NON COMPETE AGREEMENT IN LABOR LAW

HO CHI MINH CITY UNIVERSITY OF LAW
MANAGING BOARD OF SPECIAL PROGRAMS
------ -----

BACHELOR’S THESIS OF REGULAR TRAINING 34th
MAJOR: CIVIL LAW

NON-COMPETE AGREEMENT IN LABOR LAW

Student: DAO THI AI
Student number: 0955010319
Class: ADVANCE CLASS 34th COURSE
Supervisor: Ph.D. LE THI THUY HUONG

HO CHI MINH CITY, 2013


HO CHI MINH CITY UNIVERSITY OF LAW
MANAGING BOARD
OF SPECIAL TRAINING PROGRAMS
------ -----

BACHELOR’S THESIS OF REGULAR TRAINING 34th
MAJOR OF CIVIL LAW

NON-COMPETE AGREEMENT IN LABOR LAW

Student: DAO THI AI
Student number: 0955010319
Class: CLC34
Supervisor: Ph.D. LE THI THUY HUONG

HO CHI MINH CITY, 2013


COMMITMENT

This thesis represents my own work and I have duly acknowledged in the bibliography
the sources which I have consulted for the purpose of this study. The total word count
for this thesis is 20,986 words.

DAO THI AI


ACKNOWLEDGEMENTS
First and foremost, I would like to express my gratitude to my supervisor, Ph.D. Le Thi
Thuy Huong. Without her, this thesis would not be possible. Since the beginning of this
journey, she has always been encouraging me to written this thesis by English, advising
me what to do to perfect my thesis whenever I did not know how to go on and patiently
guiding me through every process.
Secondly, I would like to thank my family for their unconditional love and
wholehearted support. They were always there for me whenever I needed help.
Thirdly, I would like to give thanks to my friends: Huynh Quang Hung, Pham Chau
Yen Thuy, Nguyen Thanh Nga, Le Huynh Anh Duc and Ms. Joy, who have been
constantly supporting for the past three months. No matter whether they are in Viet
Nam, Singapore, Australia, whenever I was stressed, they always cheered me up. Had
it not been for them, the journey would have been more painful. I would also like to
thank my other friends who have been regularly asking me if I was doing fine.
Last but not least, I would like to say thanks to all my respondents, whose participation
in this thesis was invaluable.

ABBREVIATION
CC

Vietnamese Civil Code 2005

DOLISA

Department of Labor - Invalids and Social Affairs

Draft

The draft of the LC 2012

EU

European Union

LC 2012

Vietnamese Labor Code 2012

MOLISA

Ministry of Labor - War Invalids and Social Affairs

NCA

Non-compete agreement

ILRs

Internal labor regulations

VCL

Vietnamese Competition Law 2005


TABLE OF CONTENTS
INTRODUCTION ................................................................................................. 1
CHAPTER 1: OVERVIEW OF NON-COMPETE AGREEMENT IN LABOUR
LAW ....................................................................................................................... 6
1. Definition of the NCA ................................................................................. 6
2. General Characteristics .............................................................................. 9
3. Classification ............................................................................................. 10
4. Roles of the NCA ....................................................................................... 15
5. The development of the NCA ................................................................... 15
6. Enforcement of the NCA .......................................................................... 19
6.1. Social – economic reasons of enforcement of the NCA: ..................... 20
6.2. Principles of law supporting for the NCA............................................ 21
6.2.1.Principle of free and voluntary undertaking and agreement ......... 21
6.2.2.Principle of pacta sunt servanda .................................................. 22
6.2.3.Principle of balance benefits ........................................................ 23
6.2.4.Principle of protecting employer’s interest in labor law............... 24
Conclusion of chapter 1: ..................................................................................... 25
CHAPTER 2: NON-COMPETE AGREEMENT IN LABOR LAW OF
EUROPEAN UNION’S COUNTRIES ............................................................... 27
1. Legal backgrounds of the NCA ................................................................ 27
2. General legal requirements of the NCA ................................................... 29

2.1. Capacity of the contractual parties ...................................................... 29
2.2. Written form ........................................................................................ 30


