Using non-compete agreements for the protection of trade secrets

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.

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.