Non-competition (Non-competition) refers to a legal system that employees of enterprises and institutions are not allowed to engage in business that competes with the enterprise during their tenure and within a certain period of time after resignation.

Classification of non-competition

According to the provisions of our country’s current laws, it can be divided into two types: statutory non-competition and contractual non-competition.

Statutory non-competition is based on direct provisions of the law. It is a mandatory non-competition and the parties cannot negotiate for exemption. For example, Article 61 of my country's "Company Law" stipulates: "Directors and managers shall not operate for themselves or for others the same kind of business as the company they work for, or engage in activities that harm the interests of the company. Those who engage in the above-mentioned businesses or activities, the income earned shall belong to the company All directors and managers shall not enter into contracts or conduct transactions with the company except as provided in the company's articles of association or with the approval of the shareholders' meeting." In addition, my country's "Partnership Law" and "Sino-Foreign Joint Venture Enterprise Law" also have relevant provisions. Our country's statutory non-competition provisions are mostly found in some commercial laws and are mainly targeted at senior managers such as directors, managers, partners and other companies of companies and enterprises. The reason for the legislation is that directors, managers and other senior managers of companies and partnerships, as well as partners of partnerships, are the people who manage affairs of the company and the company. They are familiar with the company's operations and master a large number of business secrets and core competition of the company and the company. They can easily use the above-mentioned resources in exchange for huge personal interests, thereby seriously affecting the legitimate interests of the company and enterprises. If they are allowed to operate for the company on the one hand, and engage in similar affairs for themselves or others on the other, it cannot be ruled out that they may cause harm to their own interests. suspicion of corporate interests.

The stipulated non-competition arises from the agreement between the parties based on the contract. There are currently no explicit legal provisions in our country regarding contractual non-competition, and they are only scattered in some administrative regulations and local regulations. Document No. 355 of the Ministry of Labor (1996) "Notice on Certain Issues in the Mobility of Enterprise Employees" stipulates: "The employer may stipulate that employees who possess business information and secrets shall not be transferred to the employer within a certain period (not exceeding three years) after the labor contract is terminated. When employed directly or indirectly by another employer that produces similar products or operates similar businesses and has a competitive relationship, the employer shall not disclose the business secrets of the original employer. The employer shall pay certain reasonable compensation to employees subject to such employment restrictions.” The state. "Several Opinions on Strengthening the Management of Technical Secrets in the Flow of Scientific and Technological Personnel" issued by the Science and Technology Commission in July 1997, the "Notice on the Protection of Intellectual Property Rights of the Results of National Key Scientific and Technological Research Projects" issued by the Science and Technology Department of the National Building Materials Administration, and the "Enterprise Technical Secrets" of the Shenzhen Special Economic Zone The local regulations of the "Protection Regulations" and Zhuhai City's "Regulations on the Protection of Enterprise Technical Secrets" also stipulate agreed non-competition restrictions after resignation. From the above regulations, it can be seen that there are no mandatory non-competition provisions in the law after employees of the company leave their jobs. However, in order to prevent employees from arbitrarily changing jobs and leaking business secrets, causing damage to their own interests, the company signs non-compete contracts with employees. , agree on non-competition obligations.

Since the statutory non-competition obligation originates from the direct provisions of the law, and the contractual non-competition obligation originates from the agreement between the parties, in judicial practice, the identification of the two should be different.

Identification of statutory non-competition

The legal effect of statutory non-competition comes from direct provisions of the law. In practice, statutory non-competition should be determined strictly in accordance with the provisions of our country's current laws. Specifically, we should pay attention to the following issues:

(1) The subject of the obligation is specific, which is the counterparty who has the obligation to prohibit competition in accordance with the law. It is generally a person who holds a certain position, mainly including Chinese and foreign employees. General managers and deputy general managers of joint ventures; directors and managers of limited companies and joint stock companies; chairman, vice chairman, directors, and managers of wholly state-owned companies; and all partners of partnerships. For other employees, whether they should bear statutory non-competition obligations depends on the legislation of various countries.

For example, Italian law stipulates that employees may not compete with their employer for their own benefit or that of a third party, nor may they disclose information related to the employer's management or production methods, or allow third parties to use the above information in a manner that causes damage to the employer. However, our country's laws do not have clear provisions on this. Therefore, in our country, ordinary employees cannot become business entities subject to statutory non-compete.

(2) The subject matter of the non-competition is specific and is the same or similar business to the company where the obligor works, not all businesses. Mainly include: not to engage in business that is the same as the company's business scope for oneself or a third party; not to transfer one's own products or other properties to the company, nor to receive the company's products or other properties; not to engage in other activities that compete with the company.

(3) The period of non-competition is fixed and is the period of the obligor’s term of office. Our country's law only stipulates that legal non-competition obligors must bear non-compete obligations during their term of office. The law does not explicitly prohibit whether the obligor should bear non-competition obligations after leaving the company. According to the principle of "what is not prohibited by law, it is permitted", under the current circumstances, we will not bear any responsibility for the non-competition behavior of the obligor after he leaves the company. If the non-competition behavior is to be restricted, the non-competition obligations can only be determined through an agreement between the parties.

(4) Legal nature of the obligation, that is, if there is no legal provision, there will be no non-compete obligation of the parties.

