The efficiency of the Non-Disclosure Agreement in protecting business secrets
Demand to sign agreements regarding information security and noncompetition (Non-Disclosure-Non-Competition Agreement, abbreviated as NDA), which often incorporates a commitment to not work for a competitor after an employee terminates the labour contract (Non-Competition Agreement, abbreviated as NCA), is rapidly increasing in most domestic and foreign enterprises. However, the realistic effect of limiting the right to work of the aforementioned employees in order to support the former enterprises or employers to protect business secrets and confidential information through NDA and NCA agreements is still questionable.
NDA fails to protect business secrets
In recent years, more and more enterprises are looking for professional lawyers to ask for legal advice on how to prevent the extremely sensitive information of business secrets and confidential information leaked to the enterprises’ competitors through former and current employees. Particularly, there are some cases where right after key employees apply for the resignation to their current employers, they work for the employers’ competitors and bring all the details of the newly developed business strategies to compete against the former employers.
Although employers concern extremely regarding the above issue, they face difficulties when collecting solid evidence to prove whether the business secrets and confidential information have or have not been leaked by the employees and used by their competitors. Meanwhile, the consequences impacting the employers when their business secrets and confidential information are disclosed cannot be defined easily.
According to common reality, whether an employee signs an NDA with an employer, or how rigid the NDA is, or whether the NDA has covered the NCA agreement committing not to work for the employers’ competitors, until now, a common concern of most employers is as to whether business secrets and confidential information would be revealed by former senior employees or not, especially when these senior employees are holding the valuable business information that the employers’ competitors seek to obtain by any means. In other words, the existence of an NDA does not completely end the employers’ concern about the business secrets and confidential information being leaked. The question is how not to be affected by the leave of the employees and keep the important business secrets and confidential information of the enterprises safe?
Additionally, how to maximise the effect of the NDA in order to prevent and minimize the business secrets and confidential information from being leaked out by the employees.
From the labour law perspective, besides Article 23.2 of the Labour Code 2012 (Labour Code) providing the right to negotiate a business secret and confidential information, the business secret and confidential information are only defined generally in Article 4.23 of the current Intellectual Property Law, (IP Law), in which: “Trade secret means information obtained from financial or intellectual investment activities, which has not yet been disclosed and can be used in business.” Not only that, business secrets and confidential information are protected if and only if they meet three conditions prescribed in Article 84 of the IP Law including: (i) it is neither common knowledge nor easily obtainable; (ii) when used in business activities, the trade secret will create for its holder advantages over those who do not hold or use it; and (iii) the owner of the trade secret maintains its secrecy by necessary means so that the secret will not be disclosed and easily accessible.
Instead of wasting time and money to settle disputes and proving all three necessary conditions as mentioned above, enterprises should proactively build in advance physical and technical barriers (storage, extraction, utilisation) and design tight internal mechanisms so that sensitive information cannot be easily accessed and disclosed, or at least not completely disclosed easily. In order to improve and enhance the effectiveness of business secret and confidential information protection, it is necessary to classify information according to importance to have appropriate security measures. This helps the employers allocate resources appropriately, focusing on high-value, vulnerable business secrets and confidential information. In general, while spending more time, effort and money needed for preserving other sources of information, the employers are not overly concerned about their business secrets and confidential information which requires better protection as a result of the same treatment of information that is of different importance and likely to be disclosed.
In addition, to classify any information as a business secret and confidential information, the first mandatory identifier is that it is only disseminated in the range of certain space and time and for an extremely limited number of employees who are responsible for the relevant tasks.
On the contrary, it will be deemed to have been declassified when most employees of the employer, both related and unrelated to the work using the business secret and confidential information, are granted access or can access easily if they want so.
In the meantime, trying to prevent it from being revealed is sometimes impossible for simple reasons such as the difficulty in determining who might disclose the business secrets and confidential information among a group of related employees. That is not to mention that if the employer does not take seriously the protection of their intellectual property information, the current law has no obligation to help and protect them. Because one of the prerequisites for the business secret and confidential information to be protected under Article 84 of the Law on Intellectual Property is it has to be secured by the owner by necessary measures so that it is not disclosed and not easily accessible.
Also, it is clear that when signing an NDA without appropriate care and continuing to entrust employees with following the agreement, employers are at risk of leaving themselves vulnerable. Even if there is a violation of the agreement caused by an employee and disclosure of the business secret and confidential information occurs, the employers may have already suffered the relevant damages. Until there is a dispute relating to the violation, the employers will be at a disadvantage for not simultaneously proving that: (a) the necessary measures have been taken to prevent the business secret and confidential information from being exposed or easily accessible, and (b) there has been an act of revealing information by the employees. In addition, any claim for actual damage need to be proved that the damage is the result of the employees’ disclosure of the business secret and confidential information.
Even when the employer has proven that their information is a business secret and confidential information, and has been provided to a third party, it would be inconsequential if they fail to convince the relevant State authorities in order to believe that they have applied necessary and appropriate security measures to protect their business secrets and confidential information, resulting in them becoming the losing party. Furthermore, if the employers are fortunate enough to have a favourable judgment, the execution of the judgment against the violating employees will be extremely complicated, especially for those who have household registration in remote provinces.
The NDA needs to be properly understood
Once the employers keep their business secrets and confidential information and take material actions to protect them as analysed above, the actual presence of an NDA is sometimes no longer strictly necessary, especially given the many controversial issues of the implementation and application of relevant laws in Vietnam for this type of agreement when resolving a dispute. Meanwhile, even without an NDA agreement, the legal rights and interests of the employers pertaining to the business secret and confidential information are still protected in accordance with labour law and intellectual property law. In contrary, the obligation to respect the employers’ property right also arises for all relevant entities, not only the employees but also rival companies. Sanctions in the form of labour discipline (for the employees who are working) or compensation for damages outside the contract (for the employees who have resigned) are completely grounded for application based on the reality that the enterprises’ assets, in this case business secret and confidential information, have been infringed upon illegally.
Of course, it will not be harmful if the employers want to use a pre-prepared NDA to apply publicly within the company with the main purpose of being a general “deterrent” to all employees in not arbitrarily disclosing internal information of the company to outsiders as well as minimising the “brain drain” or behaviours that entice the employees to work for the rival company in an unhealthy manner.
However, the fact of the matter is that the NDA is a form of document that company’s new comers must sign, and which will contain similar contents. The employees will therefore most likely consider the NDA as a normal part of the company’s on-boarding procedure without caring about the details of what is included. In addition, many of the employees may forget signing the NDA, and of course may not think much about respecting the signed agreement. At that time, the signed NDA does not seem to have much meaning in protecting the business secret and confidential information for the employers. In general, training on labour laws and confidentiality of business secrets and confidential information should also be conducted regularly within the enterprise to indirectly remind the employees of their obligations.
This makes the employers consider their investment in an NDA, and design the NDA such that its content applies to specific cases, especially targeting employees holding key positions in the employers’ businesses that the employers believe, once any specific business secret and confidential information are given to these personnel, should be given the highest priority to ensure they voluntarily respect their signatures in confidentiality commitments rather than facing legal issues that arise when any violations occur.