Non-compete agreement in labor relationships

Non-compete agreement in labor relationships has been extensively applied for a long period in many nations. In Vietnam, enterprises frequently use non-compete agreement in labor relationships as a practical instrument to safeguard information and business secrets as well as to prevent employees from directly or indirectly competing with themselves. Through a series of articles on non-compete agreement in labor relationships, the author would like to provide an overview of non-compete agreement in labor relationships and some lessons learned for those who apply this type of agreement. 

 

1. The concept of non-compete agreement in labor relationships 

 

While working with the employer, the employee can access confidential information of the employer such as production secrets, business secrets, technology secrets, … or even relationships with partners and customers of the employer. The employer commonly agrees with the employee on a commitment not to work for a competitor of the employer or not directly compete with the employer for a specific period after the termination of the labor relationship in order to protect the interests of the employer. Such agreements are known as non-compete agreements (NCAs) in labor relationships. 

 

Many researchers have proposed the concept of NCA in labor relationships from the perspective of legal science. NCA can be understood as a commitment not to compete with the employer after the termination of the labor relationship between an employee and his/her current or future employer.10 Alternatively, NCA is regarded as an employment contract in which the employee agrees not to join a competitive company for a period after quitting or being fired.11 According to another view, NCA is considered a contract between an employer and an employee that prohibits the employee from doing his/her business independently or entering into an employment relationship with another employer that performs or is capable of performing competitive activities with the employer during the implementation of the labor relationship or after its termination, which protects the employer’s crucial, confidential, and financially valuable information.12 

 

In Vietnam, the concept of NCA in labor relationships has not been officially defined in legal documents. However, in some countries around the world, especially the United States, it has been regulated in some statutes. 

 

As stated by Massachusetts General Laws, NCA is an agreement between an employer and an employee, or otherwise arising out of an existing or anticipated employment relationship, under which the employee or expected employee agrees that he or she will not engage in certain specified activities competitive with his or her employer after the employment relationship has ended.13 In Washington, on the other hand, “noncompetition covenant” includes every written or oral covenant, agreement, or contract by which an employee or independent contractor is prohibited or restrained from engaging in a lawful profession, trade, or business of any kind.14 

 

In conclusion, although there are a variety of perspectives on the introduction of NCA concepts in labor relationships, they all indicate that NCA in labor relationships is a type of agreement to protect the interests of the employer, under which the employee shall not become a competitor of the employer or work for a competitor of the employer after the termination of the employment relationship. 

 

1. The origin of non-compete agreement in labor relationships 

 

Some studies claimed that NCA had its beginnings in England in the 15th century.15 Accordingly, the NCA resulted from Dye’s noncompete violation in 1414. The respondent – Dyer, was an apprentice dyer with his nameless employer, as the plaintiff in the case. Dyer was to agree with his employer that he would not conduct his own business in the same town as his employer for a period of six months following the end of his apprenticeship. The employer sued Dyer because Dyer broke the agreement of the parties soon after. At the time of considering this case, Europe in general and England were affected by the plague, which led to a severe labor shortage. As a result, the Ordinance of Laborers 1349 was issued and stipulated that everyone under the age of 60 must work.16 Due to this regulation, the judge was not sympathetic to the plaintiff’s request in this first NCA case and even threatened to put him in jail for daring to forbid someone from working.17 NCA, therefore, are not recognized or enforced at this time. 

 

By 1711, the first signal of acceptance of NCA appeared in the case of Mitchel v. Reynolds. According to the content of the lawsuit, Mitchel is the tenant of a bakery owned by baker Reynolds. Reynolds and Mitchel agreed that for a period of five years, Reynolds would not run a bakery in the same neighborhood as Mitchel to ensure the supply and demand for his goods. After Reynolds had violated the parties’ agreement by having a bakery in the same area as Mitchel, Mitchel sued Reynolds for breaking their restraint of trade agreement. In response to Mitchel’s petition, Reynolds argued that the parties’ restrictive trade agreement was invalid because it restricted him from doing his business as a baker. When reviewing the case, Judge Lord Macclesfield agreed that all restrictive trade agreements were invalid because they could make the agreement participants difficult due to their inability to earn a living and cause harm to society by loss of services to the agreement participants and result in a monopoly. However, there are exceptions to the restrictive trade agreement. Specifically, in this case, the Court found that the agreement of Mitchel and Reynolds is enforceable due to its “reasonableness” for the parties to enter into a restrictive trade agreement because it directly affects the rental of the bakery. If this agreement is not put into effect, Reynolds will have difficulty renting because Mitchel will not rent the bakery when cannot rest assured knowing that Reynolds will compete with him. Reynolds, in addition, received a financial benefit from the rental of the bakery. In this case, the restrictive trade arrangement was expressly confined and did not cause any loss to the public; therefore, Judge Lord Macclesfield ruled Mitchel’s favor.18 

 

It can be seen that NCA in the case of Mitchel was established in the commercial business sector but the acceptance of its enforcement is considered related to NCA, relevant to employment and influence the development of NCA in labor relationships of some countries, notably the United Kingdom and the United States. 

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