FLAT LAW FIRM
Request a consultation

Labour and Employment

Post-Employment Non-Compete Agreements (NCA) in Vietnam: How to Draft a Valid Clause

21 min readFLAT LAW FIRM
Điều khoản bảo mật và không cạnh tranh sau khi nghỉ việc (NCA): soạn sao cho hợp lệ

A key employee leaves and joins a competitor, taking the client list, pricing formulas, and even the team along — a familiar nightmare for many businesses. Many companies turn to a post-employment non-compete agreement Vietnam businesses rely on (a Non-Compete Agreement, or NCA) as a shield for their business secrets. But this shield only works when drafted correctly: an overly broad prohibition clause, one without compensation or imposed on the wrong people, can be declared void by a court, costing the business both its secrets and its litigation expenses. This article guides businesses on drafting valid NCA clauses under current Vietnamese law, from the legal basis and the seven mandatory building blocks, to the mistakes that kill a clause on paper.

Table of contents

1. What is an NCA? Who should care?

A post-employment non-compete agreement (NCA) is a document in which an employee undertakes that, for a defined period after the employment relationship ends, they will not do similar or competing work for a rival business, will not run a competing business themselves, and will not poach the former company's clients or staff. In short: an NDA prohibits "talking about the secrets", while an NCA prohibits "going to work for the rival" — two different obligations by nature, though often placed side by side in one document.

Not every business needs an NCA. The clause truly matters for positions where the employee has direct access to business secrets or technological secrets: the management team, a sales director holding client lists and pricing policies, engineers holding formulas and production processes, finance staff holding internal figures, R&D teams. For administrative staff, security guards, drivers — people who never touch sensitive information — an NCA clause is both unnecessary and legally hard to sustain.

The key point many businesses miss: Vietnamese law has no standalone statute "on post-employment competition". The validity of an NCA is built on the combination of three pillars: the employee's freedom to choose employment, the employer's right to agree protection of secrets, and the principle of freedom of contract in civil relations. Drafting an NCA is essentially the art of balancing these three pillars — lean too far toward the business, and the clause is treated as infringing the right to work; lean too far toward the employee, and the business loses its ability to protect secrets.

2.1. Freedom to choose employment — the ceiling for every NCA clause

Article 35(1) of the 2013 Constitution recognizes citizens' right to work and to choose their occupation, employment, and workplace. Giving effect to this right, Article 10(1) of the 2019 Labor Code (No. 45/2019/QH14, effective from 01/01/2021) provides that employees are free to choose employment and to work for any employer and anywhere the law does not prohibit.

This is the "ceiling" no NCA clause may cross. Any agreement restricting an employee's right to work must prove its legitimacy and reasonableness — otherwise a court may well declare the agreement void for violating a legal prohibition or being contrary to social ethics.

2.2. The direct basis: Article 21(2) of the 2019 Labor Code

This is the single most important provision for NCAs. Article 21(2) of the 2019 Labor Code provides: when an employee's work is directly related to business secrets or technological secrets as prescribed by law, the employer has the right to agree in writing with the employee on the content and term of protection of business secrets and technological secrets, the rights, and compensation in case of breach.

Three points to note from this provision. First, the condition of application is that the employee's work must be "directly related" to business secrets or technological secrets — not every position in the company. Second, the mandatory form is a written agreement; oral commitments or vague clauses tucked into general internal rules do not meet this requirement. Third, the law lists four groups of mandatory content: protected content, protection term, the parties' rights, and compensation for breach.

2.3. The six key contents under Article 4 of Circular 10/2020/TT-BLDTBXH

Circular No. 10/2020/TT-BLDTBXH dated 12/11/2020 of the Ministry of Labor, Invalids and Social Affairs (effective from 01/01/2021) guides the details of labor contract content. Article 4(2) of the Circular lists six key contents that an agreement on protection of business secrets and technological secrets may include: (a) the list of business secrets and technological secrets; (b) the scope of use of the secrets; (c) the protection term; (d) the protection methods; (đ) the rights, obligations, and responsibilities of the employee and the employer during the protection term; (e) handling of breach of the agreement.

This list is the skeleton for drafting. An NCA document missing one of these content groups — especially the specific list of secrets and a clear term — will struggle to convince a dispute-resolution body that it is a serious, reasonably bounded agreement.

2.4. The principle of freedom of contract and conditions of validity

Article 3(2) of the 2015 Civil Code (No. 91/2015/QH13, effective from 01/01/2017) records the foundational principle: individuals and legal persons establish, perform, and terminate their civil rights and obligations on the basis of free, voluntary commitments and agreements; any commitment or agreement that does not violate legal prohibitions and is not contrary to social ethics is effective as to the parties and must be respected by others.

