Non-Compete & Non-Disclosure Agreements in Vietnam: What Foreign Investors need to Know

Vietnam has become a key destination for foreign investment in manufacturing, services and technology. When it comes to transfer technology, commercial know-how and client relationships to Vietnamese entities, the question arises: how far can a company rely on non-compete clauses (“NCs”) and non-disclosure agreements (“NDAs”) in Vietnam to protect its legitimate interests?

As in most of countries today, the answer is to be nuanced insofar as Vietnam law allows parties to agree on NCs and NDAs to the extent they don’t conflict with other principles protecting the employee’s freedom to work. The result is a fragmented and evolving legal framework that foreign investors must understand before relying on NCAs or NDAs as their primary risk-management tool.

This article provides an overview of that framework and outlines practical solutions for companies doing business in Vietnam.

1.    Definition: Various Protected Interests

Non-disclosure agreements (NDAs) – or confidentiality clauses when they are incorporated directly into a contract employment, distribution, services, etc.) – are primarily intended to protect a company’s sensitive information during and after the business relationship. What qualifies as “sensitive information” depends on the specific company and may include technical know-how, source code, formulas and recipes, production processes, business plans, customer data, or pricing structures.

Non-competition clauses (NCs) often inserted directly into a contract restrict an employee or business partner (consultant, agent, etc.) from working for a competitor during the term of the business relationship and, in some cases, for a certain period after its termination. Because they directly affect an individual’s freedom to work, NCs are significantly more controversial under Vietnamese law and are subject to closer judicial scrutiny.

2.    Enforceability in Practice: Divergent Court Approaches

Because Vietnamese law does not clearly codify the conditions for a valid NC or NDA, court practice has been inconsistent, as the assessment of enforceability and validity depends heavily on context, particularly during and after the business relationship.

1. During the business relationship: While the relationship is ongoing, NCs and NDAs are generally easier to justify, as they are tied to protecting trade secrets, confidential know-how, client relationships and other strategic assets, as well as a de facto duty of loyalty. Courts and tribunals mainly examine whether the clauses comply with mandatory labour and civil law, are proportionate to the employee’s actual role, and do not amount to a de facto ban on working.
2. After the business relationship: After termination, the enforceability of NCs is much more uncertain. Courts have upheld them only where the employee held a strategic position, had real access to trade secrets, agreed to a clear clause and received specific, adequate compensation; broad NCs, especially those buried in employment contracts without separate payment, are often struck down as conflicting with the constitutional freedom to work. Post-termination NDAs are more readily accepted, but must still be limited in scope and duration and linked to the nature of the confidential information and the individual’s former role, failing which they risk being held unenforceable in whole or in part.

3.    Structuring: Best Practices for Foreign-Invested Enterprises

Despite the uncertainties, experience and recent commentary suggest a series of practical measures that can significantly increase the likelihood that NCs and NDAs in Vietnam will be taken seriously and potentially enforced by a court or arbitral tribunal.

1. Separate Civil Agreement: It is generally preferable to set out non-compete and non-disclosure obligations in a standalone civil agreement. If they remain in the labour contract, courts are more likely to apply labour law and may strike them down as unduly restricting employee rights. As a separate NC/NDA, the arrangement is more likely to be treated as a civil transaction based on voluntariness and contractual freedom.
2. Clear Link to Trade Secrets and Legitimate Interests: NCs should be reserved for employees with direct access to trade secrets or strategic information; other staff should usually be subject only to NDAs and internal rules. The agreement should identify the confidential information concerned and briefly explain why it justifies post-employment restrictions.
3. Reasonable Scope, Duration and Territory: NCs must be narrowly tailored: limited in time (often six to twelve months, exceptionally up to two years for senior executives), clearly defining prohibited activities, and confined to the employer’s real area of operation. Broad wording such as “any competing business anywhere in Asia for five years” is unlikely to be upheld.
4. Specific Compensation for the Restriction: Separate, identifiable compensation for the non-compete is strongly recommended. Courts are more receptive where the employee receives a specific allowance during the restricted period or a lump-sum clearly tied to the non-compete, in an amount reasonable in light of prior salary and the impact on future work. Without such compensation, especially if the clause is merely embedded in the labour contract, the risk of invalidation is high.
5. Clear Definition of Confidential Information and Trade Secrets: NCs and NDAs should contain a tailored definition of “Confidential Information” and “Trade Secrets,” excluding public or lawfully obtained information. A precise definition both demonstrates a concrete business interest and helps establish the existence of protectable trade secrets in case of dispute.

4.    Practical Takeaways for Foreign Investors and Entrepreneurs

For foreign investors setting up or expanding in Vietnam, the main points to bear in mind regarding NCs and NDAs are as follows:

• NCs and NDAs are generally recognised and should be used systematically with employees, contractors and business partners who access sensitive information.
• NCs are not expressly prohibited, but their enforceability is uncertain and depends on careful drafting, reasonable scope, clear compensation and a demonstrable link to trade secrets and legitimate business interests.
• Where NCs are considered essential – for example for senior managers, key R&D staff or client-facing executives – they should, as far as possible, be structured as separate civil agreements under the Civil Code, potentially with arbitration clauses.
• In all cases, these contractual tools should form part of a wider compliance framework, including internal policies, Intellectual Property protection, Information Technology security and Human Resources processes.

5.    Final Thoughts

Vietnam’s status as a dynamic emerging market makes it an attractive destination for investors willing to share technology, build local teams and develop long-term client relationships. At the same time, the current legal landscape requires a cautious and nuanced approach to NCs and NDAs.

A well-designed contractual strategy – combining robust NDAs, targeted NCs for selected employees, appropriate compensation and strong internal policies – can significantly strengthen the protection of trade secrets and confidential information without infringing core employee rights.

For entrepreneurs and foreign-invested enterprises, the most effective approach is to move beyond reliance on a single document and instead develop a coherent, Vietnam-specific framework that reflects both the opportunities and the legal realities of this evolving market.

For more information, please feel free to contact us.