Recently, Bridge IP Law Commentary is consulted by some clients about whether it is necessary for an enterprise to pay its employees, who is subject to confidentiality obligation, the confidentiality fee. Today, we will answer such questions combining with the current laws and regulations as well as the practices. (the image above is the cover of the Guidelines of Trade Secret to Companies by DeBund Law Offices)
I. There only regulates the payment for the competition restriction but no fees for confidentiality
The Article 23 and 24 of the existing Labor Contract Law of PRC stipulates that an enterprise and its employees may have such terms agreed in the labor contract or confidentiality agreement as keeping trade secret and the matters relating to the intellectual property rights secret. Additionally, with regard to the employees having confidentiality obligations, it includes but not limited to the senior managers, senior technicians, with whom may the enterprise agree terms like not to work in other enterprises operating competitive business or not to engage in the competitive business in the labor contracts or the confidentiality agreements , and the enterprise shall pay such employees economic compensation on a monthly basis during the term of competition restriction after the labor contracts are revoked or terminated (no more than two years). If the employees breach the competition restriction, they shall pay penalty to the enterprises.
Accordingly, the enterprise shall pay the necessary compensation to an employee who has signed the competition restriction agreement or articles in labor contract, while it’s not legally demanded of such compensation when a confidentiality obligation is agreed. In the perspective of theory, the confidentiality obligation is the employees’ legal obligations, for the trade secret is kind of legally protected property of the company which shall not be damaged. Therefore the payment of the confidentiality fee shall not influence the effect of the confidentiality contract or articles, nor the staff’s confidentiality obligation.
II. The payment of confidentiality fee may encourage a better fulfillment of the confidentiality obligation
Based on the judicial practices, the judges advise the enterprises to consider the confidentiality fee that is equal to the confidentiality obligation undertaken by employees. Then the staff may hold a more positive attitude to the fulfillment of confidentiality obligation when his/her rights and obligations are balanced.
In our view, when a proper confidentiality fee is paid to the employee under the confidentially obligation, he/she will be more adhere to the confidentiality obligation for the balanced right and obligation. And once the obligation is violated by the staff when the fee is paid, the staff may face the claim of fee return and the liability taking.
Moreover, the payment of the fee may be held as the proof to the measures taken by the company for the trade secret protection in the disputes produced related.t
III. The practice of Chinese enterprises
Many enterprises practically pay confidentiality fee contained in the labor remuneration or payment, just like a monthly pay of 5000 including the confidentiality fee of 500 yuan. According to the Provisions on the Composition of Wage issued by the National Bureau of Statistics of China and its judicial interpretation, the confidentiality fee isn’t explicitly excluded from the composition of wage. However, we prefer to advise the enterprises and employees to independently agree with confidentiality fee rather than the practical way as described above.
Other recommended posts on our website:
1. The Actual Term of Trademark Registration in China
2. How to Apply for the Trademark Record in China Custom
3. How to improve the success rate of trademark registration in China?
4. Matters for Attention in Trademark Refusal Review in China
5. Introduction of China’s Legal System of Trademark Renewal
6. Introduction on the Regulations concerning the Capital Contribution in IPR or Domain Name in China
7. The Copyright Registration in China Could Be FREE?
8. China Copyright Protection Term Longer than EU’s?
9. Matters for Attention in the Patent Preliminary Injunction Application in China(I)
Author: Ms. Chen Danhong
Attorney-at-law of DeBund Law Offices
Co-author: Mr. You Yunting
Founder & Editor-in-Chief of Bridge IP Law Commentary
Partner & Attorney-at-law of Shanghai DeBund Law Offices
Email: Bridge@chinaiplawyer.com, Tel: 8621-5213-4900,
You can also find us on Facebook, Twitter and Linkedin.
Bridge IP Law Commentary is a website focus on the introduction of commercial laws in China, especially the intellectual property laws. All the posts here are our original works. And all news or cases referred here are from public reports, and our comments or analysis are of due diligence, neutrality and impartiality, representing our own opinions only and are our original works. You may contact us shall you have any opinions or suggestions.
Short Link: