In the context of an increasingly dynamic economic and social environment, where competition among businesses is intense, confidentiality of information has become a crucial aspect of business operations. To mitigate the risk of information leakage and ensure appropriate compensation, enterprises often have a Non-Disclosure Agreement (“NDA”) in addition to the employment contract (“EC”).
This article, TNTP will analyzes this issue from two perspectives: (1) NDA and EC as independent agreements, based on Precedent No. 69/2023/AL concerning the jurisdiction of commercial arbitration in resolving disputes over non-disclosure and non-compete agreements (“Precedent No. 69”); and (2) NDA and EC as interconnected agreements, based on their legal nature.
1. NDA and EC as Independent Agreements Under Precedent No. 69
Precedent No. 69 was adopted on August 18, 2023 by the Council of Judges of the Supreme People’s Court, derived from Decision No. 755/2018/QĐ-PQTT dated June 12, 2018, issued by the Ho Chi Minh City People’s Court regarding the “Request for Annulment of an Arbitral Award” (“Decision No. 755”).
• Case Facts
The situation of the case is that an Employee and an Employer who entered into a non-disclosure and non-compete agreement, stipulating that after the termination of the EC, the Employee would not engage in similar or competitive work for a specified period. The agreement also stipulated that any disputes arising from it would be resolved through commercial arbitration.
• Grounds for Requesting Annulment of the Arbitral Award
The Employer initiated arbitration proceedings against the Employee for violating the NDA at the Vietnam International Arbitration Center (VIAC) and won the case. However, the Employee filed a request with the court to annul the arbitral award, arguing that:
“The dispute does not fall under the jurisdiction of the arbitration center as it is a labor dispute.”
• Court’s Ruling
In response to the Employee’s request, the court provided the following reasoning:
(i) The Employee failed to exercise their right under Clause 4, Article 35 of the Law on Commercial Arbitration 2010, which states:
“When the defendant assumes that the dispute falls beyond the jurisdiction of arbitration, or there is no arbitration agreement, or the arbitration agreement is invalid or unrealizable, the defendant shall clearly indicate such in the self-defense statement.”
(ii) The Employee’s lawyer explicitly affirmed the independence of the NDA from the EC during the final meeting.
Based on the above, the Court concluded that the NDA is an independent agreement and disputes arising from it fall under the jurisdiction of arbitration, as agreed upon by the parties at the time of execution.
• Analysis of Precedent No. 69 on NDA and EC as Independent Agreements
Precedent No. 69 focuses on the jurisdiction of dispute resolution, rather than examining the fundamental legal independence between the NDA from the EC. The court determined the NDA to be independent due to:
(i) The Employee’s failure to invoke their legal rights, effectively conceding the arbitration tribunal’s jurisdiction; and
(ii) The Employee’s lawyer had an inappropriate approach to the case.
These two reasons do not directly affirm that the NDA and EC are independent from each other but rather serve as grounds through which the court determines jurisdiction over dispute resolution in an actual case. The Precedent No.69 thus focuses on the authority of arbitration or the court in resolving NDA-related disputes, due to the lack of explicit statutory guidance on this matter.
2. NDA and EC as Interdependent Agreements
• Legal Basis
According to Clause 2, Article 21 of the 2019 Labor Code:
” If the employees’ job is directly related to the business secret, technological know-how as prescribed by law, the employer has the rights to sign a written agreement with the employee on the content and duration of the protection of the business secret, technology know-how, and on the benefit and the compensation obligation in case of violation by the employee.”
Thus, the execution of an NDA between an employer and an employee is a statutory right granted under labor law.
• NDA as an Agreement Arising from the Employment Relationship
The NDA is an agreement that:
(i) Is executed between an Employee and an Employer;
(ii) Is signed concurrently with the EC; and
(iii) The NDA does not exist independently. The need for an NDA in labor relationship arises from the EC, which defines the Employee’s salary, use of company resources, and access to confidential information.
Accordingly, there is a ground to believe that the NDA arises from the employment relationship, is governed by labor law, and is not an independent agreement separate from the EC.
The above article, titled “Is a Non-Disclosure Agreement (NDA) an Independent Agreement from the Employment Contract?”, was prepared by TNTP. We hope this content provides valuable insights to our readers.
Sincerely,
