international employment law firm alliance L&E Global

China: Non-compete Agreement Cannot Impede the Autonomous Employment Rights of Employees without Confidentiality Obligations

On 10 January 2017, Li joined a company as a masseuse, and both parties signed an employee confidentiality agreement, which stipulated that Li would not engage in similar services for competing products or companies within two years after leaving the company.  Otherwise, Li would be required to pay a one-time penalty of no less than CNY 50,000. In November 2017, Li obtained a certificate as a senior pediatric masseuse.  In May 2021, Li resigned from the company and started working at a community health service centre’s Chinese medicine pharmacy in July. The company claimed that Li had access to customer information, product pricing schemes, training courses, and other information belonging to the company and subject to other confidentiality obligations.  The company applied for arbitration with the Labour Dispute Arbitration Committee, requesting Li to pay a penalty of 50,000 yuan for violating the non-compete obligation.  The Labour Dispute Arbitration Committee did not support the company’s claim, and later, the company filed a lawsuit with the People’s Court.

The court ruled that Li was a masseuse and trainer for the company and did not hold a position as a senior manager or senior technical staff. The customer information Li had access to was basic information naturally encountered during service, such as customer names and contact details.  The product pricing schemes Li came across were publicly available to customers, and potential clients could obtain them through inquiries.  Although the training courses provided by the company were in the form of self-made presentations, the knowledge within them consisted of common knowledge in the field of pediatric Chinese massage.  Additionally, the massage and manipulation knowledge and skills Li acquired through training during their employment were common professional knowledge and skills in the industry. The evidence provided by the company can only demonstrate that Li had access to the company’s general business information during their regular work, not core operational information.  Employees who only have access to general business information of the employer during their normal job duties do not fall under the category of “other personnel with confidentiality obligations,” as stipulated in Article 24(1) of the Employment Contract Law.  The company’s claim that Li was a person with confidentiality obligations subject to non-compete restrictions lacked sufficient evidence. The court ordered the dismissal of the company’s lawsuit, requesting Li to pay a non-compete penalty.

Key Action Points

In recent years, the court has become increasingly stringent in its examination of whether employees should bear non-compete obligations in order to prevent the abuse of non-compete clauses by generalizing their application.  When employers enter into non-compete agreements with employees, it is advisable for them to seek legal advice on whether the employees in question fall under the applicable scope of non-compete restrictions.