Special Rules of Non-Compete in Shenzhen
As a special economic zone in China, Shenzhen has the legislative power over the Shenzhen Special Economic Zone. Therefore, there are some differences between the rules formulated and applied in Shenzhen and those applied nationwide in terms of legal provisions on non-compete. The main differences are as follows:
- Joint and Several Liability of Competitive Enterprises
The non-compete obligations of ex-employees are arising from the non-compete agreement signed between the employer and the ex-employee. The competitive enterprises are not binding by the non-compete agreement. Thus, when the ex-employee violates his or her non-compete obligations, the employer has no right to require the competitive enterprise employing the ex-employee to bear joint and several liabilities.
The Regulations of Shenzhen Special Economic Zone on the Protection of Technical Secrets of Enterprises (Revised Edition 2019) makes an exception to that: When an employee with non-compete obligations is in breach of the non-compete agreement, he or she will be required to pay the agreed liquidated damages to the employer. If the competitive enterprise knows or should know that the employee has non-compete obligations and still employs the employee, it shall bear joint and several liabilities.
- Minimum Non-Compete Compensation Standard
There is no minimum non-compete compensation standard nationwide. However, according to the Judicial Interpretation (IV) of the Supreme People’s Court, if the non-compete agreement does not specify the compensation amount, the employer must pay the employee compensation at 30% of the employee’s average monthly salary in the 12 months before termination of employment.
The Regulations of Shenzhen Special Economic Zone on the Protection of Technical Secrets of Enterprises (Revised Edition 2019) clarifies that the compensation amount agreed in the non-competition agreement shall not be less than one-half of the average monthly salary of the employee in the last 12 months before leaving the enterprise.
- Termination of Non-Compete Agreement
According to the Labor Contract Law of the PRC, the judicial interpretation of the Supreme People’s Court and other relevant provisions, an ex-employee is entitled to unilaterally terminate the non-compete agreement, only when the employer has failed to make compensation payments for three months or longer.
The Regulations of Shenzhen Special Economic Zone on the Protection of Technical Secrets of Enterprises (Revised Edition 2019) stipulates that an ex-employee is entitled to unilaterally terminate the non-compete agreement when the employer fails to make non-compete compensation payment for more than one month.
Meanwhile, the Regulations of Shenzhen Special Economic Zone on the Protection of Technical Secrets of Enterprises (Revised Edition 2019) clearly stipulates that when the employer unilaterally terminates the labor contract in violation of the law, the employee may unilaterally terminate the non-compete agreement.
And according to the Regulations of Shenzhen Special Economic Zone on the Protection of Technical Secrets of Enterprises (Revised Edition 2019), if the term of the non-compete agreement is not stipulated or is not clearly stipulated, it is deemed that there is no fixed term, the agreement may be terminated at any time, but the other party should be notified at least one month in advance.
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