Using non-compete agreements for the protection of trade secrets

By He Yu, Gao Ping, AnJie Law Firm
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Q: What are trade secrets?

A: The term “trade secrets” means business information and technical information, in respect of which the employer has taken confidentiality measures that are not known to the public, and that can bring the employer economic benefits or help it in minimising or avoiding losses.

贺宇 He Yu 安杰律师事务所 北京办公室 合伙人 Partner AnJie Law Firm Beijing
贺宇
He Yu
安杰律师事务所
北京办公室
合伙人
Partner
AnJie Law Firm
Beijing

Q: What is meant by non-competition?

A: Non-competition is an important means of protecting trade secrets, which an employer can uses to restrict competition from specific employees during their term of service, and after they leave service. It mainly provides that said persons may not engage in a competing business, either by operating the same themselves or by joining an organisation that is in competition with the employer. Provisions governing non-competition in the PRC are found scattered in such laws as the Contract Law, Company Law, Employment Contract Law, Law Against Unfair Competition, Criminal Law, etc., and regulations about intellectual property protection. In this article, we will only be looking at non-competition in the context of an employment relationship.

Articles 23-25 and article 90 of the Employment Contract Law, implemented on 1 January 2008, provide for such non-competition, including the scope and term of non-compete obligations, compensation therefor, liability for breach of contract, damages, etc. However, this law is silent on what to do in the event that a non-compete agreement fails to provide for compensation. A small number of provinces and municipalities have provided for compensation rates of varying percentages in the form of local legislation. Articles 6-10 of the Interpretations of the Supreme People’s Court on Several Issues Concerning the Application of the Law in the Trial of Employment Dispute Cases (4) set forth provisions on non-compete compensation, the termination of non-compete agreements, etc.

高苹 Gao Ping 安杰律师事务所 北京办公室 合伙人 Partner AnJie Law Firm Beijing
高苹
Gao Ping
安杰律师事务所
北京办公室
合伙人
Partner
AnJie Law Firm
Beijing

Q: What are the major provisions of non-compete agreements?

A: An employer and a worker may provide for non-compete clauses in the employment contract or a non-disclosure agreement, or alternatively they may execute a separate non-compete agreement (hereafter, the term “non-compete agreement” will include non-compete clauses). The main provisions of a non-compete agreement include the following:

In addition, it should be noted that the provisions of a non-compete agreement may not violate laws or regulations.

Q: When a worker commits a breach of contract, what judicial remedies are available to the employer?

A: An employer can, in addition to resolving the dispute through consultations or mediation, resort to a judicial procedure to obtain relief.

It may seek to resolve the dispute through an employment dispute handling procedure by applying for labour arbitration. If it is dissatisfied with the arbitration award, it may institute a legal action in court. If an employer makes a claim on the grounds of infringement of trade secrets, the same constitutes an unfair competition dispute and the employer can directly institute a legal action in court.

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