In parallel, Article 117 of the 2015 Civil Code sets four conditions for a civil transaction to be valid: the subject has appropriate civil legal capacity; participation is entirely voluntary; the purpose and content do not violate legal prohibitions and are not contrary to social ethics; the form complies with the law where the law so requires. Applied to NCAs, this means: an employee signing under coercion, deception, or without understanding the content gives grounds to have the agreement declared void.

2.5. What protected business secrets are

Article 4(23) of the 2005 Intellectual Property Law defines a business secret as information obtained from financial and intellectual investment activities, not yet disclosed, and capable of being used in business. This definition draws a crucial boundary: general professional skills and accumulated experience — what an employee carries in their "head" when changing jobs — are not the company's business secrets. A business cannot use an NCA to "lock in" an employee's general professional knowledge; the clause can only protect information that meets the legal definition.

2.6. Precedent 69/2023/AL — the turning point for the legal value of NCAs

On 18/8/2023, the Judicial Council of the Supreme People's Court adopted Precedent No. 69/2023/AL (published under Decision No. 364/QD-CA dated 01/10/2023 of the Chief Justice of the Supreme People's Court, applicable from 01/11/2023). The precedent's source is Decision No. 755/2018/QD-PQTT dated 12/6/2018 of the Ho Chi Minh City People's Court on the civil matter "Request to annul the arbitral award".

The precedent's facts: an employee and employer signed an information confidentiality and non-compete agreement, in which the employee undertook that after termination of the labor contract they would not do similar or competing work for a defined period, and that all disputes would be resolved by commercial arbitration. The established legal solution: a dispute over an information confidentiality and non-compete agreement is an agreement independent of the labor contract, within the jurisdiction of commercial arbitration (pursuant to Article 2(2), Article 13, and Article 35(4) of the 2010 Law on Commercial Arbitration; Article 3(2) of the 2015 Civil Code; Article 6 of Resolution No. 01/2014/NQ-HDTP).

This precedent carries two major practical implications. First, it indirectly affirms that an NCA agreement is an independent civil transaction with its own legal value — not "dissolved" into the labor contract. Second, it opens the option of resolving disputes by commercial arbitration instead of labor courts, with the advantages of confidentiality and speed — particularly important when disputes involve business secrets. (See the NCA dispute with a former Chinese executive — a practical illustration of NCA enforceability and dispute strategy.)

3. Seven building blocks of a valid NCA clause

3.1. Identify the right bound persons

The first building block — where many businesses fail at step one — is identifying who must sign. Under Article 21(2) of the 2019 Labor Code, only employees whose work is directly related to business secrets or technological secrets fall within scope. Businesses should list specific positions by title and actual job description: chief executives, sales heads, core-technology engineers, chief accountants, R&D specialists.

Making every employee — from receptionist to driver — sign the same NCA template does not increase protection; it creates evidence that the business applies restrictions indiscriminately, without considering legitimacy. When a dispute arises, this very "blanket" approach can be used by the employee to argue the agreement was imposed mechanically, not based on any real need to protect secrets.

3.2. The list of protected secrets — the more specific, the better

Article 4(2)(a) of Circular 10/2020 requires the agreement to contain the list of business secrets and technological secrets. This is the "soul" of the NCA: a court will only protect what is described clearly enough to be identified.

Instead of writing vaguely about "all business information of the company", list specifics: client and supplier lists with classification criteria, price tables and discount policies by segment, product formulas and technology processes (with internal codes), unpublished business plans and marketing budgets, source code or internal software system architecture. Each item should carry enough description to be distinguished from publicly available market information.

A practical note: the secrets list should be reviewed and updated periodically, especially when the employee changes positions. Secrets accessed in the old position may no longer be relevant in the new one — and vice versa.

3.3. Scope of restriction: what is barred, for whom, where

Article 4(2)(b) of Circular 10/2020 requires defining the scope of use of secrets. For NCAs, this scope materializes as three rings: the job ring (which positions and functions the employee may not take — e.g., business or technical positions of a similar nature), the target ring (defining "competing business" — best done by criteria of overlapping business activities, with a list of known direct competitors and a mechanism to supplement it), and the territory ring (the geographic scope of application — nationwide, certain provinces, or a specific market area).

