Application of Laws on Non-Competition Clauses (Part II)

(By Lisa Li) The following is Part II of the topic on application of laws on non-competition clauses from perspective of Chinese employment law.

1.Termination of non-competition agreement

Article 4 of the Judicial Interpretation IV stipulates that if there are non-competition obligations and compensations agreed in the employment contract or confidentiality agreement, the employer’s failure to pay the compensations for three months will entitle the employee to request terminating the non-competition agreement. In accordance with the wording of these provisions, the employee has the right to request terminating the non-competition agreement, however the non-competition agreement shall not end automatically. However, local practice varies from place to place; even the same court rendered different judgments for similar cases according to the search conducted by the author.

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Different Local Regulations on Compensations and the Effect of Non-competition Agreement

The system of noncompetition is regulated in China Labor Contract Law, “If a Employee has a confidentiality obligation, the Employer may agree with the Employee on competition restriction provisions in the employment contract or confidentiality agreement, and stipulate that the Employer shall pay financial compensation to the Employee on a monthly basis during the term of the competition restriction after the termination or ending of the employment contract.” By the article, a financial compensation is demanded for the conclusion of non-competition agreement, while no legal regulation on the effect of such articles when no compensation is paid. Therefore, on the issue, the adjudication or decision made by local courts or labor arbitration committee in China varies much, and today’s post is our analysis on it.

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