Preventing Conflicts of Interest

Conflict of interest

A “Conflict of Interest” is defined as a real or seeming incompatibility between one’s private interests and one’s public or fiduciary duties (Black’s Law Dictionary – Ninth Edition).

There is no statutory definition of conflict of interest under the laws of Vietnam. Actions constituting conflicts of interest are only indirectly regulated in the form of certain prohibited activities in various legal documents such as the Law on Cadres and Civil Servants ¹ or the Law on Anti-corruption ² which governs the activities of cadres and civil servants in the Governmental system. There are also provisions in the Law on Enterprises ³ governing the activities of people holding management positions in enterprises.

However, in Vietnam an employee could potentially be sanctioned under the Civil Code, the Labor Code, or even criminalized under the Penal Code for the following conflicts of interest:

1. An employee who establishes a competing business that provides the same goods or services as those of the employee’s company in the common market;
2. The use of the proprietary information of the company, or that obtained during employment in the company, to benefit the employee’s business or the business of his/her relatives or friends;
3. Providing goods or services to the company’s providers or clients through the business of the employee or his/her relatives or friends;
4. Taking advantage of the employee’s position or power in the company to do business with a third party and which is not in the company’s interests;
5. Utilization by the employee of his/her position and power in the company to allocate key employment positions, such as managers/executives, accountants, cashiers, or storekeepers, to his relatives, friends, or others for the employee’s personal benefit;
6. Acting on behalf of the employer to purchase goods or services from the employee’s own company or that of his relatives or friends;
7. Receiving, directly or indirectly, valuable gifts or benefits from the company’s providers or clients to perform work contrary to the policies or interests of the company, or without approval from the company;
8. Working simultaneously with the company’s competitor(s);
9. Using tools, materials, or assets of the company for the personal interests of the employee or those of other individuals and/or organizations other than the company; or
10. Other similar activities affecting the employee’s loyalty or harming the company’s interests.

How to prevent conflicts of interest

The most effective method to protect the company is to not allow the conflict of interest to occur in the first place.  This means that the employee must be thoroughly trained and be clear as to the sanctions and remedies that will apply should he/she commit any act of conflict of interest.

There are 03 critical ways to prevent conflicts of interest: (i) applying the civil-commercial terms of the employee’s labor contract, (ii) ensuring employee awareness and enforcing the dismissal sanction for conflicts of interest in the company’s employee handbook and internal labor regulations, and (iii) filing a criminal case.

Applying the civil-commercial terms of the labor contract

A labor contract is by nature based upon an arms-length negotiation between the employee and the company.  In tandem with this negotiation, the company can detail all of the actions which constitute a conflict of interest and the relevant sanctions and remedies should any violation by the employee occur.  If the employee refuses to sign, the loyalty of this person is obviously open to question and the company should not proceed with the recruitment.  Even if the employee agrees to the provisions, the contract negotiation stage is a good opportunity to emphasize the importance of his/her commitment not to perform any actions that would harm the company.

If a violation does occur, the company may terminate the labor contract with the employee based on the mutual separation agreement contained in the labor contract and also request compensation from the employee.

Raising employee awareness and enforcing dismissal sanctions in the employee handbook and internal labor regulations

In the employee handbook and the internal labor regulations of the company, there must be detailed provisions concerning conflicts of interest. Some of these provisions include a comprehensive description of actions constituting a conflict of interest, the procedures for the employee to notify the company of a conflict of interest, and the relevant sanctions for any violation. These provisions must be regularly provided to all employees of the company to increase their awareness and encourage them to prevent any conflict of interest at the workplace in the best interests of the company and themselves. Should a conflict of interest occur, in conjunction with the terms of the labor contract, the company will possess strong grounds to dismiss the employee. Further, without specific mention of conflict of interest actions and sanctions/remedies in the internal labor regulations, the company cannot legally dismiss the employee.

Criminalizing conflict of interest actions

In the event of a conflict of interest, the company may also consider pursuing serious counter-action by filing a criminal case with the police. This is the strongest measure available to enforce employment termination with the employee and potentially gain compensation from the employee. It also serves as a precedent to other employees in the Company and as a warning not to commit conflicts of interest.

Author

Stephen Le

1. Law on Cadres and Civil Servants No. 22/2008/QH12 of the National Assembly dated November 13, 2008, amended and supplemented by Law No. 52/2019/QH14 of the National Assembly dated November 25, 2019.
2. Law on Anti-corruption No. 36/2018/QH14 of the National Assembly dated November 20, 2018.
3. Law on Enterprises No. 59/2020/QH14 of the National Assembly dated June 17, 2020, amended and supplemented by Law No. 03/2022/QH15 of the National Assembly dated January 11, 2022.