In the current economic situation, information security is of utmost importance and essential for businesses. Information about trade secrets and highly applicable new technologies is the key to the success of businesses, but they face a significant barrier in securing this information from employees. Therefore, in practice, to prevent information leakage and protect the business secrets of a company, a confidentiality agreement called a Non-Disclosure Agreement (NDA) exists.
1. The necessity of a confidentiality agreement in an employment contract
The Employment Contract is one of the most common types of contracts established in practice. That’s why the 2019 Labor Code (LC 2019) has a chapter (Chapter III) on employment contracts, which defines the principles of contract formation and implementation. These principles are built on the general principles of the Civil Code, allowing parties to freely agree and determine the contents of the employment contract. The freedom to contract allows the parties to agree on additional provisions beyond the basic requirements of the employment contract according to the LC. One of the additional provisions that employers are interested in including in the contract is a confidentiality agreement, binding the employee’s obligation to maintain the confidentiality of technological trade secrets, production secrets, and business secrets for the employer.
A Non-Disclosure Agreement (NDA) is a civil agreement in the labor relationship, signed by the Employer and the Employee to demonstrate the voluntary and binding commitment of the parties. The agreement specifies the specific tasks and acknowledges that the employer will disclose or provide information related to business secrets, technological secrets, trade secrets, etc. (referred to as confidential information) to the employee. In return, the employee must commit to:
Firstly, not disclose that information to anyone.
Secondly, not exploit the knowledge of customers, training provided by the employer to work for a competing party during the employment contract period, or compete with the employer.
Thirdly, ot work for a competing party of the employer for a certain period under any form and be subject to penalties for violating the committed obligations.
This agreement is particularly important because after terminating the employment contract, all labor obligations seem to end, but the employee must still fulfill the obligations agreed upon with the employer regarding information security.
This is a clause built to protect business secrets, exclusive trade advantages, etc., that the employer has invested time, effort, and expenses in building. The confidentiality agreement also specifies the employee’s liability for that confidential information. It is one of the important provisions within the framework of protecting the legitimate rights and interests of the employer.
2. Legal provisions regarding confidentiality agreements in employment contracts
The 2019 Labor Code stipulates, “When employees are directly involved in business secrets, technological secrets according to the provisions of the law, the employer has the right to agree in writing with the employee on the content, duration of business secrecy, technological secrecy protection, rights and compensation in case of violations.” (Article 21, Clause 2, Labor Code 2019). This provision has greatly benefited employers in employment contracts when lawmakers apply confidentiality agreement provisions. The 2012 Labor Code also addressed this issue in Article 23, Clause 2. This once again affirms the importance of the NDA.
There is an argument that the confidentiality agreement violates the freedom of choice of employment and workplace for employees. The legal basis for this argument is the provisions in Article 35 of the 2013 Constitution: “Citizens have the right to work, choose occupations, work, and workplaces.” (Clause 1 of this article) and according to Article 49, Clause 3 of the 2012 Labor Code, “…if the content of the labor contract restricts other rights of the employees, all or part of that content is invalid.” The above-mentioned references are entirely consistent with Vietnamese laws. However, they are not entirely applicable in the case of a confidentiality agreement.
Firstly, this agreement is lawful and fully enforceable. According to Article 3, Clause 2 of the 2015 Civil Code: “Individuals, legal entities establish, exercise, terminate their civil rights and obligations based on voluntary commitment and agreement. Any commitment or agreement that does not violate prohibited provisions of the law, contravenes social ethics, and is effective in relation to and must be respected by the other party.” In addition, the confidentiality agreement is an agreement between the parties on a voluntary basis and not under duress. Moreover, at the time of signing the contract, the parties have full legal capacity and legal competence. Therefore, the NDA is legally valid.
Secondly, the purpose of signing a confidentiality agreement between the parties in an employment contract is to protect the legitimate rights and interests of the employer during the effective period of the employment contract. Even when the contract expires, the NDA will still protect the legal rights and interests of the employer. After working under the agreement, the employee will have certain restrictions on obligations even after the contract ends. For example, not working for a competing party of the former employer, not disclosing any trade secrets or business secrets to a new employer, etc.
