 1. Is an NCA automatically enforceable?
• 2. Five enforceability factors
• 3. Precedent 69/2023: signals from case law
• 4. The China factor: when the employee has left
• 5. Response strategy upon discovering breach
• 6. Prevention at drafting stage
• 7. FAQs
• 8. When to work with a lawyer

1. Is an NCA automatically enforceable?

No — the most misunderstood point. Under Article 21(2) of the 2019 Labor Code, protection of trade secrets and technical know-how in labor contracts is recognized — but not every document titled "non-compete agreement" is automatically enforceable and court-protected.

Enforceability is assessed on each agreement's content: voluntariness, legitimate protectable interests, reasonable scope and duration, and commensurate compensation. An NCA banning industry-wide work for 5 years with zero compensation risks being viewed as restricting the right to work.

2. Five enforceability factors

When reviewing an NCA, counsel typically analyzes five factors:

1. Voluntariness: signed freely or coerced as a condition of employment/benefits? Pressure affects enforceability.
2. Legitimate protectable interests: does the company genuinely hold trade secrets, technical know-how, or special client lists? NCAs used merely to "lock in" staff without specific interests invite scrutiny.
3. Scope: are geographic, sectoral, and competitive restrictions reasonable and proportionate to the employee's role? A former executive with core secrets justifies broader scope than ordinary staff.
4. Duration: is the restriction period reasonable? Longer periods need stronger justification and compensation.
5. Compensation: is the employee paid during the restriction period? Courts weigh this heavily — restricting the right to work without compensation is an NCA's fatal weakness.

3. Precedent 69/2023: signals from case law

Precedent 69/2023, adopted by the Judicial Council of the Supreme People's Court, concerns a non-compete dispute. Its existence shows Vietnamese courts accept NCA disputes as an independent dispute type — a positive signal for businesses. But precedents resolve their specific facts; each NCA is still judged on its own terms and evidence.

4. The China factor: when the employee has left

With a former Chinese executive, the difficulty is not only enforceability but enforcement:

• Suing in Vietnam: if the NCA chose Vietnamese courts/arbitration and the employee returned to China, serving process abroad takes time via judicial assistance.
• Enforcement: winning in Vietnam while the person and assets are in China means recognition-and-enforcement proceedings — with the limitations analyzed.
• Arbitration: with an arbitration clause, awards recognized in China under the 1958 New York Convention usually enforce more smoothly than court judgments.

Hence for key foreign personnel, NCA design must account for cross-border enforcement from day one, not at dispute time.

5. Response strategy upon discovering breach

1. Preserve evidence: collect breach evidence (job ads, competitor websites, client testimony…) — never use unauthorized access to the other side's systems.
2. Cease-and-desist letter: demand cessation citing the NCA — both goodwill and evidence.
3. Re-assess the NCA: run the five-factor test before suing — don't bring a weak NCA to court.
4. Choose the forum: litigate or arbitrate per the agreement; consider interim measures (prohibiting specific acts) if conditions are met.
5. Consider negotiation: many NCA disputes settle — the former executive undertakes not to use secrets; the company drops damages claims.

6. Prevention at drafting stage

• Tie the NCA to specific secrets, not generic non-competition.
• Provide compensation during the restriction period — boosts court protection and moral leverage.
• Set penalties deterrent yet grounded (avoid unreasonable figures courts may adjust).
• For foreign staff: arbitration clauses over court jurisdiction; consider guarantees/collateral in Vietnam.

Designing NCAs for foreign executives from day one. For key foreign hires, build cross-border enforceability into the NCA itself: an arbitration clause (not court jurisdiction) for smoother recognition in the executive's home country; a deterrent penalty calibrated to the executive's compensation; and, where possible, security held in Vietnam (a guarantee or retained bonus). An NCA drafted only for domestic enforcement is half a document when the executive boards a flight home.

When the executive is already in China. If breach is discovered after departure, move quickly on two tracks: preserve evidence (forensic copies of emails, access logs, the signed NCA with its penalty clause) and engage PRC counsel to assess interim measures — Chinese courts can grant pre-litigation conduct preservation in appropriate cases. Time matters more than usual here: digital evidence degrades and the competitive harm compounds, so the first 30 days after discovery often determine the outcome.

7. FAQs

Q: Is an NCA signed with a Chinese employee enforceable in Vietnam?

A: No blanket answer. Under Article 21 of the 2019 Labor Code, protection of trade secrets and technical know-how in labor contracts is recognized; but each NCA's enforceability depends on voluntariness, legitimate protectable interests, scope, duration, compensation to the employee, and dispute resolution.

Q: What does Precedent 69/2023 say about non-competes?

A: Precedent 69/2023, adopted by the Judicial Council of the Supreme People's Court, concerns a non-compete dispute. It is important practical guidance for NCA enforceability, but each case still turns on its specific agreement.

Q: How to enforce an NCA if the former Chinese executive returned home?

A: The biggest practical hurdle: once the employee leaves Vietnam, suing, service, and enforcement face obstacles. Design NCAs with this in mind: deterrent penalties, assets/guarantees in Vietnam, and suitable dispute resolution (arbitration often enforces better cross-border).

Q: What should a company do upon discovering an NCA breach?

A: Collect and preserve breach evidence (no unauthorized access to the other side's systems); send a cease-and-desist letter; re-assess NCA enforceability; and work with counsel on litigation or arbitration before limitation periods and evidence degrade.

8. When to work with a lawyer

Work with a lawyer when: discovering a former manager (especially foreign) breaching an NCA and needing enforceability assessment, evidence gathering, and forum choice; drafting NCAs for key personnel with cross-border enforceability; or negotiating NCA dispute settlement. FLAT Law Firm handles labor and NCA disputes with foreign elements — hotline 0988424851.

References

• 2019 Labor Code (No. 45/2019/QH14), effective 1/1/2021.
• Circular 10/2020/TT-BLDTBXH.
• Precedent 69/2023/AL of the Judicial Council.
• Cross-checked via thuvienphapluat.vn as of drafting (28/9/2026).

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