HO CHI MINH CITY COURT UPHOLDS VIAC AWARD ENFORCING NDA ESTABLISHED DURING THE EMPLOYMENT PERIOD

Company X v Ms Do Thi Mai T [2018] HCM City People’s Court, Decision No 755/2018/QD-PQTT

The employer (Company X) and its former Head of Recruitment, Ms. Do Thi Mai T had executed a confidentiality and 12-month post-employment agreement (Non-disclosure & Non-Compete Agreement (NDCA) that named VIAC arbitration. After Ms. T allegedly violated the covenant, a VIAC tribunal awarded the employer VND 205,197,300 in liquidated damages and ordered her to reimburse arbitration costs. Ms. T petitioned the Ho Chi Minh City People’s Court to set the award aside, alleging an invalid arbitration agreement, contradiction to the fundamental principles of Vietnamese law, lack of jurisdiction, procedural irregularities, and forged evidence. The Court dismissed every ground, affirmed the validity of the arbitration agreement, and refused to set aside the award, finding none of the circumstances in Article 68 of the Law on Commercial Arbitration 2010 (“LCA 2010”) were present.

BACKGROUND

Employment contracts & NDCA: On 10 October 2015 Company X and Ms. Do Thi Mai T signed a 12-month labour contract (10 Oct 2015 – 31 Oct 2016) appointing her Head-of-Recruitment. Eleven days later, 21 October 2015, the parties executed a NDCA that:

• obliges Ms. T, during employment and for 12 months after any termination, to refrain directly or indirectly throughout the Territory from performing work that is identical or essentially similar for any business competing with Company X’s e-commerce operations or its affiliates; and
• submits “any dispute arising out of or in connection with this NDCA to arbitration at VIAC in HCMC.”

On 1 November 2016 the parties renewed the employment relationship by concluding a second 12-month labour contract running until 31 Oct 2017, again naming Ms. T Head-of-Recruitment.

Termination & claim: T unilaterally terminated the 2016 contract on 18 November 2016. Alleging that she had breached Article 3.1 of the NDCA by joining (or assisting) a competing e-commerce venture, Company X filed a Statement of Claim at VIAC on 02 October 2017. The employer sought:

• VND 205,197,300 (three times Ms. T’s last monthly salary) as liquidated damages for the non-compete violation; and
• reimbursement of all arbitration costs.

The Arbitration Award (No 75/17 HCM dated 19 February 2018) by the VIAC tribunal seated in Ho Chi Minh City:

• accepted the claim in full and ordered Ms. Do Thi Mai T to pay VND 205,197,300 in liquidated damages.
• ordered Ms. T to reimburse the claimant VND 24,600,000 in VIAC arbitration fees.
• directed Ms. T to settle the sums in (i)-(ii) within 30 days of the award and, for any late payment, to pay default interest at 10 % p.a. under Article 357 of the Civil Code 2015.
• confirmed the award’s final and binding effect from the date of issuance.

THE SET-ASIDE APPLICATION

On 22 March 2018, Do Thi Mai T lodged a Motion to the Ho Chi Minh City People’s Court, which was then considered under Civil Case No 57/2018/TLST-KDTM, seeking to set aside VIAC Award No 75/17 HCM. Her petition invoked the following grounds under Article 68.2 of the LCA 2010:

• Invalid arbitration agreement – the NDA’s arbitration clause was void because the non-compete allegedly contravened workers’ statutory right to employment.
• Violation of fundamental principles of Vietnamese law – enforcement of the NDA would offend public policy guarantees of free labour mobility.
• Procedural irregularities – the tribunal issued the award on “day 31” after the final hearing and served it late.
• Excess of jurisdiction – the dispute was “labour-related” and, therefore, falls into the scope ofnon-arbitrability.
• Reliance on forged evidence – key payslips and bank statements were said to be falsified.

THE COURT’S FINDINGS AND DECISION

Upon examining the file and the parties’ submissions, the Ho Chi Minh City People’s Court held that none of the statutory grounds in Article 68.2 LCA 2010 were established and therefore refused to set aside VIAC Award No 75/17 HCM:

Validity of the arbitration agreement and whether the Tribunal had violated of fundamental principles of Vietnamese law: Ms. T raised no jurisdictional or procedural objections during the arbitral proceedings; pursuant to Article 13 LCA 2010 and Article 6 Resolution 01/2014/NQ-HĐTP, she was deemed to have waived her right to object and therefore could not rely on those matters before the Court. Although Ms. T alleged that the NDCA infringed her statutory right to work under the Employment Law 2013, the NDCA was voluntarily executed with full legal capacity and without coercion. Therefore, the NDCA is valid, and the Tribunal’s recognition of its validity is lawful.