To determine the exact boundaries between violating legal prohibitions (Constitution, Civil Code, Labor Code, etc.) and voluntarily signing a confidentiality agreement to bind the rights and obligations of the parties, it depends on the purpose and will of the parties in the agreement. This agreement is not new, but there are still disputes related to it. Therefore, specific and detailed regulations for the agreement’s subjects are necessary to avoid risks and damages that may occur after the termination of the agreement.
In addition to balancing the interests of the employer (such as business secrets) with the employment opportunities of the employee, public interests are always a concern for the laws of countries when considering the reasonableness of the limitation. For example, the possibility of limiting the employee’s career opportunities, geographical constraints, etc. Therefore, the parties consider the use of information confidentiality agreements in appropriate contexts, both economically and ethically, to give meaning to the application of this legal framework.
3. Enforcement of confidentiality agreement in employment contracts and recommendations for improvement
In practice, the signing of confidentiality agreements in Vietnam in recent years has shown that companies have proactively used this provision. Disputes have also arisen as a result. A prominent example is the dispute between Company R. and Ms. Mai Tr. regarding the NDA. This agreement states that when no longer working for Company R., within a 12-month period, Ms. Tr. cannot engage in similar work at other businesses in the same field, competing rivals, or affiliated entities or partners of the company. If violated, compensation must be paid. However, after Ms. Tr. left the company, it was discovered that she was working for a company in the same industry, and Company R. issued a written warning and filed a claim against Ms. Tr. at the Vietnam International Arbitration Center (VIAC) with a compensation demand of 205 million VND. Ms. Tr. submitted a petition to invalidate the arbitral award to the court, but it was rejected as the court believed VIAC had acted appropriately.
It can be seen that signing a confidentiality agreement in an employment contract is crucial. It may limit the rights of employees, but in return, the agreement (NDA) protects the rights and legitimate interests of the employer, preventing non-competitive and harmful actions that can cause significant damages. However, certain information will fall within the limitations of the agreement and exempt from confidentiality, not only in an employment contract but in any other confidentiality agreements as well. For example, a confidentiality agreement between Vietnamese export-import company VP and Singaporean company S. stipulates the limitations of the agreement regarding the use and disclosure of confidential information. These limitations do not apply to the following information:
- Belonging to the ownership or control of the receiving party at the time of disclosure.
- Known publicly without any wrongful act of the receiving party.
- Received by one party from a third party freely disclosing that information without obligations to the disclosing party.
- Independently developed by the receiving party.
- Legally required to be disclosed to any government agency or disclose based on lawful requirements. However, the condition is that before disclosing that information, the requested party must provide the other party with an appropriate opportunity to object and/or ensure the handling of that information.
The issue of confidentiality agreements is becoming increasingly significant as business secrets and trade secrets are becoming extremely important “weapons” in the current market economy, especially in the era of technological advancements. Therefore, the parties involved in the agreement when signing need to establish requirements and penalties for violating the agreement to ensure that the binding of rights and legitimate interests specified in the agreement originates from the voluntary nature of the parties and does not violate the prohibitions of Vietnamese law, based on the following suggestions:
Firstly, consider the position of the employee in the contract (with a confidentiality agreement). To ensure the rights of employees and the confidentiality of the employer, the parties in the agreement, especially the employer, must consider the balance between the rights and obligations for the other party. Through the NDA, employers can bind employees from discussing an issue with other individuals or organizations, such as police, doctors, or therapists. This can make victims reluctant to report incidents or speak up about their experiences, leading to difficult situations for others and potential risks for customers and other businesses.
Secondly, consider the suitability of constraints on work, time, and geographical area. The parties must consider the period of prohibiting employees from working for competitors in the same industry. The former company’s employee may not receive compensation for the non-working period. In other words, balancing the wages the employee receives during the work period and the penalties for violating the agreement (based on the damages caused by the breach of confidentiality) is essential.
Thirdly, establish limits on the applicability of confidentiality terms. Vietnamese law should specify the scope of work that can establish confidentiality agreements and list the types of information/documentation that need protection or establish criteria for verifying confidential information.
4. Conclusion
Developing and improving the confidentiality agreement in an employment contract is increasingly important in the face of changes in economic, social, and labor relations. Particularly, researching and applying reasonable and effective provisions as well as legal experiences from international practices will contribute to the process of legal formalization in labor laws, especially in limiting conflicts between the parties in confidentiality agreements in the context of labor market integration regionally and globally.