2.3. Reasonable Test of NCA ...................................................................... 31
2.3.1.Time limit of a NCA ..................................................................... 31
2.3.2.Geographic location .................................................................... 33
2.3.3.Industry........................................................................................ 33
2.3.4.Consideration .............................................................................. 34
2.3.5.“Garden Leave Clause” .............................................................. 37
3. Blue pencil and Red pencil ....................................................................... 38
4. Remedies ................................................................................................... 40
4.1. Injunction ............................................................................................ 40
4.2. A penalty clause ................................................................................... 41
4.3. Damages .............................................................................................. 42
5. Others ........................................................................................................ 43
5.1.The responsibility of new employer regarding NCA ..................................43
5.2.Dismissal ...............................................................................................................44
5.3.Change of work ...................................................................................................44
Conclusion of chapter 2 ....................................................................................... 45
CHAPTER 3: NON-COMPETE AGREEMENT IN VIETNAMESE LABOR LAW –
PRACTICES AND THE PROPOSALS .................................................................... 46
1. Legal background of the NCA in Vietnam .............................................. 46
3. Proposal for the governance of the NCA in Vietnamese labor law ........ 52
3.1. To amend and implement some articles of the LC 2012 ..........................52
3.1.1.Article 23.2 of the LC 2012 .......................................................... 52
3.1.2.Article 21of the LC 2012 .............................................................. 52
3.1.3.Article 10.1of the LC 2012 ........................................................... 53

3.1.4.Article 37.3 of LC 2012 ................................................................ 53
3.2. To promulgate a new decree implementing in detail and guiding the
LC 2012 on the NCA.................................................................................................54
3.2.1.To adopt a new decree ................................................................. 54
3.2.2.The suggestions for contents of the decree on the NCA ................ 55
3.3. Settlement disputes of NCA .............................................................................60
3.3.1.Authority and order ..................................................................... 60
3.3.2.Method of settling disputes........................................................... 60
Conclusion of chapter 3 ....................................................................................... 61
CONCLUSION .................................................................................................... 62


1

INTRODUCTION
1. The necessity of research
Non-compete agreement (hereinafter referred to as “NCA”) is one of the
popular terms in employment contract in which the employers prevent their
employees from doing something against them. Due to the great speed of the
economy development, the human resource is very important which directly
impacts on the success of business. Additionally, the mobility of employment and
the rapidly developing of technology have become main challenges facing the
employers. Hence, the employers intentionally expect to agree the NCA in the labor
contract for the purpose of maintaining the stable human resources and protecting
their commercial interests. On the other sides, the employee can suffer some such
damages caused by the restriction of NCA, for example, the difficulty of looking for
higher paid job and the ensure of their stabilize life during restriction period.
Most of developed countries have made the legal framework in which the
validity of the NCA is obviously determined by reasonable test. Therein, the NCA
can be valid in case of satisfying entirely the legal requirements; otherwise, it will

be unenforceable. The mainstream of this test is balance benefit between employers
and employees rule. Consequently, the employers cannot take advantage of the
NCA to push the employee in such difficult situation despite of their dominant
position and big control power in negotiation of labor contract. In return, the
employees are bound by their promise and strictly perform the contract.
As far as developing country is concerned, the NCA has been considered as a
new term and has not regulated in any labor law. In practice, the NCA is utilized
day by day but is variously agreed in such confuse way. It is suggested that
developing country should create the legal framework of the NCA in which the rule
of balance benefits between employer and employee is an essential kernel of
enforcement of the NCA.


2

Respect to concrete situation in Vietnam, it is the great changes in Viet Nam
labor field that the LC 2012 has taken effect since May 1, 2013. Therein, NCA
which is initiative stipulated in law. It lays the foundation an open a development of
labor law in Viet Nam. However, this provision indirectly regulates NCA in detail
and may leads to the confused application in practice.
For the above-mentioned reasons, the topic “Non-compete agreement in
labor law” is favored as the author‟s graduation thesis. Because of limitation on
time and wide scope of topic, it‟s hard for author to offer a profound study covering
entire relating issues. However, the author shall do the best to provide a deep
analysis on few particular issues. All comments and advices are always welcomed
to help the author improve the thesis for better contribution to Vietnamese labor
laws.
2. The purpose of the thesis
Firstly, the thesis shall provide the literature research on the general
knowledge of NCA with the intention of turn out the nature of the NCA and the

necessary in governing the NCA.
Secondly, the thesis summarizes and analyses the governance of NCA in
Labor Law of many countries in order to make the proposal for Vietnamese
legislation.
3. Delimitation of the thesis
3.1. Delimitation of the study
I divide mechanisms of my thesis into two groups including internal and
external mechanism. External mechanisms base on the legislation of some
developed countries in Europe and is the summary the typical of governing the
NCA with many examples. In contrast, internal mechanisms base on the legal
theory to explain the necessary in promulgating guidance to governing the NCA.
Therein, this thesis does not present the reality and practical methods in
enforcement of the NCA.


