Shenzhen, China, Gets Clear on Non Competes

Shenzhen employment law
Shenzhen employment law

To ensure smooth implementation of the measures on handling labor disputes and to “harmonize” the interpretation and understanding of the application of laws in employment cases, the Shenzhen labor arbitration committee recently released a summary of its meeting minutes to address issues regarding adjudication of labor disputes. Their summary is intended to be a guide to district-level labor arbitration committees within Shenzhen.

A quick aside. Though Shenzhen is in Guangdong Province, you should not assume the Guangdong provincial laws automatically apply to Shenzhen because they don’t and there are in fact many differences between the employment laws of Guangdong Province and Shenzhen City. As I am constantly mentioning on this blog, China’s employment laws are very localized and this is something of which you must always be aware.

The good news for employers is that the Shenzhen labor summary includes an employer-friendly rule regarding non-compete agreements and provisions. Specifically, if an employee breaches a non-compete, the employer can demand the employee return all non-compete compensation paid to the employee during the period of breach. The employer can also demand the employee pay contract damages and require the employee to continue to perform his or her non-compete obligations. So a breach by the employee does not suspend the non-compete agreement as the employer can choose to hold the employee to the non-compete until the non-compete period expires. If the employee breaches the non-compete again, the employer can demand the employee pay contract damages for the second breach. This is not exactly new, but it makes clear that employers have multiple remedies for an employee’s breaches of a non-compete: paid compensation, specific performance, and contract damages.

Though this is all good, Shenzhen employers still must proceed with care on non-competes. First, before entering into a non-compete with an employee, the employer should consider whether the employee is even eligible to sign a non-compete under Chinese law? If the answer is no, it will not be able to enforce the non-compete. And when sued for breach, China employees almost always argue that the signed non-compete is not enforceable against them because the employer is not allowed by law to impose non-compete restrictions on them. You should be prepared to rebut this argument.

Second, you must pay your employees consideration for their not competing during the entire term of the post-termination non-compete period. You will not be able to enforce your non-compete unless you make these payments and the required payments in Shenzhen tend to be on the high side. So before you execute a non-compete agreement or provision with one of your employees, you should consider the business and financial pros and cons of doing so.

Third, for your choice of remedies to work to their fullest extent, you should include a legally enforceable contract damages provision in your non-employment agreement or your non-compete agreement.

You should be aware that if you as an employer enter an agreement with an employee regarding an employee leave where the employee will not do work for you but will still get paid, you must pay the employee during this entire period. This is because your failure to pay your employees even during such a leave will give them the right to terminate their employment contract with you on the basis of employer abuse and to demand damages for being forced to leave employment.

This article was written by Grace Yang and published on China Law Blog. Original Post: https://www.chinalawblog.com/2017/11/shenzhen-china-gets-clear-on-non-competes.html      

View the original article here.

Grace Yang

Grace focuses on international business and China law. Grace is admitted to practice law in the States of New York and Washington. Grace is our lead attorney on China labor and employment law.