In a recent non-compete dispute, the Shanghai Employment Arbitration Commission issued an “injunction” in an arbitral award requiring the exemployee to end the employment relationship with the competitor, and perform the two-year non-competition obligation owed to the ex-employer. The employee later failed to terminate the employment relationship with the competitor. Upon the request of the ex-employer, the Pudong District People’s Court issued an order to mandatorily enforce the Shanghai Employment Arbitration Commission’s arbitral award. The ex-employee finally complied and terminated the employment with the new employer.
This case shows that arbitration commissions and courts in Shanghai have become willing to grant and enforce injunctive relief in non-competition cases. In the past, Chinese courts and arbitration tribunals rarely issued any injunctive orders to force the employee to terminate the employment with the existing employer, and only issued monetary damages awards. It still remains to be seen whether courts are willing to issuepreliminary injunctive orders before the final judgment in a non-competition case, based on the amended Civil Procedure Law, so that the ex-employer does not have to wait until the end of the arbitration / judicial proceeding to receive a favorable ruling. This would be more helpful to companies, because by the time of final judgment, the non-competition period may have lapsed and at that point the issue becomes moot.
In another recent non-competition case in Shanghai, the Xuhui District People’s Court granted damages of RMB 150,000 in favor of an exemployer that sued an ex-employee for violation of the post-termination non-competition obligation. In that case, the court denied the employee’s argument that the company waived the non-competition obligation by failing to timely pay the non-competition compensation. The company paid the non-competition consideration on the 47th day after the termination of employment (i.e., on the regular payroll day the month after the employee’s employment was terminated), and at that time found that the employee had cancelled his bank account registered with the company. This case shows that payment of the non-competition compensation in reasonable arrears would likely not cause the non-competition obligation to become ineffective, and that courts may interpret the employee’s attempt to obstruct the payment of the non-competition consideration as not undermining the company’s fulfillment of its payment obligation (special consideration is required to be paid to render a post-termination non-compete restriction enforceable).