The golden rule: the restriction scope must be proportionate to the scope in which the secret truly has value. A software company operating nationwide can justify nationwide scope; but a restaurant in one district banning its chef from working for any restaurant across the country is hardly reasonable.

3.4. The restraint term — no statutory cap, but practical limits

Article 4(2)(c) of Circular 10/2020 requires the agreement to state the protection term clearly. Current law sets no maximum term for NCAs — both flexibility and risk, because the reasonableness of the term will be assessed by the dispute-resolution body in each specific case, based on the sensitivity of the secrets, the obsolescence rate of the information, and the impact on the employee's right to work.

Under accepted practical custom adopted by many businesses and courts, a term of six months to two years after termination of the labor contract is usually assessed as reasonable. A term of three years or more needs a particularly convincing justification — for example long-life-cycle technological secrets and an employee in a pivotal position. The start of the term must also be stated clearly: from the actual termination date of the labor contract, or from the date the handover of work is completed.

3.5. Compensation for the employee — the "lubricant" of validity

Article 4(2)(đ) of Circular 10/2020 requires the agreement to set out the rights, obligations, and responsibilities of the parties during the protection term. In practice, the most important content of this group is the compensation the business pays the employee during the non-compete restraint period.

To be clear: current law does not require businesses to pay compensation. But when a dispute arises, this is one of the first factors put on the scales. An agreement barring an employee from practicing their trade for two years without a single dong of compensation will hardly be seen as fair; conversely, reasonable compensation — usually calculated as a percentage of salary and paid monthly during the restraint period — is strong evidence that the business seriously considered the employee's interests. The document should state the calculation method, payment amount, payment schedule, and conditions for terminating the payment obligation.

3.6. Sanctions for breach — penalties and damages

Article 4(2)(e) of Circular 10/2020 requires the agreement to set out how breaches are handled. A complete sanctions mechanism usually has three layers: breach-of-agreement penalties (the amount agreed by the parties, proportionate and grounded), actual-damages compensation (under the damages principles of the Civil Code — Articles 360, 361 — the business must prove the breach, the loss, and causation), and the obligation to return compensation received during the period of breach.

The common mistake is setting "sky-high" penalties — e.g., dozens of times the employee's income — hoping to deter. In practice, unreasonable penalties are not only unlikely to be upheld in full, but can also cast the whole clause in a negative light. Penalties should be calculated based on foreseeable loss and correlated with the employee's income and position.

3.7. Form, timing of signing, and dispute-resolution mechanism

As to form, Article 21(2) of the 2019 Labor Code requires a written agreement. Businesses may choose between two options: a clause in the labor contract, or a separate written agreement (recommended). A separate document has the advantages of detail, easy updating when the employee changes positions, and — most importantly — alignment with the spirit of Precedent 69/2023/AL on the independence of the NCA agreement from the labor contract.

As to timing, sign as soon as the employee is assigned a position with access to secrets; do not wait until they submit their resignation to hurriedly present it for signing — an agreement signed in the context of imminent departure is easily argued to lack voluntariness. Each time the employee moves to a sensitive position, sign an updating addendum.

As to the dispute-resolution mechanism, Precedent 69/2023/AL has opened the commercial arbitration option: if the NCA agreement contains a valid arbitration clause, disputes fall within the jurisdiction of commercial arbitration instead of courts. For disputes involving business secrets, arbitration offers the advantages of procedural confidentiality and resolution speed. However, the arbitration clause must be drafted correctly under the 2010 Law on Commercial Arbitration (clearly identifying the arbitration center or ad hoc tribunal) — a sloppily written arbitration clause may be declared void, pushing the dispute back to court.

4. Costs, timelines, and key dates

Unlike many administrative procedures, entering into an NCA agreement incurs no state fee — no registration, no notarization or certification required (unless the parties voluntarily choose these to strengthen evidence). The real "costs" of an NCA lie in two items: the compensation paid to the employee during the restraint period (agreed by the parties, with the calculation method and payment schedule stated in the document), and the legal costs of enforcing the agreement through negotiation, mediation, arbitration, or courts.

On timing, there are three legal milestones to remember. First, the non-compete restraint term agreed by the parties, counted from the actual termination of the labor contract — state the start and end dates clearly, avoiding vague phrasing like "for a reasonable period". Second, the limitation period for contractual disputes under Article 429 of the 2015 Civil Code is three years, counted from the date the person entitled to claim knew or should have known their lawful rights and interests were infringed. Third, businesses should keep the entire related file — the signed agreement, work handover minutes, evidence of breach — at least throughout the restraint term plus the limitation period.

