Dealing With The Agreement Not Work For Competitors

Dealing With The Agreement Not Work For Competitors

No matter what country it is, for several reasons, the general mentality of employers is that they do not desire their employees to move on to work for the company’s competitors.

Nonetheless, this mentality, and implementing specific acts to prevent the former employee from coming to a “new employer” are entirely different things. Because the employers have no choice but to use one or several specific legal and economic tools. A popular method involves requesting the potential employee to sign a non-compete agreement, committing not to work for the employer’s competitors after the labour contract is terminated (Non-Compete Agreement is referred to as NCA).

Remarkably, the usage of this Agreement becomes more and more common in not only foreign, invested enterprises, but also large enterprises of Vietnam as well as extending the applicable subjects not only to senior personnel but also to all personnel.

In reality, NCAs are now a controversial matter in Vietnam regarding whether it might or should be recognised by the law.

This poses the questions, are NCAs permitted or not, and how are NCAs being “treated” globally?

The truth is that the NCA isn’t actually encouraged in most countries

One of the most discussed matters when the NCA is mentioned is that: is this Agreement in accordance with the law? This is the reality not only in Vietnam but also in other countries all over the world. Indeed, it is easily comprehensible that the NCA is directly relating to the limitation of the employees’ freedom of right of choice to work or seek for employment, the right to pursue better opportunities in the career, and the elemental citizenship in many countries.

Various countries may have different or even contradictory perspectives on the NCA. Not to mention that the localities (known as the States) in the same country may have a distinction in approaching and handling legal issues arising from the commitment limiting the employees’ freedom of right to work.

Nevertheless, it is noteworthy that in most countries having the developed judiciary backgrounds for which the author has researched, there is nowhere in which the laws recognise the fact that the signing and implementation of the NCA is entirely a matter of free agreement between the parties. In the other words, in most countries, although such agreements in which the employees commit not to working for the company’s competitors after the termination of labour contracts are recognised, the laws of such countries do not consider these agreements as common commercial or civil transactions. Such agreements are instead deemed to be commitments arising from the employment relationship; this is between one party holding the means of production (business), and the other party who is employed (dependent). Accordingly, the judging perspective of the jurisdiction body that is learnt by heart when accessing any dispute with respect to the NCA is that: (i) the priority to protect the labour right (pro-labour); and (ii) the judgment recognising prevention of the employee from working in their professional field is always “reluctant”.

For instance, in Germany, the NCA cannot prevent the employee from working for the employer’s competitors more than 24 months as from the employment termination. Simultaneously, the employer is obliged to pay at least 50% of the salary for the period of non-competition commitment. In addition, the geographical scope in which the employee can opt to work for employer’s competitors is limited in such a way. For example, “throughout the territory of Germany” or “throughout the territory of the European Union” is considered irrelevant (too large) and the agreement, correspondingly, may be declared to be void.

In the United Kingdom, although the prohibition is not explicit, the government does not desire to “touch” such sensitive issues and thus there is no specific frame for legal regulations. The consideration to recognise the validity of Agreement is carefully considered by the court based on the specific case; precedents always begin with the awareness that this is clearly a restraint of trade.

The NCA will be declared to be void if the scope of protected interests of the employees is not specified and only reasonable. Accordingly, the popular and ambiguous terms which are commonly used in these agreements such as “including but not limited to” or “directly or indirectly’, even “be concerned or be interested”, may lead to the result that this agreement is not recognised. Due to the fact that the court judged such terms to be too broad and overcome the rational and reserved language necessary to protect each legitimate interest of the employer.

In Spain, the NCA is only acknowledged once such agreement is a reasonable and bilateral civil transaction. At that moment, the employer who would like the employee to commit not to working for the employer’s competitors has to pay an amount of money to the employee for such commitment. To prevent the employees from being forced to “sell” their labour right with an unreasonable price, if the amount of money compensated for the committed period is under 60% of the employee’s salary, the NCA may be declared to be void.

In addition, for the employees, regardless of whether they hold business secrets, if they are not considered as senior personnel they cannot be bound by an agreement with a term lasting more than 6 months after terminating the labour contract. Furthermore, when the NCA is concluded but, the employer changes their mind, desire to cease the agreement which is to prevent the employee from working for the employer’s competitors. But the employee does not approve, the employer shall be under the obligation to pay the amount of money as stated in the signed commitment as a kind of compensation. This serves to ensure employers consider carefully before entering into the NCA with an employee.