3

3.2. Delimitation of material
The thesis mainly studies the Labor Code No. 10/2012/QH13 which has
taken effect on May 1, 2013, Vietnamese Civil Code No.33/2005/QH11,
Vietnamese Competition Law No.27/2004/QH11.
Respect to the foreign references, Non-compete clause – An international
guidance of IlusLaboris which is the global Human Resource Lawyers is listed.
Another important materials consulted is the Reports of 16th Meeting of European
Labor Court Judges on 4 September 2006.
Besides that, I also refer to materials of legal major and published on reliable
legal journal and website such as website of International Labor Organization
(“ILO”) available at and Website
Human resource in London available at />3.3. Delimitation of time
The thesis is studied on legislation and other material which were last

updated on 15/07/2013.
4. Methodology
For the thesis‟s objective mentioned above, the author will combine various
kinds of method mainly including analytical method, synthetic method and
comparative method.
 Synthetic method was used mainly in chapter 1 of this thesis in order to
provide an overview on the NCA such as definition, classification and the
general characteristics by synthesizing information from various sources.
 Comparative and analytical methods were mainly used in chapter 2.
Comparative method was used to compare legislation of European countries
with other. This is an effective method to find out the similarities as well as
the differences between them. On the other hand, analytical method was
chiefly used to analyse Vietnamese legislations in order to find shortcomings
and suggest the proposal for the governance of NCA.


4

5. Meaning of this thesis
In spite of the limitation on time and wide scope of topic, I expect my thesis
will be the summary of NCA in the labor law with many interesting information.
Besides that, this thesis provides the interpretation why the NCA should be
enforced. By acquiring the experiences of the international legislation of NCA, this
thesis suggests the proposal for the governance of NCA in Vietnam concrete
situation. Finally, I hope that this thesis is meaningful of development of
Vietnamese labor law and Vietnamese legislation as a whole.
6. The literature review of research
6.1. The literature review within Vietnam’s territory
There are few direct researches on the NCA in Vietnam. One of such
minority studies is the Master thesis entitled “Creating the legal framework for

NCA in labor law” by Vu Dinh Khoi.1 The study provided general knowledge on
definition, characteristics and essence of the NCA though legislation of some
countries in the world and find out shortcomings for Vietnamese legislation.
Especially, the study also provides the profound research on reality of NCA in
Vietnamese labor environment which is a great material for this thesis. However, its
scope excluded the study history of the problem and the analysed the global
governance of NCA have not been studied completely.
6.2. The literature review in the world
The NCA has been studied for a long time by scholars all over the world,
especially in developed countries. It was noticed as an important and popular
problem by the publication of Non-compete clause – An International Guide of
Global Human Resources Lawyers (IlusLaboris) in 2010. Moreover, ILO held
several discussions about legislation of the NCA. Therein, the 16th Meeting of
European Labor Court Judges on 4 September 2006 which is the landmark in
1

Vu Dinh Khoi (2011) Creating the legal framework for non-compete agreement in labor law (Xay dung
khung phap ly cho thoa thuan han che canh tranh trong linh vuc lao dong), University of Law in Ho Chi
Minh city.


5

creating the legal framework of NCA in EU. These reports of judges are the
meaningful legitimate resources not only for research but also for the application of
the NCA in practice.
7. The structure of the thesis
The thesis is divided into three chapters, as defined below:
Chapter 1: Overview of Non-Competition Agreement in Labor Law
This chapter shall provide a comprehensive view on the studying history,

