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What the China Labor Law Says about Non-Competition Agreements
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To whom does an NCA apply?Although a confidentiality agreement may apply to all employees of a company, an NCA is usually limited to higher-level employees, such as Senior Managers, senior technical personnel and other personnel who may also have confidentiality obligations to their employer. Generally speaking, senior managers refer to company Managers, Deputy Managers, heads of financial departments, the secretaries of the boards of directors of listed companies and other personnel stipulated in the company’s articles of association. In addition, for companies in the manufacturing and technology industries, a non-competition agreement also applies to all employees who have easy access to the company’s trade secrets, including senior research developers, technical personnel, skilled workers in key positions, etc. Also, other employees who may be aware of the company’s business secrets, such as marketing staff, accountants, secretaries, and so on, should also assume non-competition obligations.In short, an NCA applies to all staff who have access to a company’s key (proprietary) information and important trade secrets.
Amount of compensation for complying with an NCAThere is no uniform provision about the amount of the compensation. However, according to relevant judicial interpretation, the amount for monthly compensation should be something equivalent to 30% of the employee’s average monthly salary for the past 12 months before dissolution or termination of the contract, or no less than the local minimum salary. However, if the company does not pay any compensation, the employee is entitled to rescind the NCA, as long as:1. The company has failed to pay compensation, as agreed in the NCA, for three months, and;2. The employee has notified the company of his/her intention of rescinding in writing.
What is the penalty for breach of an NCA?In an NCA, the company may specify that the employee has to pay a penalty in the event he/she fails to perform the NCA duty/duties, as specified. There are no provisions regarding any specific standard for such penalty, but if the penalty is too much higher than the actual loss suffered by the company, the court probably will reduce the amount of penalty at their discretion.