For legal service fees for drafting, reviewing, or enforcing NCAs, each matter has its own characteristics regarding staff positions, the sensitivity of secrets, and market scope. Contact FLAT for a per-matter fee quote via hotline 0988424851.

5. Common risks and mistakes

Mistake 1: Making every employee sign a blanket NCA. Symptom: HR issues the same commitment template to all staff, from security guards to directors. Consequence: the clause applied to people without secret access lacks a legitimate basis under Article 21(2), and is easily declared void in its entirety when challenged. Prevention: sign only with positions having direct secret access, with a clear list of job titles.

Mistake 2: Defining secrets and competitors too vaguely. Symptom: "all company information", "all businesses in the same industry". Consequence: the court cannot determine the scope of protection, and the clause becomes unenforceable. Prevention: list specific secrets per Article 4(2)(a) of Circular 10/2020; define competitors by criteria of overlapping activities with a list.

Mistake 3: Overly broad term and territory. Symptom: banning work for 5–10 years nationwide for a regional sales position. Consequence: assessed as excessive restriction of the freedom to choose employment (Article 10(1) of the 2019 Labor Code); the court may narrow the scope or declare it void. Prevention: stay within the customary frame of six months to two years, with territory proportionate to the secret's actual market.

Mistake 4: No compensation but heavy penalties. Symptom: barring the employee from their trade for two years with no compensation, while imposing penalties of hundreds of millions of dong. Consequence: a serious imbalance of interests, sharply reducing the chance of court recognition. Prevention: design reasonable compensation, paid periodically, proportionate to the degree of restriction.

Mistake 5: Unreasonable penalties detached from actual loss. Symptom: a fixed large penalty regardless of the degree of breach. Consequence: hard to prove reasonableness; may be reduced by the dispute-resolution body. Prevention: tie penalties to an actual-loss compensation mechanism (Articles 360, 361 of the Civil Code), and collect loss evidence as soon as breach is discovered.

Mistake 6: Waiting until the employee resigns to present the agreement. Symptom: asking for the non-compete commitment only on the employee's last day. Consequence: the employee can easily argue coercion and lack of voluntariness — violating the validity conditions of Article 117 of the Civil Code. Prevention: sign when assigning the sensitive position; sign updating addenda on each position change.

Mistake 7: Confusing NCA with NDA, merging them carelessly. Symptom: a single clause both prohibiting disclosure and prohibiting employment, with shared term and sanctions. Consequence: when one part is declared void, the other is affected too; inflexible application. Prevention: separate the two obligations as to scope, term, and sanctions — they may sit in one document but as distinct clauses. (See our in-depth analysis of confidentiality agreements, NDAs.)

Mistake 8: Not updating the agreement when staff change positions. Symptom: signed once at hiring, unchanged after five years and three promotions. Consequence: the secrets list is outdated, the restriction scope no longer matches the actual work. Prevention: annual review, supplementary addenda on sensitive position changes.

6. Quick checklist

  • [ ] List the job titles required to sign the NCA under the "direct access to business/technological secrets" criterion (Article 21(2) of the 2019 Labor Code)
  • [ ] List specific secrets with identifiable codes/descriptions (Article 4(2)(a) of Circular 10/2020)
  • [ ] Define the three rings of scope clearly: barred jobs, definition of competing businesses, applicable territory
  • [ ] Fix a specific restraint term (start date – end date), within the reasonable frame of six months to two years
  • [ ] Design the compensation: calculation method, payment amount, payment schedule during the restraint period
  • [ ] Build a three-layer sanctions mechanism: breach penalties, actual-loss damages, return of compensation received
  • [ ] Choose a separate written document, signed when assigning the sensitive position (not when the employee is leaving)
  • [ ] Decide the dispute-resolution mechanism: courts or commercial arbitration (see Precedent 69/2023/AL); the arbitration clause must comply with the 2010 Law on Commercial Arbitration
  • [ ] Review periodically and sign updating addenda when the employee changes positions
  • [ ] Keep complete files: the signed document, handover minutes, breach evidence (at least the restraint term + the 3-year limitation period)

7. Frequently asked questions (FAQ)

Can a company require all employees to sign a promise not to work for competitors after leaving?

It should not be applied across the board. Article 21(2) of the 2019 Labor Code only allows employers to agree in writing on the content, term of protection of business secrets and technological secrets, the rights and compensation in case of breach, when the employee's work is directly related to business or technological secrets. Forcing employees in positions with no access to secrets to sign employment restrictions will hardly stand if challenged, because it conflicts with the freedom to choose employment under Article 10(1). Next step: review the list of positions that truly need signing before issuing a common template.