Arbitrability & jurisdiction: The agreement was independent from (and not contrary to) the labour contract, Company X is a commercial entity, the dispute qualifies as a dispute between the parties among those at least one possessing commercial activity under Article 2.2 LCA 2010, and pursuant to Article 13 LCA 2010 and Article 6 Resolution 01/2014/NQ-HDTP, Ms. T was deemed to have waived her right to object and therefore could not rely on those matters before the Court; consequently, the matter fell squarely within VIAC’s jurisdiction and Article 68.2.c was inapplicable.

Procedural compliance: The tribunal rendered and served the award within the 30-day statutory limit, correctly excluding Tet holidays in accordance with Article 148.5 Civil Code 2015; there was no breach of Article 68.2.b. The Court confirmed that the petition was filed within the 30-day limit prescribed by LCA 2010 Article 69.1.

Forgery allegation unproven: The payslips and bank confirmations provided by Company X were originally certified by the issuance parties; the applicant produced no contrary evidence, so Article 68.2.d was not engaged. Furthermore, pursuant to LCA 2010 Article 71.4, this pertains to the merits of the case and thus does not fall within the jurisdiction of the set-aside court.

Accordingly, the Reviewing Panel dismissed the entire set-aside application and affirmed that VIAC Award No 75/17 HCM “takes immediate and full legal effect”.

OUR COMMENT

In fact, this is not a new case. Prior to our involvement, the legal epistemic community had already commented extensively on several key issues in this case, particularly the question of the right to work in relation to the validity of non-compete agreements (NCAs), as well as the arbitral tribunal’s jurisdiction over such agreements. Against the backdrop of Vietnamese law remaining a grey area on this issue, VIAC Award No. 75/17 holds considerable pioneering significance. Even under the 2019 Labour Code, the matter is still not expressly addressed – remarkable in a jurisdiction like Vietnam, where the guiding principle is to protect the rights and interests of employees and the working class.

Another issue raised within the legal community concerns whether the parties’ agreement on the remedy payable by Ms. T (three months’ most recent salary) constitutes liquidated damages and whether it is enforceable. This matter was not addressed by the Tribunal (and perhaps was not raised by Ms. T or her counsel). Based on the information available, we consider that this issue should be reserved for analysis on another occasion.

We prefer further comments on the procedural issues of the case:

Secure the waiver advantage of the right to object early: The Court’s first filter was Article 13 and Article 35 LCA 2010 (also provided for in Article 9.1 of the VIAC Rules 2017)[1]: because Ms. T never challenged jurisdiction or procedure in her Statement of Defence, she was “deemed to have waived her right to object” and the Panel refused even to entertain those grounds. Counsel for claimants should therefore serve a short “objection-checklist” on respondents at the outset and invite them to raise any Article 35 issues in writing, silence later shuts the door on a set-aside bid.

Draft NDCAs as stand-alone commercial contracts. The Court treated the confidentiality/non-compete deed as an independent civil transaction and “completely lawful” because the employee had full capacity and signed voluntarily. Separating the NDCA from the labour contract and inserting a clear VIAC clause placed the dispute squarely within Article 2.2 of LCA 2010 commercial jurisdiction. Employers should mirror that structure and stipulate liquidated damages, so an award is less likely to be characterised as a pure labour matter.

Mind the 30-day rule but count holidays correctly. The decision shows how the timeline for issuance of, and the serving of, the arbitral award should be correctly calculated. Arbitral timetables should expressly reference Article 148.5 of the Civil Code 2015 and holiday calendars to pre-empt “late award” arguments. This case showed that even modest calendaring errors may tip the balance in a set-aside application. Arbitral institutions could reduce this risk by circulating a holiday-adjusted procedural timetable with the terms of reference and by recording any agreed extensions on the record.

[1] VIAC Rules 2017:

Article 9. Statement of Defence

1. Unless otherwise agreed by the parties on the period of time, the Respondent shall, within 30 days from the date of receipt of the Notice, the Request for Arbitration, the arbitration agreement and other relevant documents, submit to the Centre a Statement of Defence. The Statement of Defence shall contain the following information:

[…]

Where the Respondent alleges that there is no arbitration agreement or that the arbitration agreement is invalid or incapable of being performed, the Respondent shall state such allegations in the Statement of Defence. If the Respondent fails to do so, it shall be deemed to lose its right to raise objection to above-mentioned matters. In such case, the Respondent shall still select an Arbitrator or request the Centre to appoint an Arbitrator.

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