By Luo Yanjie

Restriction of business strife is the restriction clauses agreed in labor contract, IPR contract or confidential agreement between the employer and the employee with confidentiality obligation, which restricts the latter being engaged in the units manufacturing similar products, operating the similar business or competing with the original employer, neither shall the bond employee manufacture the products or operate the business competing with the employer.

Considering the professional division of social labor, the restriction on the future engagement of the employee in the familiar industry will of no question badly damage their interests. Therefore, we see the provision in the Labor Contract Law that the original employer shall pay employee the compensation for the non-compete during the agreed period. Yet what shall be more attentive to the employer is the payment of the compensation shall follow the legal regulation, otherwise the agreement on the non-compete shall be invalid. In this essay, you will see our opinions on it:

I. Can the compensation be paid with salary during the employment?

Before discussing the topic, let’s take a look at an earlier case: In January of 2009, Mr. Wang became the manager in a company and signed a “confidentiality and non-compete agreement”, in which they both agree a compensation of RMB 500 payable by month with the salary. The labor arbitration board decided after the hearing that: “despite the agreement and the payment of compensation of RMB 500 per month with the salary, as provided in law, the compensation shall be paid after the termination or expiration of the employment. And any payment before the termination shall not be deemed the compensation for non-compete.”

The labor adjudication was mainly made by Article 23 of Labor Contract Law,

“…it shall be agreed that the compensation for non-compete shall be paid to the employer by month after the termination or expiration of the employment…”

From such regulations, the payment of the compensation shall be after the employment. And in practices, it does exist that employer pay employee the compensation with the salary together, for the avoidance of the obligatory payment. Therefore, as confirmed by the labor arbitration court, with the aim of protecting the laborer’s interests, that the compensation paid within the salary shall not be the statutory compensation for the non-compete.

II, Can the compensation be paid within one-time?

In addition to the above question, “labor contract law” also stipulates that the non-compete compensation should be “monthly” paid. While, many employers choose to pay employees the full compensation in one-time when the employment ends, then will it against the regulation of monthly payment?

To it, in my opinions, it shall be of no flaws in law when the one-time-payment equals the full amount in monthly payment. For the problems, as long as the one-time payment of the amount equals the monthly payment amount, allowing for no damage will be suffered by the laborer. In fact, the monthly payment aims at the protection of employer’s interests, while the one-time-payment could protect the employee’s interests, thus no reason to deny such payment arrangement by law.

In addition, in some local laws and regulations, such as “Notice II on Several Issues concerning the Implementation of Employment Contract Regulations of Shanghai Municipality II” by Shanghai City Labor and Social Security Bureau, the regulation provides as follows:

“Employers require workers to continue to perform the non-compete agreement, should one-time pay economic compensation in accordance with the standard by labor dispute processing mechanism”.

That also implies that the law accepts a one-time-payment of non-compete compensation.

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