In the opposite direction, in some countries such as Mexico,6 the agreement restricting employees to work for competitors after employment termination is not recognised as this is considered as a violation of the Constitution, infringing upon the sovereignty of the human being known as the right to work and to seek employment. In particular, in California (USA), the legislature and judiciary authorities have shown their absolute determination not to accept the NCA.

“The paradox” of California

Although California is only a state of the United States of America, California’s economy ranks as 5th in the world and has overtaken world economic powers such as the United Kingdom and France, while only ranking below the United States of America, China, Japan, and Germany. One of the reasons explaining such a rank is that California is the cradle of formation, development and headquarters for a series of leading technology enterprises in the world, especially the Silicon Valley containing large enterprises such as Google, Apple, Intel and Facebook.

Common sense would indicate that the demand for protecting business and technology secrets leading to the NCA shall be more evident in California than anywhere else in the world. Nevertheless, the truth is the opposite; legislators and court herein are fully aware of the perspective which is regulated in the State’s Business and Professions Code: “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” Accordingly, all agreements regarding restriction from working for the employer’s competitors after the employment termination which is settled by the Court shall be declared void, even if the employees voluntarily entered into such agreements.

Dealing with this regulation, several enterprises have managed to negotiate with employees for the applicable laws of other States to govern the NCA, originally known as a legal option. To end up with this state of affairs, the legislators have amended the California Labour Code in which for agreements entered into dates after 1 January 2017, employees who primarily work and reside in California must have their relationship with employers be governed by the laws of California while disputes (if any) must be heard by a competent court in California. This provision is applied in case the labour contract is concluded in other states but the employer intends to move the employee to work in California in the coming time.

The above regulations of California’s government are explained to establish the best conditions for employees to be free to seek opportunities in enterprises which are willing to appreciate their capabilities and offer higher pay. This encourages the progression of labour productivity and creativity for the labour force. Certainly, for a state in which its wealth is highly evaluated by technology firms and financial institutions whose survival depends crucially on the preservation of intellectual property and technology secrets, it is difficult to assert that the government is negligent in protecting the interests of employers. The problem is that California’s government evaluated that supporting NCAs with an aim to protect the employers from their vague worries about the business secrets being revealed when employees work for competitors would result in more drawbacks than the achieving interests.

It is worth mentioning that this is one of the minority states applying this policy in the United States of America, but such acts of California’s government have greatly influenced the United States and are wholeheartedly supported by the United States Federal Government. Specifically, the Government of President Obama called upon all the states across the country, issuing the similar policy as California in order to avoid the “wave” of employers abusing the NCA to prevent employees from seeking better positions or a more competitive environment.

This is more meaningful for a country where currently 20% of employees are required to enter into NCAs, i.e. every American employee that is prevented to pursue the career fitting their specialties after terminating the labour contract. The worry over unemployment leaves employees scrupulous in getting rid of the employer that they no longer want to work with, hindering both labour productivity and creativity. Opportunities for increasing income and career advancement are limited or lost as the employers are relieved from the pressure to retain employees thanks to the “rare item” called the NCA.

For the government, the burden of unemployment allowance and other social security matters turns out to be overloaded with a large number of employees terminating employment and being prevented from working for new employers bound by the NCA.

Acknowledging or not acknowledging the NCA in Vietnam: it should be considered carefully

With reference to many NCAs in Vietnam, the author finds that the main reason given to explain employees being restricted from working for the employers’ competitors focused on the employers’ concerns that their business secrets or technology secrets may be revealed by the employees. Obviously, this is a reasonable and legitimate reason as pursuant to Article 23.2 of the Labour Code 2012 and Article 84 of the Intellectual Property Law, the holder of business secrets and technological secrets is allowed to apply legal measures to protect these intellectual properties.

Nevertheless, protecting the interests of either party which infringes upon legitimate rights and interests of the other party is another story, not to mention that the violated party is at the weaker side in the transaction between the two parties. As a result, the interpretation that the employees voluntarily enter into the NCA should be considered carefully in each specific situation when such documents are concluded. As with the aforementioned analysis, the author supposes that whether to acknowledge the NCA, or at least recognise with limitation and conditional commitment to the restriction of rights of the employees, the NCA should be considered carefully by the Vietnamese competent authorities on the grounds of reference to other countries’ view on the NCA. This is to issue a reasonable regulation on the NCA which is suitable to the actual situation of Vietnam’s labour force in the coming time, especially given that Vietnam is entering into the Vietnam-EU Free Trade Agreement and has already been the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

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