Answer: Article 23 of Employment Contract Law provides that “Employees who are subject to a confidentiality obligation may agree to a non-competition clause with their employer in their employment contract or confidentiality agreement. The employer may also agree to provide the employee with monthly allowance during the non-competition period after the employment contract is terminated or dissolved.” Whether the employer can agree with the employee that the wages include the non-competition allowance, there are two approaches in the courts around the country at present.
The first approach is that this is the realm of autonomy between the employer and the employee, as long as the employment contract or payroll clearly distinguishes the wage and non-competition allowance in the employee’s income, such an agreement is valid.1Yang Xiangang and Shenyang Intercontinental Advertising Co., Ltd. Civil Ruling on Civil Application for Retrial of Labor Dispute Civil Ruling of Liaoning Provincial People’s High Court (2021) Liao Min Shen No.310. The court held that the non-competition allowance contained in the wages during the period of employment is a valid payment. Wu Zhisheng and Shenzhen Kangdaxin Real Estate Management Consulting Co., Ltd. Labor Dispute Retrial Civil Judgment No.177 of Guangdong Provincial People’s High Court (2016). “This Court holds that this clause does not specify the specific amount of allowance for confidentiality and non-competition. Moreover, Kangdaxin Real Estate Company has not submitted valid evidence to prove that its wage payment has included confidentiality and non-competition allowance.” Wang Zhesan and Beijing Xinnongyuan Real Estate Development Co., Ltd. Labor Dispute Retrial Civil Judgment Beijing High Court Civil Judgment (2018) Jing Min Zai No.81. The court held that although the agreement stipulated that the wages included non-competition allowance, the employee’s payroll did not show the specific amount of compensation, so it was determined that it was not paid.” Civil Judgment (2020) Su 01 Min Zhong No.6913 of Nanjing Intermediate People’s Court of Jiangsu Province in the case of labor dispute between the appellant Tang Mou and the appellant Nanjing Gaomou Gear Group Co., Ltd. Shanghai Qiongming Network Technology Co., Ltd. Tao Zhenqiu Labor Dispute Case of Second Instance Civil Judgment of Second Instance Shanghai First Intermediate People’s Court Civil Judgment (2021) Hu 01 Min Zhong No.271.At present, the high courts of Liaoning Province, Guangdong Province, Jiangsu Province and Beijing have judicial decisions supporting this view, and the First Intermediate Court of Shanghai has similar decisions.
The second approach is that since the law unequivocally stipulates that non-competition allowance is paid monthly after termination of employment, the non-competition allowance being included in employees’ wages does not conform to the law and is invalid. 2Civil Judgment of the Second Instance of the Labor Dispute between Feijiu Medical Technology (Beijing) Co., Ltd. and Lu Liang Civil Judgment of the First Intermediate People’s Court of Beijing (2021) Jing 01 Min Zhong No.10919. The court held that “Although both parties agree that the labor remuneration includes the allowance during the period of non-competition, the above agreement does not conform to the payment method of non-competition allowance stipulated by law.” However, in a later case, Beijing Lepu Diagnostic Technology Co., Ltd. and other labor disputes (2022) Jing 01 Min Zhong No.4663, the First Intermediate People’s Court of Beijing overturned the first instance’s determination that the wage including non-competition allowance was illegal, holding that only because it was not clear that the agreed wages included the non-competition allowance, the court could not find that the the wages included the non-competition allowance.” Qiu Xiao, Shenzhen Mofang New Material Technology Co., Ltd. Labor Dispute Civil Judgment of Second Instance Civil Judgment of Shenzhen Intermediate People’s Court of Guangdong Province (2021) Yue 03 Min Zhong No.8533. The court held that “Just as economic compensation for termination of employment contract cannot be included in the wages, the non-competition allowance cannot be included in the wages¡…it should be recognized that the agreement on wages including non-competition allowance in the non-competition agreement has no legal effect.” Beijing Xinnongyuan Real Estate Development Co., Ltd. and other civil judgments of the second instance of labor disputes, Beijing Third Intermediate People’s Court Civil Judgment (2018) No.389. The court held that “the agreement that the non-competition allowance shall be paid together with wages is inconsistent with the form of payment prescribed by law”. Shenzhen Qianhai Hongjing Information Service Co., Ltd., Hong Junyang Labor Dispute Civil Judgment of Second Instance Civil Judgment of Shenzhen Intermediate People’s Court of Guangdong Province (2020) Yue 03 Min Zhong No.4998. Labor Dispute Appeal Case between Shandong Dazhi Tiancheng Enterprise Management Consulting Group Co., Ltd. and Han Shujuan Civil Judgment of Jinan Intermediate People’s Court of Shandong Province (2016) Lu 01 Min Zhong No.3092.Courts holding this view include the First Intermediate Court of Beijing (but there are also cases in the court holding the first view), the Third Intermediate Court of Beijing, the Shenzhen Intermediate Court, and the Jinan Intermediate Court of Shandong Province.