definition, classification and general characteristics of the NCA. Especially, the
remaining part shall explain why the NCA should be governed as well as the
necessity to enforce this clause in labor field in order to support for presenting the
international governance of the NCA in chapter 2.
Chapter2: Non-Competition Agreement in Labor law of European Union
countries
The main content of this chapter is the governance of NCA in some
European countries. Therein, this chapter shall provide overarching view on the
legal backgrounds, legal requirements and settling disputes methods. Respects to
the enforcement of NCA, its legislations create a reasonable test which includes
four important factors: limitation on time, geographic location, industry and
consideration. This study is fundamental analysis so as to find shortcomings for
Vietnam and create the proposal in chapter 3.
Chapter 3: Non-compete agreement in Vietnamese labor Law – Practice
and the proposals:
Firstly, this chapter shall introduce Vietnamese legislation which relates to
the concept of NCA in Vietnam. Then, it will analyse and interpret the necessity to
promulgate a legal document governing NCA. Finally, the chapter shall present the
proposal for Vietnamese legislation of NCA as detailed as possible.


6

CHAPTER 1: OVERVIEW OF NON-COMPETE AGREEMENT
IN LABOUR LAW
1. Definition of the NCA
1.1.

Terminology

The NCA is referred differently from different countries, such as restrictive
covenant, covenant not to compete or competition restriction agreement. Therein,
“competition restriction agreement” relates to the concept of competition in
commercial market rather than labor field. “Covenant” is appears to be used just to
make a contractual undertaking sound more solemn and important. Outside the field
of real property, lawyers wishing to draft contractual undertakings in plain English
may prefer to avoid the word “covenants” and use the word “undertakes” instead. In
commercial context, covenants are sometimes seen in employment contracts;
however, the word is “less commonly seen”2. According to A dictionary of Law of
Oxford University3, “Restrictive covenant” is defined as a term of contract of land,
“for example, a covenant not to use the land for the purpose of any business”.
Comprehensively, “Restrictive covenant” and “Covenant not to compete” is not
favored with the lawyers although minority of legal experts used to refer these
words in their articles. By referred to Non-compete Clause – An International Guide
of Global Human resources Lawyers which is a highly value document and popular
material for researchers in labor field, the author would like to use “Non-compete
agreement” in this thesis.
1.2.

Definition

The NCA is not defined directly in statutory law but it can be considered by
interpreting statutory provisions and referring to articles of legal experts.

2

Mark Anderson (1988), A-Z Guide to Boilerplate and commercial clause, Butterworths London, Edinburg
and Dubin. Page 415.
3
A Dictionary of Law fifth edition (2002), Oxford University, page 432.

7

In laws of many countries, the NCA is stipulated in some of articles. For
example, Art 38 in Danish Contract Act stated that:
“If by reason of competition, a person has agreed not to carry on a
specified form of activity or business or not to enter into employment
in such a business, the agreement is not binding on him if the terms
relating to time, place or other circumstances go beyond what is
necessary to avoid competition or unreasonably restrict the person‟s
access to employment. In the last cases, regard shall be had to the
interested party‟s interest in the agreement being complied with. 4
This provision can be understood that the NCA is used to prohibit the
competition actions and is unenforced, except reasonable term that is necessary to
protect benefit of other party. In addition, the concept of NCA is regulated
obviously at Art 23 and Art 24 China Labor Contract Law:
“An employer and an employee may include in their labor contract
confidentiality include non-competition provision on the labor law or
confidentiality agreement, and agree to pay financial compensation to
the employee on a monthly basis during the non-competition period
after the termination or revocation of the labor contract. If the
employee breaches the non-competition provision, he shall pay
liquidated damages to the employer in accordance with the stipulated
terms. The personnel subject to non-competition obligations shall be
limited to the employer‟s senior management, senior technicians and
other individuals with confidentiality obligations. The scope,
geographical limitations and term of the non – competition obligations
shall be agreed upon by the employer and employee, and they shall
not violate any laws and regulations.”

4

Danish Contracts Act is Act on contract and other juristic acts pertaining to property, Act No.600 of 8
September 1986 as amended by Act No.1098 of 21 December 1994, Act No.389 of 14 June 1995 and Act
No.385 of 22 may 1996, available at: last visited on 16/05/2013. This
document is translated into English by ILO experts and is used for get general information.


