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An enterprise can sign non-compete agreements with senior management personnel, senior technical personnel, and other personnel obligated to maintain confidentiality who are privy to trade secrets. If an enterprise agrees on non-compete obligations with other confidentiality-bound employees, it must inform them in advance of the reasons, specifying the specific content of the trade secrets that need to be kept confidential. Employees who only possess general professional knowledge and skills within the industry, and whose work exposes them only to the general business information of the enterprise, do not qualify as personnel obligated to maintain confidentiality.
Note: Enterprises cannot arbitrarily expand the scope of personnel subject to non-compete restrictions. Enterprises should implement non-compete restrictions following the principles of necessity and reasonableness. Priority should be given to effective measures to control access to trade secrets, encrypt trade secret data, and reasonably set a decompression period. Enterprises should not arbitrarily expand the scope of personnel, restricted enterprises, or geographical areas subject to non-compete restrictions. Before deciding to implement non-compete restrictions, a necessity assessment should be conducted. Employees who are not privy to or have not been in contact with the enterprise's trade secrets shall not be included in the non-compete scope.
A trade secret refers to technical information, business information, and other commercial information that is not publicly known, possesses commercial value, and for which the enterprise has taken corresponding confidentiality measures. Business information that constitutes common knowledge or industry practice within the sector, or that can be obtained from public channels, does not qualify as a trade secret.
Enterprises shall negotiate clearly with employees on the rights and obligations of implementing non-compete restrictions based on their rules and regulations, and specify the specifics of the non-compete restrictions in writing within the labor contract, confidentiality agreement, or non-compete agreement. This includes the scope and region of restricted employment, the duration, the standard and method of payment for financial compensation, and liability for breach of the non-compete obligations. When signing a non-compete agreement with an employee, the enterprise should adhere to the principles of legality and good faith, and fairly and reasonably agree on the rights and obligations of both parties. The enterprise must not use its dominant position to force an employee, against their will, to enter into a non-compete agreement that violates legal provisions or is obviously unfair.
Note: Enterprises cannot unilaterally adjust the employment scope and region of non-compete restrictions. Based on the enterprise's business scope, commercial competition situation, and the employee's knowledge of trade secrets, the enterprise shall reasonably agree with the employee on the scope and region of restricted employment. The restricted employment scope should be limited to other enterprises that produce or operate similar products, engage in similar businesses, and are in competition with the original employer. The enterprise should, as much as possible, make the scope of restricted enterprises specific and clear; where conditions permit, a list of restricted companies can be provided. The geographical area of the non-compete restriction should correspond to the scope of the enterprise's business operations. Generally, there is no sufficient reason to stipulate the entire country or the world. If the agreed scope is nationwide or worldwide, the reasons must be fully explained in the agreement. If an enterprise wishes to adjust the scope or region of the non-compete restriction, it must negotiate changes to the agreement with the employee.
If an enterprise and an employee have agreed on matters related to non-compete restrictions at the time of employment or during the performance of the labor contract, the enterprise can, at the time of the employee's departure, assess whether to activate the non-compete restriction based on adjustments and changes in the employee's position and job content, and negotiate changes to the agreement with the employee. If activation is not required, this can be noted in the termination/rescission certificate of the labor contract or communicated to the employee in other written forms. If activated, both the enterprise and the employee shall fully fulfill their respective obligations according to the legally established non-compete agreement.
The duration of the non-compete restriction is reasonably determined based on the degree of the employee's access to secrets and the timeliness of the trade secrets, but shall not exceed 2 years.
If an enterprise requires an employee to undertake non-compete obligations, it must pay financial compensation. The compensation is reasonably determined based on factors such as the R&D cost and commercial value of the trade secrets, the scope of restricted employment, the employee's salary level during employment, and the impact on the employee's employment, career choice, and professional development. The monthly financial compensation paid by the enterprise to the employee is generally not less than 30% of the employee's average monthly wage in the 12 months preceding the termination or rescission of the labor contract, and not lower than the local minimum wage standard where the labor contract was performed. If the non-compete duration exceeds 1 year, the monthly financial compensation generally should not be lower than 50% of the employee's average monthly wage in the 12 months preceding termination or rescission.
An enterprise may agree with an employee on a penalty fee for violating non-compete obligations. The amount of the penalty fee should be reasonably determined based on the potential economic loss from the employee's disclosure of trade secrets and the amount of non-compete financial compensation paid by the enterprise. It is generally advisable not to exceed 5 times the total agreed amount of non-compete financial compensation. If an enterprise requires an employee to undertake non-compete obligations, it must pay financial compensation. If the enterprise fails to provide the employee with financial compensation as agreed during the non-compete period, the employee can complain to the human resources and social security administrative department.
If the employee has fulfilled the non-compete obligations, but the enterprise cannot make timely payment due to special circumstances, it must notify the employee in advance and negotiate a deferred payment plan with the employee. If the enterprise fails to pay the financial compensation in full and on time for more than 1 month and still fails to pay after being reminded by the employee, or fails to make any payment for more than 3 months, the employee may cease to be bound by the non-compete obligations.
An enterprise can inform the employee before the non-compete agreement takes effect to terminate it. During the performance of the agreement, the enterprise can negotiate with the employee to terminate the agreement early by paying additional compensation; if negotiation fails, compensation can be paid at a standard not lower than 3 months' financial compensation. Reprint Source: Ministry of Human Resources and Social Security
