China Non-Competes

This post explains the type of China employee that can be bound by a non-compete provision and on the likelihood a China court will enforce such a non-compete. Or not.

One of the big issues in China employment law is against whom non-compete provisions will work. China’s labor laws explicitly limit non-compete agreements to senior management, senior technicians and other personnel who have a confidentiality obligation. “Senior management” usually means a person in a senior management position with access to the company’s confidential information. A “senior technician” usually means someone engaged in technology research and development, and who fairly comprehensive access to the company’s technological information.

It is not so clear, however, which employees come under the category of “other personnel who have a confidentiality obligation.” and China’s courts tend to consider this issue on a case-by-case basis by looking at a totality of the circumstances, generally including the following:

• The employee’s compensation. The higher the compensation, the more likely the court will enforce the non-compete.

• The employee’s job title. The better the job title, the more likely the court will enforce the non-compete.

• The employee’s responsibilities. The greater the responsibilities, the more likely the court will enforce the non-compete.

• The likelihood of the employee’s gaining access to and making use of the confidential information. The greater the likelihood, the more likely the court will enforce the non-compete.

• Whether the employee also signed a confidentiality agreement with the employer. If there is such an agreement, there is a greater chance the court will enforce the non-compete.

• Whether the employee is suffering a financial hardship in his or her post-employment period and the extent of that. The greater the hardship, the more likely the court will not enforce the non-compete. For more on how “equity” and “justice” and “harmony” so often infuse China court decisions, check out China Courts. You Ain’t In Kansas Any More.

Not surprisingly, China’s local courts are not consistent in applying the above factors in determining whether a certain employee was “other personnel with a confidentiality obligation.” Some courts have upheld non-compete agreements binding against relatively low level employees simply because the employer and the employee signed a written agreement containing non-compete provisions and therefore the parties should perform their respective obligations under the agreement. Other courts have invalidated non-competes against relatively high level employees because the high level employee (though probably quite wealthy) has been having trouble finding new employment. In other words, non-competes are like pretty much everything else related to China employment law issues: local and not so simple.

See China Non-Competes. Oh, Oh, The Price You’ll Pay, for the compensation issues relating to China non-competes and How To Terminate A China Employee Non-Compete Agreement. Very Carefully, for the risks in ending non-compete payments too early.

The post China Non-Competes appeared first on China Law Blog.

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.