A district court in Tianjin has reportedly enforced an employer's non-compete restriction on a former employee even though the non-compete provision did not provide for compensation for the employee's obligation. Under the Employment Contract Law, a non-compete agreement must stipulate that the employer will pay monthly compensation to the employee during the non-compete period.
While still working for his employer, the employee signed an agreement that restricted him from joining a competitor during the two years following the termination of his employment. After the employee resigned, the employer discovered that he had joined a competitor. The employer requested that the employee abide by the non-compete restriction and decided unilaterally to pay the employee 50% of his monthly salary as compensation. Even though the employee rejected the sum, the employer remitted two payments to his bank account as non-compete compensation.
The court stated that lack of a non-compete compensation provision does not alter the effectiveness of the non-compete restriction; as the employer had fulfilled its obligation to pay non-compete compensation, the employee should fulfil his non-compete obligation accordingly. This decision is in line with several official guiding opinions issued by local courts in other cities (eg, high courts in Beijing and Shanghai), which hold that the lack of a non-compete compensation clause does not render a non-compete restriction invalid, and that if the parties cannot agree on an appropriate amount of compensation, the employee's remedy is to apply to the court for a more reasonable level of compensation, rather than to ignore the restriction.
Companies that hire personnel from a competitor should not assume that the absence of a compensation clause automatically renders a non-compete agreement with the previous employer invalid.
For further information on this topic please contact Andreas Lauffs or Jonathan Isaacs at Baker & McKenzie's Hong Kong office by telephone (+852 2846 1888), fax (+852 2845 0476) or email ([email protected] or [email protected]).