China: Ministry of Human Resources and Social Security Issued the Compliance Guidelines for Enterprises Implementing Non-Compete Restrictions

On September 4, to guide enterprises in implementing non-compete obligations in compliance with the law, protect enterprises’ trade secrets and employees’ rights to employment and career choice, the General Office of the Ministry of Human Resources and Social Security issued the Compliance Guidelines for Enterprises Implementing Non-Compete Restrictions (the “Guidelines”) in accordance with the Employment Contract Law and other laws and regulations.

The Guidelines clarify that when enterprises implement non-compete restrictions, they shall confirm the content of trade secrets, follow the principles of necessity and reasonableness, and shall not arbitrarily expand the scope of employees subject to non-compete obligations. The maximum term Enterprises shall pay economic compensation on a monthly basis, with the standard generally not less than 30% of the average wage of the previous 12 months before the termination of the employment contract, and not less than 50% if the non-compete term exceeds 1 year. The liquidated damages shall generally not exceed 5 times the total amount of economic compensation. Enterprises may negotiate with employees to adjust the scope, region and term of non-compete obligations. In the event that the employer fails to pay the compensation in full and on time, and such failure persists for more than one month after being reminded by the employee, or for a period exceeding three months, the employee shall have the right to be released from the non-compete obligations.

Key Action Points

The release of the Guidelines provides crucial clarification on balancing trade secret protection with legitimate talent mobility, establishing a practical framework for healthy employment practices. For enterprises, three key dimensions demand attention. First, precise identification of covered employees is essential to avoid disputes arising from improperly including ordinary employees. Second, the rigid constraint of the compensation mechanism. Timely and full monthly payment of compensation has become a baseline requirement for fulfilling obligations; any default may directly result in the employee being released from non-compete obligations. Third, the reasonableness in designing non-compete clauses. The geographical scope and duration of non-compete restrictions must correspond to the enterprise’s actual operational scale, preventing invalidation due to excessive restrictions.