Evolution of Legal Frameworks
China’s approach to non-compete agreements has shifted significantly since 2008. Initially treated as trade secret infringement cases, these disputes are now classified as labor contract matters under judicial practice. Businesses must navigate this dual-track system—where trade secret infringements fall under tort law, while non-compete breaches are contractual disputes—to effectively safeguard intellectual property.
Part 1: Non-Competes in Trade Secret Litigation
To claim trade secret protection under Article 9 of China’s Anti-Unfair Competition Law, businesses must prove three elements: information confidentiality, demonstrable commercial value, and reasonable protection measures. Crucially, non-compete agreements alone cannot satisfy the “protection measures” requirement. The landmark Shanghai Furi v. Huang Ziyu (2011) ruling established that employers must implement specific safeguards including IT access controls, clearly defined confidential information scopes in employment contracts, and physical/documentary security protocols like encryption or access logs.
Chinese courts apply a six-factor test to evaluate confidentiality measures: information sensitivity, quantified commercial value, clause clarity, security infrastructure investments, employee training records, and enforcement consistency. Failure to meet these standards voids trade secret claims regardless of existing non-competes.
Part 2: Trade Secrets in Non-Compete Disputes
Non-compete litigation operates under distinct principles. Article 24 of the Labor Contract Law presumes senior managers and R&D personnel possess confidential knowledge without requiring granular evidence. Employers must provide monthly compensation (≥30% of pre-departure salary) during restricted periods and initiate mandatory labor arbitration before court action—bypassing this triggers dismissal, as seen in Case Ji 0502 Min Chu 89 (2022).
Part 3: Concurrent Liability Strategies
Businesses can pursue dual claims against violating employees:
1. Tort actions for trade secret misappropriation under Anti-Unfair Competition Law Article 9.
2. Contract claims for non-compete breaches under Labor Contract Law Article 24.
Courts permit simultaneous actions, as established in Hangzhou Hengsheng v. Wang Yunmin (2014), because tort claims address information theft while contract claims target prohibited employment—separate legal facts under Civil Code Article 186.
Part 4: Judicial Precedents
The Supreme People’s Court (SPC) emphasizes proportionality between trade secret exposure and livelihood impact. In Nanjing Catering Co. v. Liu, restrictions against a chef were voided because:
□ His standardized recipes involved no secrets
□ No confidentiality evidence existed
□ The employer failed to define protected information
This underscores SPC’s position: non-competes bind only those with material trade secret access.
Part 5: Implementation Framework
Design enforceable agreements using these parameters:
□ Covered Personnel: Restrict to senior managers and R&D staff; avoid junior roles.
□ Compensation: Pay ≥30% of average salary monthly.
□ Duration: Limit to ≤2 years post-employment.
□ Geography: Restrict to operational regions (e.g., province-level).
□ Confidentiality Linkage: Explicitly list protected secrets (e.g., source code, customer databases) in contracts.
Conclusion: Actionable Roadmap
Phase 1 – Prevention
Conduct role-specific risk assessments (limit non-competes to <8% of workforce), categorize secrets by sensitivity tier, and document annual confidentiality training.
Phase 2 – Enforcement
Initiate labor arbitration upon violation, preserve digital evidence within 72 hours, and file tort/contract claims concurrently.
Phase 3 – Maintenance
Audit confidentiality protocols biannually using SPC factors, adjust compensation to 120–150% of local average wages, and maintain regional geographic constraints.