Is a non-compete agreement still valid if it pays no compensation to the employee?

Current law does not require compensation for employees during the non-compete restraint period. However, a reasonable compensation amount is one of the factors courts weigh when assessing the fairness of the agreement. An agreement barring an employee from practicing their trade for a long time with no compensation at all faces a high risk of being declared void or narrowed in scope in a dispute. Next step: include compensation in the agreement with a clear calculation method and payment schedule.

What non-compete duration is considered reasonable?

The law sets no specific cap; Article 21(2) of the 2019 Labor Code and Article 4(2) of Circular 10/2020/TT-BLDTBXH only require the parties to agree on the term of protection of secrets. Under accepted practical custom, a term of six months to two years after employment ends is usually assessed as reasonable, depending on the sensitivity of the secrets and the job position. A term of three years or more needs a particularly convincing justification. Next step: state the start and end dates clearly instead of vague phrasing.

How does a company handle an employee who breaches a non-compete agreement?

The company may demand damages and agreed penalties under the agreement, provided it can prove the breach and the actual loss under the principles of Articles 360 and 361 of the Civil Code. Note Precedent 69/2023/AL: disputes over confidentiality and non-compete agreements are independent agreements separate from the labor contract; if the agreement contains a valid arbitration clause, the dispute falls within the jurisdiction of commercial arbitration. Next step: collect breach evidence as soon as discovered and consult counsel on the enforcement strategy.

What is the difference between a non-compete agreement (NCA) and a confidentiality agreement (NDA)?

An NDA is an obligation not to disclose business secrets or technological secrets to third parties — the employee may still work anywhere, they just may not take the secrets along. An NCA goes further: it restricts the employee from doing competing work for rivals for a defined period and scope after leaving. The two obligations can coexist in one document or two separate ones, but must be drafted distinctly as to scope, term, and sanctions. Next step: read our in-depth analysis of confidentiality agreements (NDAs) to design the two protective layers together.

8. When to work with a lawyer

There are moments when a downloaded NCA template is not enough, and involving a lawyer from the start costs far less than a lost dispute:

  • Preparing to sign an NCA with senior staff or foreign experts: the more sensitive the position and the more valuable the secrets, the more the clause needs to be "tailor-made" — especially when the employee is a foreigner with a bilingual contract and potential cross-border disputes.
  • Breach signs have appeared: a former employee shows up at a competitor, loyal clients leave in droves — this is when counsel is needed to assess evidence, send a cease-and-desist letter, and prepare litigation or arbitration options.
  • Choosing commercial arbitration: the arbitration clause in an NCA must strictly comply with the 2010 Law on Commercial Arbitration; a small technical error is enough to void the arbitration clause.
  • Businesses in M&A or restructuring: in mergers, acquisitions, or transfers, the question arises whether NCAs signed with the old company still bind employees vis-à-vis the new company — review and re-signing are needed.
  • Designing a synchronized NCA–NDA system for the whole business: instead of each department drafting its own template, a lawyer helps build a unified framework, tiered by the sensitivity of each position group.

FLAT Law Firm advises on drafting, reviewing, and enforcing non-compete and confidentiality agreements for domestic and foreign businesses. Contact hotline 0988424851 for an option suited to your business's characteristics.

Language versions

References

  • 2013 Constitution of the Socialist Republic of Vietnam, Article 35
  • 2019 Labor Code (No. 45/2019/QH14), Articles 10, 21 (effective from 01/01/2021)
  • Circular No. 10/2020/TT-BLDTBXH dated 12/11/2020, Article 4 (effective from 01/01/2021)
  • 2015 Civil Code (No. 91/2015/QH13), Articles 3, 117, 360, 361, 429 (effective from 01/01/2017)
  • 2005 Intellectual Property Law (No. 50/2005/QH11), Article 4(23) (effective from 01/07/2006)
  • 2010 Law on Commercial Arbitration (No. 54/2010/QH12), Articles 2, 13, 35 (effective from 01/07/2011)
  • Precedent No. 69/2023/AL on the jurisdiction of commercial arbitration in resolving disputes over information confidentiality and non-compete agreements (adopted 18/8/2023, published under Decision 364/QD-CA dated 01/10/2023, applicable from 01/11/2023)
  • Resolution No. 01/2014/NQ-HDTP dated 20/3/2014 of the Judicial Council of the Supreme People's Court guiding the implementation of the Law on Commercial Arbitration, Article 6