Compensation and validity of non-compete clauses

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    The term “non-compete” means that an employer and a senior officer, senior technical person or other person with a confidentiality obligation (target employee) agrees that, for a certain period of time, not exceeding two years, after his or her employment contract ends or is terminated, such person may not produce similar products or engage in similar business or serve with another employer that produces similar products, engages in similar business or otherwise competes with the present employer. Non-compete clauses in employment contracts are designed to govern the activities of the employer and the relevant employee after the termination or ending of the employment contract. The main purpose of non-compete clauses is to prevent the use of the enterprise’s trade secrets by a competing enterprise as a result of the mobility of employees, and maintain the enterprise’s competitiveness in the market.

    Deng Youping Partner Jingtian & Gongcheng
    Deng Youping
    Partner
    Jingtian & Gongcheng

    However, for one target employee who has mastery of the technologies and resources of a certain specialized field, the non-compete clauses could fetter his or her career development. To reach a balance in respect of rights associated with non-compete clauses, the Employment Contract Law provides for the remedy of giving the worker economic compensation. However, laws and regulations that apply nationally, such as the Employment Contract Law, the Implementing Regulations for the Employment Contract Law and the Interpretations of the Supreme People’s Court of Several Issues Concerning the Application of the Law in the Trial of Labor Dispute Cases (4), are silent on whether non-compete clauses remain binding on employees where economic compensation is not provided for, or the economic compensation provided for is not in compliance with relevant regulations. This is also a common dispute issue concerning non-compete provisions between employers and employees.

    In this regard, we have collated local regulations as applied in judicial practice by the relevant courts of Beijing, Shanghai, Guangdong, etc., to assist the reader in understanding and handling specific cases.

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    Deng Youping is a partner of Jingtian & Gongcheng. He can be contacted on +86 10 5809 1033 or by email at deng.youping@jingtian.com
    Chen Shu is an associate of Jingtian & Gongcheng. He can be contacted on +86 10 5809 1580 or by email at chen.shu@jingtian.com