Answer: The judicial interpretation of the Supreme People’s Court on labor disputes in 2020 stipulates that employer can pay three months of non-competition allowance to relieve the employee’s non-competition obligation.1Article 39 of the Interpretation of the Supreme People’s Court on the Application of Law in the Trial of Labor Dispute Cases (I) (Fashi (2020)No.26). “If the employer requests to terminate the non-competition agreement within the period of non-competition, the people’s court shall support it. When terminating the non-competition agreement, the people’s court shall support the employee’s request for the employer to pay the employee an additional three-month allowance for non-competition.”
According to Article 38 of the judicial interpretation, an employee can only notify the employer to terminate the non-competition agreement when the employer has not paid the non-competition allowance for three months. The employee’s right of cancellation is limited and conditional.
The standard of non-competition allowance for the aforesaid three months shall be determined in accordance with the non-competition allowance agreement between both parties. If both parties fail to agree on such standard, it shall be determined in accordance with 30% of the average wage of the employee from the 12 months prior to the employment termination as stipulated by the Supreme Court’s judicial interpretation. The standard shall not be lower than the local minimum wage.
Employees being exempted from the obligation of non-competition means that they are free to engage in competitive industries. However, this does not mean that employees can use the trade secrets of the former employer at will. The protection of trade secrets is similar to the protection of property rights; property rights exist, the protection remains. The right to trade secrets is a statutory rather than an agreed right, so employees are still obligated to keep the trade secrets of the employer after their termination, even if the obligation of non-competition is lifted. Otherwise they may be liable for tort compensation.
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- 1Article 39 of the Interpretation of the Supreme People’s Court on the Application of Law in the Trial of Labor Dispute Cases (I) (Fashi (2020)No.26). “If the employer requests to terminate the non-competition agreement within the period of non-competition, the people’s court shall support it. When terminating the non-competition agreement, the people’s court shall support the employee’s request for the employer to pay the employee an additional three-month allowance for non-competition.”