On February 19^th, 2018, the Vietnam International Arbitration Center (VIAC) issued Arbitral Award No.75/17 HCM (Arbitral Award 75) concerning a dispute over a Non-Disclosure and Non-Compete Agreement (NDA) between Company X (plaintiff – employer) and Ms. Do Thi Mai T (defendant – employee).

According to Arbitral Award 75, VIAC made a judgment in favor of Company X and compelled the employee to compensate Company X for her violation of the signed NDA. The employee did not agree with Arbitral Award 75 and filed a lawsuit in the People’s Court of Ho Chi Minh City (HCM Court) requesting to overturn Arbitral Award 75 in its entirety – claiming, amongst other arguments, that “the dispute was outside the jurisdiction of the Arbitration Tribunal”.

On June 12^th, 2018, the HCM Court issued Decision No.755/2018/QD-PQTT (Decision 755) rejecting the employee’s request to negate Arbitral Award 75.

After being passed by the Council of Judges of the Supreme People’s Court on August 18, 2023, and publicized under Decision 364/QD-CA dated October 01, 2023 of the Chief Justice of the Supreme People’s Court, the ruling under Decision 755 is now content for Case Law No. 69/2023/AL on the jurisdiction of Commercial Arbitration in resolving disputes over NDAs (Case Law 69).

The content of Case Law 69 raises the question of whether it is correct to conclude that VIAC (or any commercial arbitration body) is a recognized entity that has subject matter jurisdiction to settle disputes regarding NDAs.

Does Case Law 69 actually recognize VIAC’s jurisdiction in resolving NDA disputes?

Pursuant to Article 2 of the 2010 Law on Commercial Arbitration, the commercial arbitration body has jurisdiction to settle the following types of disputes:

• Disputes arising from commercial activities;
• Disputes among parties, at least one of whom is involved with commercial activities; and
• Other disputes under the arbitration body’s jurisdiction as stipulated by law.

According to Arbitral Award 75, VIAC categorized the dispute over the NDA as falling within the “disputes among parties, at least one of whom is involved with commercial activities” mentioned above. The reason is that one of the involved parties in the dispute, i.e., Company X, is a trader who has registered its business with the authorities and performs commercial activities. Thereby, the Arbitration Tribunal of VIAC concluded on its own accord that it had jurisdiction to settle the dispute over the NDA.

In her request to overturn Arbitral Award 75, Ms. Do Thi Mai T argued that the dispute over the NDA was a labor issue that was outside VIAC’s jurisdiction by law. Moreover, the employee also argued that the NDA was an inseparable part of the Labor Contract between her and Company X. Thus, Ms. Do Thi Mai T believed that the dispute is a labor dispute which falls under the jurisdiction of the courts.

However:

• During the arbitration proceedings, Ms. Do Thi Mai T did not raise any objections to VIAC’s jurisdiction but proceeded to participate in the arbitration and the dispute resolution hearings. Therefore, Ms. Do Thi Mai T waived her right to protest against VIAC’s jurisdiction in the HCM Court[1].
• In the Argument dated January 18, 2018, the Lawyer defending Ms. Do Thi Mai T at VIAC and at the Final Hearing affirmed the argument that the NDA is completely independent from the labor contract. Based on that, the Trial Panel found the NDA is an independent agreement, and the jurisdiction for resolving the dispute over the NDA belongs to the Arbitration – as agreed in the NDA.

Above are the main reasons why the HCM Court rejected Ms. Do Thi Mai T’s request to overturn Arbitral Award 75. Consequently, Case Law 69 utilizes the above reasonings as its content to determine VIAC’s jurisdiction for disputes over NDAs.

Nevertheless, careful reading of the details of Case Law 69 neither confirms nor denies whether VIAC was right in self-recognizing its jurisdiction based upon Article 2 of the 2010 Law on Commercial Arbitration.

Further, due to the main reasoning for recognizing the Arbitration’s jurisdiction over the aforesaid dispute was based on the lack of objection from Ms. Do Thi Mai T during Arbitration proceedings, Case Law 69 does not resolve the question of whether VIAC automatically has subject matter jurisdiction over disputes concerning NDAs.

Is a dispute regarding an NDA a labor dispute in nature?

The fact that VIAC applied Article 2 of the 2010 Law on Commercial Arbitration (which is “disputes among parties, at least one of whom is involved with commercial activities”) to self-recognize its own jurisdiction.

The question remains, are disputes over NDAs defined as a labor dispute or a commercial-civil dispute? Needless to say, determining the correct type of legal relationship in a dispute is the ground for correctly determining the jurisdiction of the dispute resolution body.

Currently, some argue that a dispute over an NDA is separate and independent from a dispute over an employment relationship because the NDA is signed separately and independently from a labor contract (i.e., the NDA is not signed as an annex or an integral part of a labor contract).

However, our point of view is that a dispute over an NDA cannot be settled separately from the employment relationship. The creation of an employment relationship results in concerns regarding employees’ access to confidential information of the employer. Improper use of such confidential information by the employees (e.g., the employees disclose or use such confidential information to work for the employers’ competitors) is a real risk to employers as well as losing their competitive advantages in the market. Consequently, signing NDAs with employees is a necessity.

Deeper examination of the nature of NDAs reveals clearly that there is no NDA if there is no employment relationship. Thus, regardless of the NDA being signed separately, the relationship between the NDA and the employment relationship cannot be negated as analyzed above. The dependence of NDAs on the employment relationship is further proved by the fact that the employee signs the NDA without receiving any additional benefits as reasonable compensation for additional obligations arising from the NDA during and after his/her employment. Therefore, if the independence of the NDA cannot be proven, any dispute over NDAs will be classified as a labor dispute and, as a result, will be under the jurisdiction of the Court, not a commercial arbitration body.

Grounds utilized by the Court to cancel an arbitral award

Under Article 68.2 of the 2010 Law on Commercial Arbitration, one of the grounds used by a Court to cancel an arbitral award is that “the dispute is outside the jurisdiction of the Arbitration Tribunal”. Returning to Arbitral Award 75 of VIAC, in our point of view, if the employee had raised objections to VIAC’s jurisdiction during the arbitration proceedings, there would have been a very high possibility that the HCM Court would cancel Arbitral Award 75 at the employee’s request.

The prevalent reason is that Vietnamese laws and Vietnamese competent authorities always favor the protection of employees’ benefits rather than that of companies (which results from the government’s point of view that employees are the weaker party in an employment relationship).

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[1] Article 13, the 2010 Law on Commercial Arbitration and Article 6, Resolution No.01/2014/NQ-HDTP.

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