(By You Yunting) In today’s post, our website would like to introduce some essential points in writing noncompetition clauses in a labor contract in accordance with relevant Chinese laws and regulations. Pursuant to the Labor Law, the Labor Contract Law and related laws and regulations, combined with the specific conditions of employing units, when writing noncompetition clauses or agreements, we will pay particular attention to the following points:

I. How to determine the scope of the noncompetition clauses?

In order to determine the scope of noncompetition, the key point is to define what kinds of behaviors are considered as competitive ones with the employing unit. Competitive behaviors, however, are embodied in various forms, dependent upon the type of competition and business involved. Therefore, the final foothold in writing noncompetition clauses is deciding what kinds of professional work are considered competitive ones within the employing unit.

The following standard clauses are recommended:

Employee shall not, within the prescribed duration, engage in any of the following actions without written consent from the employing unit after termination or dissolution of this contract:

(1) Operating proprietary competitive businesses with the employing unit;

(2) Engaging with any third party to operate in a competitive business with the employing unit;

(3) Employment with the employing unit’s competitors.

“Competitive businesses” in this contract refers to Party A’s current business, or one that is identical to, similar with, or directly related to a business on the employer’s trading certificate.

 

Party B hereby confirms that following actions are subjected to Party B’s competitive businesses: (the following sections shall typically be defined by employer).

II. How to determine time and geographic limits for the purpose of noncompetition?

Pursuant to our Labor Contract Law, the time limit of noncompetition shall not exceed two years; excessive time limitations in regard to noncompetition will be considered void. With regard to the geographic scope of noncompetition, there currently exist no specific laws and regulations that speak directly to this issue.

Standard articles:

The time limit of Party B’s noncompetition shall commence on the date of the termination or dissolution of the labor relation with Party A and shall end on_________________.

 

The geographical limit shall be within the People’s Republic of China.

III. How to define the standard for payment of compensation?

Noncompetition agreements shall make clear the amount and granting of compensation; otherwise this particular clause will be considered non-binding upon the employees. Upon the compensation standard, such standards will typically depend on what the employee’s salary was with the employing units. Also, pursuant to the Labor Contract Law, within the time limit of noncompetition, the employing unit shall agree on the monthly economic compensation payable to the employee. With regard to the percentage of economic compensation to the salary, local legislations in our country vary considerably. For example, in accordance with Shanghai legislation, the economic compensation shall be no less than 1/3 the average of an employee’s salary.

We recommend that standard clauses focus on two years’ noncompetition:

Where Party B strictly undertakes its obligations of the noncompetition clauses hereto, after the termination or dissolution of this contract, Party A will pay compensation to Party B.

 

Where Party B undertakes its obligations of the noncompetition clauses every year, the amount of compensation shall be payable in a lump sum on      , the average monthly wage of Party B for the 12 months before the termination or dissolution of this contract (if Party B works less than 12 months, the amount of compensation will be payable in accordance with actual working duration).  In case of the time limit for noncompetition is less than one year, the amount of compensation shall be paid in proportion.

 

Party B shall obtain a total compensation of RMB____   __. Party A shall pay the compensation to Party B by month. The compensation per month is calculated by dividing total amount of compensation by the number of months of noncompetition duration.

Lawyer Contacts

You Yunting：86-21-52134918  youyunting@debund.com/yytbest@gmail.com

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