Answer: Articles 23 and 24 of the Employment Contract Law stipulate that non-competition is a measure taken by an employer to legally restrict employees who leave their jobs to work in competitive industries, so as to protect their trade secrets preventively.
Non-competition specifically means that the employer may sign an agreement with senior managers, senior technicians, and other persons who have the obligation to keep confidential the trade secrets of the employer, stipulating that after the termination or dissolution of the employee’s employment relationship, the employee shall not be employed by other employers who engage in the same or similar business, such as the production or operation of same or similar products or services, or shall not start their own business engage in the same or similar business.
Only those employees who bear confidentiality responsibility are obligated to sign non-competition agreement and be forbidden from engaging in competitive industry after leaving their jobs. Please refer to “Is it legal for an employer to sign a non-competition agreement with an ordinary employee?”
Although there are no statutory provisions, current employees should not engage in a competitive industry while abiding by their obligation of employee’s loyalty. Please refer to “The non-competition contract between an employer and an employee includes on-the-job non-competition obligation. Is such an agreement valid?”
An non-competition should stipulate the amount of non-competition allowance after employment termination. If, however, the non-competition agreement provides that the employee’s wages consist of non-competition allowance, courts around the country have two practices on this matter. Please refer to “My contract stipulates that my wages include non-competition allowance. Is such provision legal?”
If a non-competition agreement only stipulates non-competition obligations in the absence of a non-competition allowance, it raises complex legal issues regarding the binding nature of the agreement on the employee and the amount of non-competition allowance that should be paid to the employee who has fulfilled the obligation. Please refer to The non-competition agreement signed by my employer and I does not stipulate a non-competition allowance. What can I do?
Employees who violate the obligation of non-competition shall be liable for liquidated damages in accordance with the non-competition agreement between the two parties. Overly high liquidated damages in a non-competition agreement may not be binding. Please see “The non-competition penalty stipulated in my non-competition agreement is 5 million. Is this provision binding?” If the employee has paid the liquidated damages to the employer, they may still assume the obligation to continue to perform the non-competition agreement, unless the employer cancels the agreement or exempts the employee from the non-competition obligation. Please refer to “Can I cancel the non-competition agreement?”
It should be noted that even if there is no non-competition agreement between the employer and the employee or both parties have terminated the non-competition agreement, the employee still bear the absolute legal obligation to protect the employer’s trade secrets, and the employee who violates this obligation may bear the legal liability for infringement of trade secrets.
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Mr. Dong Wang has been in practice for over 20 years, specializing in business law, including employment law, commercial law, company law, and intellectual property law. Mr. Wang has earned respect and trust from his clients due to his professionalism, fidielty, and kindness.
Email: wangdong@royalaw.com