8

This provision provided that the NCA is a term in labor contract in which the
parties will be bound by specific legal obligation. Comprehensively, NCA is
stipulated by focusing on the legal conditions of enforcement one in most law
across countries.
Accordingly, based on those provisions in law, the concept of NCA is
interpreted by many legal experts and attorneys. One example is that non – compete
agreement is a covenant5 that “an employee will not compete against the employer,
or go to work for a competitor, for some specified period after termination of
employment”6. Another example is “Non - compete agreements are often drafted as
part of a basic employment contract, or are included as a separate document that is
reviewed and signed at the beginning of a term of employment. Essentially, the
NCA ensures that upon the termination of the employment period, the former
employee will not engage in activities that place him/her in direct competition with
their former employer.”7
In Vietnamese legislation, there is no definition of the NCA, particularly in
labor field. However, the concept of competition is referred in relevant provision in
competition law field such as competition restriction, unfair competition 8. In labor
law areas, since contrary to the public interest and the right to freedom to work of
employees, the NCA is still considered as a new term in labor contract and is

unenforceable in most of cases in Vietnam. Currently, Vietnamese labor law has
only adjusted non – disclosure clause, one type of the NCA, but it is not mentioned
in detail.

5

According to Black’s Law Dictionary 9th edition (2009), A Covenant is a “formal agreement or promise”,
pages 419.
6
Gillian Lester and Elizabeth Ryan (2009), Choice of Law and Employee Restrictive Covenant, an American
Perspective, 31 Comp.Lab.L&Pol‟y J.389, available at (last
update on 23/05/2013).
7
last update on 23/05/2013.
8
Article 3.3 and Article 8 of Vietnamese Competition Law 2005.


9

Throughout all definitions of NCA above, it can go to a concept of NCA as
follows:
Non-compete agreement which is a restrictive covenant is agreed by both
employers and employees so as to prevent employees from doing certain things
against employer’s legitimate interests for certain time period and in particular
geographic location.
2. General Characteristics
Relying on the definition of NCA, there are many typical characteristics of
NCA that is meaningful for distinguishing the NCA in labor from in another fields
and constructing the legislation to govern this clause.

Firstly, the NCA is established by employers and employees. The employee
must have enough capacities individual and the employer must satisfy with legal
requirements of commercial entities. Indeed, the nature of employment relationship
is recognized obviously in this engagement. Employment relationship is dependent
labor. It is broadly believed that employers generally have the upper hand in control
and manage their employees. Of course, they have strong power in negotiation with
new employees who need a job for earning money. Therefore, this characteristic can
be used to distinguish NCA from other contract relationships.
Secondly, the purposes of NCA are preventing the employee from doing
certain thing that against or compete with employer‟s business, in a word, protect
the benefit of employer. In many countries, those benefits must be required as “a
legitimate proprietary interests” 9. The categories of what constitutes a legitimate
proprietary interest are implicit. Traditionally, common law court has recognized
three types of this10, consisting of trade secret and confidential information; the

9

Ilus Laboris (2010), Non-compete clauses – An internaltion Guide, Global Human Resources lawyers, page
59.
10
Please noted that this classify is derived from Canadian common law, in Non-compete clauses-An
international guild, page 59.


10

employer‟s connections with its customers and the employer‟s goodwill11. Hence,
employers usually expect to bring non-compete clause in labor contract and take the
initiative in drafting this agreement.
Thirdly, to be enforceable, the NCA is designed within the delimitation of

time, geographic location and professional scope. When determining the
reasonableness of those elements, the court commonly depends on the characteristic
of other components of the NCA including the employer‟s legitimate business
interests, the necessary in preventing the competition from other parties and not
contrary to public policies. This is defined case by case in such flexible way. As an
example, the court has held a nationwide or non-existent of geographic restriction as
unreasonable when the NCA extended beyond the necessary in protecting
employer‟s interests. Otherwise, the court opines as reasonable.
Fourthly, the NCA can be in written form and unwritten one. In practice,
most countries require the NCA must be in writing because of the fact that this
engagement must be clear, certain and unambiguous.
Finally, the NCA is unenforceable prime facie in almost countries because it
is regarded as contrary to public interests. However, the clause can be enforced in
certain circumstances when it satisfies the legal conditions of validity. This issue
will be represented in detail in chapter 2.
3. Classification
A number of different criteria are used to classify NCA. In general, it can be
sorted by two ways as follows:

11

Goodwill: the benefit of a business having a good reputation under its name and regular patronage.
Goodwill is not tangible like equipment, right to lease the premises, or inventory of goods. It becomes
important when a business is sold, since there can be an allocation in the sales price for the value of the
goodwill, which is always a subjective estimate. Included in goodwill upon sale may be the right to do
business without competition by the seller in the area and/or for a specified period of time. Sellers like the
allocation to goodwill to be high since it is not subject to capital gains tax, while buyers prefer it to be low,
because it cannot be depreciated for tax purposes like tangible assets. Goodwill also may be overestimated by
a proud seller and believed by an unknowing buyer. (available on last visited on 28/05/2013).

