China: Suzhou Court Issued the City’s First Injunction for Non-Compete Obligations
Author: Carol Zhu and Lynsey Liu
Recently, the Suzhou Municipal Human Resources and Social Security Bureau, in conjunction with the Intermediate People’s Court of Suzhou, jointly released the top ten typical cases of labour and personnel dispute arbitration and adjudication in Suzhou for the year 2023. Among these cases, the court issued the city’s first injunction for non-compete obligations, which prohibits an employee from engaging in similar work at a new employer in competition with his former employer.
Mr. Wu joined a robotics company as an engineer in July 2006. Both parties signed the Non-Compete Agreement and Confidentiality Agreement, stipulating that Mr. Wu was prohibited from providing services to competitors or similar entities of the robotics company for two years following his departure. In the event of a breach of the non-compete obligations, Mr. Wu would be required to return the received non-compete compensation and pay a penalty equal to five times the total amount of compensation received. In December 2021, Mr. Wu applied for resignation due to changes in his personal career plan. On the same day, the robotics company sent Mr. Wu a notification letter, clarifying the terms of the non-compete period and the payment of the non-compete compensation. Subsequently, Mr. Wu reported his entrepreneurial status proactively, and the robotics company paid him the non-compete compensation monthly. Later, the robotics company discovered that Mr. Wu had joined a competing company and after, initiating arbitration proceedings, sued Mr. Wu in court.
The court found that after his resignation, Mr. Wu frequently visited the office premises of the competing company during the non-compete period. His vehicle was recorded multiple times entering a nearby underground parking garage, and Mr. Wu failed to provide a reasonable explanation for these facts. Based on this evidence, the court determined that Mr. Wu had violated the non-compete obligations. The court ruled that Mr. Wu shall return the non-compete compensation of CNY 97, 237 to the robotics company, pay a penalty of CNY 486,185, and continue to fulfil the agreed non-compete obligations until the end of the non-compete period. The robotics company applied for an injunction to the court of first instance, which, after review, issued a civil ruling: Mr. Wu was prohibited from engaging in similar work at any employer in competition with the robotics company, with the ruling’s effectiveness lasting until the non-compete period expired. Mr. Wu appealed the first-instance judgment. The appeal was later dismissed by the second-instance court, upholding the original judgment.
Key Action Points
Given that in many non-compete dispute cases, by the time the legal documents come into effect, the non-compete period has already expired or is about to expire. Companies face real challenges in achieving the objectives of protecting trade secrets and maintaining competitive advantages through the cases. In this case, the company applied for an injunction at the first-instance trial, requiring the employee to fulfil the non-compete obligations as agreed, thereby ensuring the timely protection of the company’s competitive edge.
