In mergers and acquisitions, the value of a transaction goes far beyond balance sheets. Buyers are often paying a premium for intangible assets, brand reputation, customer relationships, proprietary processes that can easily be undermined if the seller re-enters the same market. That’s where non-compete clauses come in.

In Vietnam, these clauses are increasingly used to protect deal value and limit competitive threats. However, enforceability remains a complex legal question. Unlike many common law systems, Vietnam has no single statute specifically governing non-compete agreements. As a result, foreign investors must draft these clauses carefully, balancing commercial needs with local legal realities. This article explores how non-compete provisions work in Vietnamese M&A transactions, and how to structure them for effectiveness.

What Are Non-Compete Clauses and Why They Matter in M&A

A non-compete clause is a contractual agreement that restricts one party, typically the seller or key personnel, from engaging in competing business activities for a certain time and within a specific geographic area. In M&A, non-competes serve a vital role: they prevent sellers from immediately launching or supporting a rival business that could diminish the value of the acquisition.

For example, if a foreign investor acquires a Vietnamese tech company, they may wish to ensure the founder doesn’t start a similar business, recruit former employees, or contact former clients. A well-crafted non-compete clause can preserve the buyer’s advantage during the critical post-closing integration period.

Are Non-Compete Clauses Enforceable in Vietnam?

Vietnamese law does not explicitly prohibit non-compete clauses, nor does it expressly recognize them under a specific statutory regime. Instead, enforceability is judged under broader principles in the Civil Code, which governs contractual freedom, and in certain cases, under the Labor Code.

In M&A transactions, non-compete clauses are generally viewed more favorably than those in standard employment contracts. Vietnamese courts are more likely to enforce a clause if:

  • It is tied to the sale of a business, not a routine employment agreement.
  • The restrictions are reasonable in scope, geography, and duration.
  • The clause is linked to consideration (e.g., part of the sale price or ongoing compensation).
  • It serves a legitimate business interest without unduly restricting the seller’s livelihood.

That said, overly broad clauses such as blanket restrictions across all of Vietnam or for indefinite periods may be struck down. There is limited precedent, but the trend is toward permitting narrower, well-justified restrictions.

Structuring Non-Compete Clauses in M&A Contracts

Given the limited statutory guidance, non-compete clauses in Vietnam should be drafted with precision and foresight. Here are key structuring considerations:

  • Define Restricted Activities Clearly: Specify the exact types of services, products, or business models that the seller may not engage in. Avoid vague terms like “competing businesses.”
  • Geographic Scope: Limit restrictions to regions where the acquired company actively operates or has a defined commercial presence.
  • Reasonable Duration: One to three years is typical. Longer periods should be justified by the business cycle, industry norms, or the nature of the good will being transferred.  
  • Tie to Consideration: Ideally, the non-compete is part of the sale price or a condition for earnouts or consulting payments.
  • Include Enforcement Tools: Add clauses for liquidated damages, injunctive relief, or escrow release conditions tied to compliance.
  • Use Supporting Agreements: If needed, include similar clauses in shareholder agreements, consultancy contracts, or post-closing employment terms.

Alternatives and Enhancements to Traditional Non-Competes

Where enforceability may be a concern, investors can use other contractual tools to protect business value post-acquisition:

  • Non-Solicitation Clauses: Prevent the seller from poaching clients, employees, or suppliers. These are typically more enforceable and less restrictive than full non–competes.
  • Confidentiality and IP Protection: Ensure all proprietary information and trade secrets are clearly defined and protected, with remedies for breach.
  • Earnouts and Deferred Payments: Link part of the purchase price to future performance or compliance with non-compete obligations.
  • Post-Deal Advisory Agreements: Retain the seller as a consultant with built-in restrictions against competitive behavior, often seen as less aggressive.

Case Law and Trends in Enforcing Non-Competes in Vietnam

Vietnamese case law on non-compete enforcement in M&A remains limited, but trends are emerging:

  • Courts are more likely to uphold restrictions tied to high-value transactions where buyer interests clearly warrant protection.
  • Clauses that are narrow in scope and tailored to real commercial risks stand a better chance of enforcement.
  • Broad, generic, or punitive clauses are typically viewed as contrary to public policy and may be invalidated.

Some foreign-invested firms have successfully used arbitration clauses to enforce non-compete provisions outside of Vietnam’s courts, particularly in Singapore or Hong Kong, where the legal framework is more established. However, this requires careful jurisdiction and governing law planning.

Can You Enforce a Non-Compete Clause Against a Vietnamese Founder After Exit?

One of the most pressing concerns for foreign buyers is ensuring that the original Vietnamese founder does not launch a competing business after selling their company. While this issue often arises in tech, consumer goods, and professional services sectors, the enforceability of non-compete clauses against individuals especially founders depends on how well the agreement is drafted and structured.

Courts in Vietnam are more likely to uphold non-compete restrictions against founders if the clause:

  • Is narrowly tailored to the business activities sold in the transaction
  • Has a reasonable duration and scope
  • Is clearly tied to the consideration or purchase price
  • Is signed directly by the individual in their personal capacity, not just as a representative of the company

Founders who retain partial shareholding or serve in an advisory role post-transaction may require even more nuanced restrictions. In such cases, buyers should consider combining the non-compete with non-solicitation provisions, confidentiality obligations, and claw back mechanisms if they breach.

One frequent misstep is relying on boilerplate non-compete clauses or using foreign law exclusively without local enforceability mechanisms. To increase the likelihood of enforcement, the agreement should be bilingual, governed by Vietnamese law, or accompanied by dispute resolution clauses enforceable in Vietnam.

Conclusion

Non-compete clauses in Vietnam are a valuable tool for protecting M&A investments but only when carefully crafted to reflect local legal standards. For foreign investors, understanding the nuances of enforceability and tailoring terms to the commercial context is essential.

At Corporate Counsels, we advise investors on drafting and negotiating enforceable non-compete clauses in M&A transactions across Vietnam. Whether you’re acquiring a local business or negotiating seller exits, our M&A Lawyers ensure your deal protections hold. Contact us at letran@corporatecounsels.vn for strategic legal support tailored to your transaction.