In China non-compete agreements can apply to senior management or other technical staff who have access to confidential corporate information. This is a limitation of the production, working and service capacity of the party bounded by a non compete agreement. For this reason non compete clauses must have limited duration and requires compensation.
Non-compete periods in China last no more than two years from the date when the employment relationship is terminated.
The compensation for not competing should be paid either when the employment relationship is in force and during the entire post-employment non-compete period. If the parties did not agree in writing a different compensation amount, usually Chinese courts can grant a compensation for non competing amounts to 30% of the average monthly salary for the previous 12 months before termination.
In the light of above, it’s therefore wise to have non-compete provisions in contracts that specify payment amounts, duration, territorial scope and prohibited activities.
According to Chinese law, it is also possible to apply contractual penalties for non-compete breaches, but they must be reasonable. Chinese courts may reduce or eliminate penalties they deem unreasonable.
Employers may not terminate non-compete agreement early without paying employees 3 additional months of non-compete compensation. A Chinese employee may unilaterally terminate a non-compete agreement when the employer has failed to make non-compete payments for 3 months or longer.
Avv. Lifang Dong and Avv. Chiara Civitelli
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