Therefore, whether it is legal for your employment contract to stipulate that your wages include non-competition allowance depends on the place where you are and the specific practice of the regional court.
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- 1Yang Xiangang and Shenyang Intercontinental Advertising Co., Ltd. Civil Ruling on Civil Application for Retrial of Labor Dispute Civil Ruling of Liaoning Provincial People’s High Court (2021) Liao Min Shen No.310. The court held that the non-competition allowance contained in the wages during the period of employment is a valid payment. Wu Zhisheng and Shenzhen Kangdaxin Real Estate Management Consulting Co., Ltd. Labor Dispute Retrial Civil Judgment No.177 of Guangdong Provincial People’s High Court (2016). “This Court holds that this clause does not specify the specific amount of allowance for confidentiality and non-competition. Moreover, Kangdaxin Real Estate Company has not submitted valid evidence to prove that its wage payment has included confidentiality and non-competition allowance.” Wang Zhesan and Beijing Xinnongyuan Real Estate Development Co., Ltd. Labor Dispute Retrial Civil Judgment Beijing High Court Civil Judgment (2018) Jing Min Zai No.81. The court held that although the agreement stipulated that the wages included non-competition allowance, the employee’s payroll did not show the specific amount of compensation, so it was determined that it was not paid.” Civil Judgment (2020) Su 01 Min Zhong No.6913 of Nanjing Intermediate People’s Court of Jiangsu Province in the case of labor dispute between the appellant Tang Mou and the appellant Nanjing Gaomou Gear Group Co., Ltd. Shanghai Qiongming Network Technology Co., Ltd. Tao Zhenqiu Labor Dispute Case of Second Instance Civil Judgment of Second Instance Shanghai First Intermediate People’s Court Civil Judgment (2021) Hu 01 Min Zhong No.271.
- 2Civil Judgment of the Second Instance of the Labor Dispute between Feijiu Medical Technology (Beijing) Co., Ltd. and Lu Liang Civil Judgment of the First Intermediate People’s Court of Beijing (2021) Jing 01 Min Zhong No.10919. The court held that “Although both parties agree that the labor remuneration includes the allowance during the period of non-competition, the above agreement does not conform to the payment method of non-competition allowance stipulated by law.” However, in a later case, Beijing Lepu Diagnostic Technology Co., Ltd. and other labor disputes (2022) Jing 01 Min Zhong No.4663, the First Intermediate People’s Court of Beijing overturned the first instance’s determination that the wage including non-competition allowance was illegal, holding that only because it was not clear that the agreed wages included the non-competition allowance, the court could not find that the the wages included the non-competition allowance.” Qiu Xiao, Shenzhen Mofang New Material Technology Co., Ltd. Labor Dispute Civil Judgment of Second Instance Civil Judgment of Shenzhen Intermediate People’s Court of Guangdong Province (2021) Yue 03 Min Zhong No.8533. The court held that “Just as economic compensation for termination of employment contract cannot be included in the wages, the non-competition allowance cannot be included in the wages¡…it should be recognized that the agreement on wages including non-competition allowance in the non-competition agreement has no legal effect.” Beijing Xinnongyuan Real Estate Development Co., Ltd. and other civil judgments of the second instance of labor disputes, Beijing Third Intermediate People’s Court Civil Judgment (2018) No.389. The court held that “the agreement that the non-competition allowance shall be paid together with wages is inconsistent with the form of payment prescribed by law”. Shenzhen Qianhai Hongjing Information Service Co., Ltd., Hong Junyang Labor Dispute Civil Judgment of Second Instance Civil Judgment of Shenzhen Intermediate People’s Court of Guangdong Province (2020) Yue 03 Min Zhong No.4998. Labor Dispute Appeal Case between Shandong Dazhi Tiancheng Enterprise Management Consulting Group Co., Ltd. and Han Shujuan Civil Judgment of Jinan Intermediate People’s Court of Shandong Province (2016) Lu 01 Min Zhong No.3092.