On June 27, 2012, the Supreme People’s Court (SPC) issued a draft version (for comments) of the Interpretation on Several Issues Concerning the Application of Laws in the Trial of Cases Involving Labor Disputes (IV). The public was allowed to submit comments on the draft until July 28, 2012. Under the draft interpretation, an employer’s request for an employee to perform a non-competition obligation will be denied by courts if (1) the relevant non-competition clauses under the labor contract or confidentiality agreement are silent on economic compensation to the employee upon dissolution or termination of the labor contract; or (2) the employer delays in paying compensation to the employee for more than one month after the dissolution or termination of the labor contract, unless the employee is willing to continue performing the obligations. If a contract is silent on non-competition compensation, and if an employee has performed the non-competition obligations, the court will support his/her claim for an employer to pay compensation based on his/her average salary of the past 12 months before the termination of the labor contract rather than the one-fifth to two-thirds of salary typically provided for in contracts depending on applicable local regulations.

In addition, the draft Interpretation supports an employee demanding severance compensation based on illegal termination by the employer if an employer unilaterally terminates the labor relationship without soliciting opinions from the labor union (if there is one), or based on the principle of “elimination of the least competent” without there being a permitted cause for termination by the employer under the Labor Contract Law.

The draft Interpretation also clarifies that the existence of an employment relationship between a foreigner, a stateless person, or a Taiwan, Hong Kong or Macau resident and a domestic employer depends on whether or not the employee has been issued a work permit instead of a signed labor contract. In the absence of a work permit, the relationship will be dealt with a civil contract without the protection of the Labor Contract Law.