11

Firstly, based on the matter of restraint, there are 4 common types such as
traditional non-compete, non-solicitation,

non-poaching and non-disclosure

agreement.
Traditional non-compete agreement which prohibits an employee from
engaging in employment with competitor of former employer or doing something in
the same line business against the benefits of the former employer. However, this
clause must not, by its wording, “prevent the employee from earning a living” 12.
Accordingly, traditional non – compete must only be used in reasonableness that
does not greatly exceed in necessary for protecting employer. In practice, it is very
difficult to understand and demonstrate “the same line business” and “competitor of
former employer” because of the various regulations in different countries. Notably,
the law usually requires that this agreement must be limited in time, scope and
geographic location. That is one of the most important factor that the court will
consider when determining reasonableness of this agreement. In addition, the
parties can agree after termination labor contract or during employment period. In
some countries, it would prefer using of the former rather than the latter.
Non-solicitation agreement is an agreement which seeks to prevent an
employee from initiating business contract with customers of the former employer.
In other words, the employees attempt to persuade clients to terminate their
relationship with the former employer and enter into new contract with them or on
behalf of third party. In employment relationship, the employees have an obligation
of loyalty toward their employers. Consequently, it is quite common for an
employee to be required to sign a non-solicitation clause at the time of employment
and can be in favour of enforcement. This implies that employees cannot leave the

job with clients list and solicit them when they move to work for another company,
especially competitor of ex-employers. However, this legal obligation of loyalty is
not able to protect the employer after employment‟s cessation. Indeed, the
legislations in some countries recognize that the solicitation of ex-employer‟s client
12

Mr Alain P.Lecours, The legal insider about non-compete agreement, Lecours &Hebert lawyers inc,
available at www.lecourtHebert.com, last update on 23/05/2013.


12

continue to infracting the obligation of loyalty. Therefore, the law enlarges the time
reasonable through non-solicitation agreement which is freely agreed by parties in
the labor contract. As a result, it can be enforced easier than traditional NCA.
Nonetheless, the burden of proof is belonged to the employers that they have to
demonstrate the restriction is reasonable in order to protect their legitimate interests.
Non-poaching agreement is an agreement in which an employee is
prohibited from recruiting, encouraging and soliciting a person who has worked for
the former employer. Sometimes, non-poaching agreement has been confused with
no-hire agreement in which two or more employers promise that never recruit any
candidate come from other parties. In other hands, non-poaching is an agreement
between employer and their employees. This agreement can be regarded as the
expansion in traditional non-compete agreement, which is required the „legitimate
benefits of employer‟ factor. It is widely believed that human resources is vitally
important in the growth of the business, so almost successful companies invest their
money in managing and keeping a stable employment relationship. Thus, if
employee tries to poach and persuade their colleagues to terminate labor contract, it
causes the detriment of employer‟s advantages.
Non-disclosure agreement is also called confidentiality clause in which

employee is forbidden from unveiling any sensitive information of company such as
trade secret, proprietary invention, intellectual property and other information that
hostile to the benefits of employer. The use of this agreement is more essential
when employee has direct access to sensitive information, especially in the faster
developing technology. Hence, the legislation normally favor in enforcement of this
agreement for the purpose of protecting the competition in commercial
environment, encouraging the development of technology in individual and
economy as a whole.


