Employers in China are under a statutory obligation to compensate employees for observing non-compete obligations after termination of the employment. Until recently, it was uncertain how much compensation the employer was required to pay. Some local regulations provided for indicative percentages, but most did not. A new interpretation from the Supreme People's Court of China now provides that if a non-compete covenant is agreed, but the labour agreement or confidentiality agreement does not provide for compensation, the court can award compensation up to 30% of the employee's salary.
It is not clear from the interpretation whether the 30% compensation is meant to be a minimum standard of compensation or whether the parties can agree by contract to a lower compensation standard. Also, the interpretation does not apply if local regulations provide for higher standards. In Shenzhen, for example, the local protection provides for a minimum of 50% of the employee's average monthly salary of 12 months prior to the employee's leaving to be paid by the employer.
Regarding termination of the non-compete agreement, the interpretation clarifies that an employer may terminate the agreement during the non-compete period, but in that event the employee is entitled to claim an additional three-month compensation from the employer. An employee can request a court to remove his/her non-compete obligations, but only if the employer fails to pay the compensation for three months.
Regulation reference: Judicial Interpretation IV on Several Issues Concerning the Application of Law in Hearing Labor Dispute
Issuing authority: China Supreme Court
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