China: Employee was ordered to Pay Damages to the Employer for Breach of Non-solicitation Obligation

The Shanghai Intermediate People’s Court held that the agreement on employee’s post-employment non-solicitation obligation was valid and therefore, the employee was ordered to pay damages to the employer for the breach of said obligation.

Mr. Chen (“employee”) joined the internet platform company (“company A”) in 2018 and was responsible for staff recruitment. The two parties signed the employment contract, which included a post-employment non-solicitation clause that prohibited the employee from soliciting active employees of the company. Later, the employee resigned from the company and joined a different employer (“company B”), where he continued to be responsible for staff recruitment.

In 2020, the employee contacted four employees of Company A via social media and inquired whether they would like to seek new job opportunities at Company B. Company A believed the employee’s actions violated the non-solicitation obligation and subsequently initiated labour arbitration proceedings before filing a lawsuit against the employee, claiming damages.

The Shanghai Intermediate People’s Court heard this dispute and eventually ruled in favor of Company A. The court came to its decision based on the following: i) it was apparently inappropriate for the employee to take advantage of Company A’s individual connections and incite those employees to change jobs; ii) the non-solicitation obligation agreed upon in the employment contract shall be valid and followed by the employee; and iii) the employee shall pay damages for breach of the non-solicitation obligation. Accordingly, the court considered Company A’s actual losses and ruled the damage amount to be RMB 2,000.

Key Action Points for Human Resources and In-house Counsel

In the present case, though the damage amount the employee was ordered to pay was not very high, the non-solicitation clause should no longer be viewed as a “goodwill provision” that has no substantial legal consequences if breached. It is advisable for employers to value the application of non-solicitation clauses and adopt measures such as imposing confidential and non-compete obligations at the same time, in order to build a comprehensive system of talent management for the company.