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Secondly, based on the time of restraint, the NCA can be divided into 2 types
consisting of the NCA during the employment and after the termination of labor
contract.
During the employment period:
Employers and employees are able voluntarily to enter into any term of a
labor contract by their concerned, eg. non-compete clause, provided that such terms
does not violate the principles of law. In this case, the NCA is effective only within
the employment period. In other words, there is an employment relationship set up
between the parties in which the employee has obligation of loyalty13. This rule
forbids the employee from performing anything hostile to the benefits of the
employer during the employment period. Notably, the employee is not prohibited
from doing another job during their spare time in general. However, they must not
work for a rival employer, if it causes a serious damage to the principal employer‟s
business. In contrast, if an employee simultaneously works for two or more
companies, the NCA is preferred to apply so as to preclude the conflict benefits
between the employers14. Consequently, the employee and the employer are bound
by their promises and keep in mind other party‟s advantages while conducting the
contract. As long as the contract is forced during the employment duration, the

employee is obligated not to compete with the employer. It can be believed that the
interest of employer is defended sufficiently. However, the court may consider that
whether the NCA infringes the rule of protecting the employee‟s rights. Especially,
the court will disfavor in the NCA in term of the employee has to face a choice of
“work or starve”15 at the beginning of establishing the labor contract. It is general
agreed that employment is a dependent relationship in which the employer has a
dominant position and controls a negotiation of NCA. They can take advantages of
13

Most of countries apply the obligation of loyalty in labor law or contract law so as to adjust NCA in during
employment period and also after terminating employment contract, for example, Cananda, Ireland, Spain,
Denmark, Autralia…Additionally, Indian law only accept this rule in during employment period and any
domination after that will be voided.
14
Vu Dinh Khoi (2011), supra footnote 1, page 45.
15
Simon Deakin and Gillian S.Morris (2005), Labor Law 4th edition, Hart publishing, Oxford & Portland
Oregon, 06/04/2005, page 345.


14

the employee‟s expectation of being hired so as to impose NCA on the employee.
Furthermore, the employee only is bound by NCA in the hiring duration. In
common, the validity of NCA will be expired as the same time the labor contract
terminates. Considering about the enforcement of NCA, in comparison with „after
terminating labor contract’, „during employment period‟ is easier allowed without a
close examination. Also, it rarely leads to the conflict or difficulty in demonstration.
After the termination of a labor contract:
Due to the fact that the NCA also binds the parties even though the labor

contract is terminated, the NCA is designed after the termination of the labor
contract in order to protect a stable human resource and prevent sensitive
information from being leaked out. It seems to be an infringement upon the right to
freedom to work of employee. Hence, the court strictly considers this agreement
with the reasonable test of limitation on time, geographic location and professional
scope. In general, it is very hard for the employer to enforce this clause.
There are many legal problems when applying the NCA after the termination
of the labor contract. One of this is whether a sufficient employment relationship
continues to exist between the employer and employee or not. 16 On first of view
points, it is suggested that the employment relationship is ended at the time the
employment contract is terminated because the basis of rising the employment
relationship is the action of entering into a contract. On the contrary, some people
think that after the termination of labor contract, the relationship between employer
and employee still exist continuously. The concept of employment relationship is so
large that includes the relationship raised directly, inherent in the hiring of
employees and the relationship directly affects to employment relationship.17 As a
result, the relationship relevant to the NCA can be considered as a later relationship.
Support for this, they said that there are many terms of employment contract will be
valid after termination of labor contract. These terms are applied to resolve the

16
17

IlusLaboris (2010), supra footnote 9, page 18.
Textbook of Labor Law (2011), Ho Chi Minh city University of Law, page 27.


15

conflicts such as term of settlement dispute, term of compensation, etc. Thus, the

term of competition like the NCA can be included. In this thesis, I support for
second viewpoint when make the proposal for governance NCA in Vietnam.
Another legal issue relating to the NCA after the termination of labor contract is
whether the third party is bound by the NCA or not. In different countries, this
problem will be stipulated in different ways, but quite similar in balancing the
benefits of the parties. 18
4. Roles of the NCA
Currently, the NCA has become a popular term of labor contract and plays
important roles in the development of employment relationship. Respect to the
employers, as mentioned above, human resource is considered as the left hand of
employers to get successful business. Due to the developing of technology and
the mobility of employees, they have to face with many difficulties in protecting
of their confidential information or stabilizing their human resources. Thus, the
NCA is one of the effective solutions to serve their purposes. Regarding to the
employees, the NCA is considered as a strict restriction which breaks the right to
freedom to work of employee in first view. However, if it is governed by law, the
interests of contractual parties will be balanced and no party can take advantage
of this agreement. With a legitimate application of NCA, employment
relationship will develop stably and impartially. Moreover, the NCA is a
meaning tool to defend the fair competition in commercial market because it is
prevent the rival from abusiveness of employee such as leaking out former
employer‟s trade secrets, customers list and poaching colleagues.
5. The development of the NCA
The NCA was early created by the guilds in the fifteenth and sixteenth
century in England where the basic of legal system was common law and later
expanded the effects to some areas and has become widespread labor agreements
currently.
18

See at 5.1 in chapter 2.

