China -  Chinese law firm

Global Employment briefing: China, May, 2013

1. What key issues are clarified by the fourth judicial interpretation on labour disputes issued by Supreme People’s Court on 31 January 2013?

Under PRC Labour Contract Law, a company may enter into post-termination non-competition agreement with a limited type of employees, including senior executives, senior technicians and other personnel with contractual confidentially obligations. The specific scope, geographical region and term must be agreed by the parties. The former employer must pay monthly compensation during the period of non-competition. In the event of a breach by the employee, liquidated damages may be agreed.

          However, the Law leaves various issues open. The Interpretation now provides further clarification on issues including enforceability, termination, liability for breach of an agreement as well as provide a national standard on compensation.

2. How is the enforceability of an Agreement?

If post-termination non-competition obligations and compensation are agreed in a labour contract or a confidentiality agreement, such agreement is enforceable irrespective of how or why the contract is terminated.

3. What is the result for breach of agreement?

Should an employee breach his/her obligations, the remedies available to a company include payment of liquidated damage as agreed and performance of contractual obligations.

If a company fails to pay compensation for 3 or more months, an employee may opt to terminate the agreement and therefore be released form the obligations.

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