16

At Medieval times in England, since the lords and the landowners had the
power of handling the trade tax, the guild, which was an organization of
craftsmen and workers, was established with intention of protecting the benefits
of its members. They were divided into three basic groups comprising the master,
the journey and the apprentice. The master and the journey would enter into a
contract in which the master would provide training in exchange for the
apprentice for about seven years in general. At the end of the period, the trainee
graduated to become a journeyman. In this contract, the master would prefer the
additional advantage of being able to prevent the journeyman from competing
against him in his community. Because of movement in labor market, the trade
secret would be leaked out. As a result, they attempted to enforce the NCA to
prohibit the journeymen to go to another town to practice his craft. 19 However,
these agreements were disfavored by the courts because the contract was contrary
to the social policy in which the property and goodwill were transferred freely.
Furthermore, the “Black Death” plague 20 had made the change of labor market in
which the demand of workers was very high. It was such an extent that being
unemployed was illegal for anyone under 60 years of age. Therefore, the NCA
which restrained someone from being employed were likewise illegal.
There were many cases related to dealing with the NCA. One of the
earliest records of this agreement was Drey‟s case in the early 1400‟s. However
there was no detailed report. In this case, the court opined that the NCA was
unenforceable. The same decisions remained unchanged until 1614 when a court
ruled that “at common law, no man could be prohibited from working in any
lawful trade”21. It could be understood that a restriction might be enforceable if it
was limited to a specific geographic location and a reasonable duration. Almost a
19

W. Andrew (Andy) Arnold, Non – compete History, last visit on 16/5/2013).
20
Black Death plague: affected all walks of life from the rich to the poor and people thought that the plague
was God's punishment and in 1382 The Black Death returned to Europe in a weaker epidemic although it
took an especially heavy toll in Ireland. By the end of the century it is estimated that 75 million people died.
This occurred in England in 14th century that caused the population around 1300 in England was around 5
million, in 1400 it was around 2.5 million. (The Time Travellers Guide to Medieval England, 2008, Ian
Mortimer). It is referred in W. Andrew (Andy) Arnold, supra footnotes 19.
21
W. Andrew (Andy) Arnold, supra footnotes 19.


17

hundred years later, this exception had become the rule in the case of Mitchell v.
Reynolds in 1711. In this case, the Lord Smith L.C said:
“It is the privileges of trader in a free country, in all masters not
contrary to law regulate his town mode of carrying it on according
to his own discretion and choice if the law must be obeyed. But no
power short of the general law ought to restrain his free
discretion.”22
The restraints on trade were illegal; however, the court still recognized
that a part of this agreement under certain circumstances might be enforceable.
These were the landmark of the development of enforcing NCA in labor contract
based on restraints of trade doctrine.23
In the first half of the 19th Century (1830-1840) restraints of trade and
interference with individual liberty of action might be justified by the special
circumstances of a particular case. For instance, in Nordenfelt v Maxim Gun Co.
case, a Swedish inventor promised on sale of his business to an American gun

maker that he “would not make guns or ammunition anywhere in the world and
would not compete with Maxim in any way”. The Lord Macnaghten ruled that
part of this agreement was enforceable; however, other parts could be invalid.
Because the court considered that the concept of “anywhere in the world” was
unreasonable restraint for Maxim in any way. This case made the beginning to
articulate the determination of the “reasonableness” in restraints of labor
contract. That was not only reasonable in reference to the interests of the parties
concerned but also reasonable in relation to the interests of the public. It was so
framed and so guarded as to afford adequate protection for the employer in such
no way injurious to the public. In mid nineteenth century, the change in economy
contributed to the enforcement of NCA. The economy was transferred into
capitalist model. It led to competition and mobility of labor that still were
22

Sri Lakshmi (2012), an attorney, Non-Compete Agreement, Altacit Global, available at
(last visited on 16/5/2013).
23
Restraint of trade is a common law doctrine relating to the enforceability of contractual restrictions on
freedom to conduct business.