Identification of agreed non-competition

The legal effect of agreed non-competition comes from the agreement of the parties, which embodies the principle of party autonomy. Generally speaking, the agreed non-compete clauses should generally include the specific scope of the non-competition, the period of the non-competition, the amount and method of payment of compensation, liability for breach of contract, etc. As for non-compete agreements, based on the principle of private contract autonomy, as long as the agreement does not violate public order and good customs or impose mandatory regulations, it will be valid in principle. However, non-competition involves a conflict of interests between two parties: on the one hand, it is the economic interests of the employer, and on the other hand, it is the interests of employees' rights to survive and work. Therefore, the determination of non-competition should be strictly limited and handled appropriately, taking into account the interests of both parties, so as to protect the legitimate interests of the employer without causing undue infringement on the basic rights of employees.

(1) The non-competition must have a clear target of protection

The employer must have legitimate interests that really need to be protected before it can enter into a non-competition clause with its employees. This is to prevent employers from signing non-competition clauses with employees in a general way without clear protection targets, thereby restricting employees’ freedom of choice of employment. The so-called legitimate interests refer to the existence of rights and interests worthy of protection by business owners. It mainly includes the technical secrets and business secrets of the employer. Special training provided by the employer to its employees is also a legally protectable interest. As for whether there are interests worth protecting, the employer should bear the burden of proof.

(2) The subject of the non-competition obligation should not be too broad

Since the employer enters into a non-competition clause with its employees in order to prevent damage to its legitimate interests, the non-competition clause will The subject of the prohibition should also be limited to the extent that the non-competition after leaving the company will cause harm to the enterprise, and cannot extend to all employees. The subjects subject to non-competition obligations should be limited to senior managers, technical researchers, financial management personnel, sales personnel, etc. who have access to, understand or master the company's technical secrets and business secrets. For employees who are unlikely to come into contact with any operating secrets, trade secrets and other valuable information to the employer and its competitors at work, even if they sign a non-compete contract, it should be invalid. Therefore, employers should avoid signing non-compete agreements regardless of employees’ positions, education level, or whether they have access to corporate trade secrets.

(3) The period of non-competition should be reasonable

Non-competition is for the employer to protect its technical secrets and business secrets in order to maintain its advantageous position. Therefore, the timeliness of technical secrets and business secrets is of great significance in determining the reasonable period of non-competition. The nature of technical secrets and business secrets determines their timeliness.

Some technical secrets and business secrets that maintain a company's competitive advantage may last a lifetime, such as the Coca-Cola Company's beverage formula; some technical secrets and business secrets that maintain a company's competitive advantage may be short-lived, such as the computer's Windows operating system, which disappears almost every year. They are all being updated. It can be seen that due to the different circumstances of various industries, it is difficult to have an absolute standard for the number of years of non-competition. Therefore, how to determine the reasonable period of non-competition remains to be further discussed. At present, in the absence of clear provisions in our country's laws, we can refer to relevant laws and regulations to limit the number of years of non-competition to no more than three years. Specific to each case, the period of non-competition should be reasonably determined based on the nature of technical secrets and business secrets.

(4) The area of ??non-competition should not be too broad

Determining the area of ??non-competition is a relatively difficult matter. In practice, the non-competition area is often determined based on the scope of the employer's business. The author believes that this approach lacks certain rationality. In the large-scale production and circulation situation of modern society, the business of a unit, whether large or small, is often spread across the country. In this way, employees will lose the opportunity for re-employment due to signing a non-compete treaty. The author believes that it seems more convincing to determine the non-compete area based on whether the employer's competitive interests are affected and whether the employee's freedom of employment is unreasonably restricted. In actual operation, it depends on the scope and degree of influence of the employer, and the scope of economic benefits of trade secrets. If the business volume of the employer in an area is only a trace amount③ or even non-existent, it means that employees are employed in this area and will not compete with the original unit and should not be prohibited.

(5) Non-competition obligations should not exceed the employee’s scope of employment

The so-called non-competition obligations refer to the businesses or jobs that employees are not allowed to engage in after leaving the company. In this regard, some people have suggested that in order to facilitate the operation in practice, the industry in which the employer is engaged in as determined on the employer's business license should be the scope. The author believes that determining non-competition business based on the employer's approved business scope will cause unreasonable non-competition for employees. Because the employer's actual business operations are often smaller than the declared business scope, it is unfair to employees to require employees to bear non-compete obligations for businesses that the employer does not actually operate. In this regard, some people have proposed that the actual industry of the employer should be the scope. The author believes that this scope will also expand the non-competition obligations to an unreasonable scope. Under normal circumstances, it is impossible for employees to touch all the industries in which the employer operates. It is unreasonable to ask employees to bear non-competition obligations in industries that they are not involved in. Therefore, non-compete obligations cannot extend beyond the employee’s scope of employment. However, this does not mean that the non-competition obligation is within the employee’s scope of practice, but should be less than or equal to the employee’s scope of practice. This scope should be limited to the scope where employees have learned or come into contact with special and specialized business because they serve in the enterprise. Otherwise, the non-competition will lose its causality. Of course, the business owner should bear the burden of proof as to whether it is protected special knowledge.

(6) Compensation payable for non-competition

The employer’s financial compensation to employees is a basic requirement for the non-compete agreement to be effective. After all, non-compete restricts employees’ rights to survive and freely choose their jobs. Because employees cannot work in relevant companies, their income and quality of life will be reduced to varying degrees. If employees do not receive corresponding compensation, new benefits will be lost. balance. Through the payment of compensation, not only the employee's damage can be compensated, but it is also worthwhile for the employer to pay some amount to protect its greater interests. The amount of compensation is currently only stipulated in principle in administrative regulations. In actual implementation, employers often set lower standards. In this regard, some people have proposed that the standard of living expenses should not be lower than the minimum living standard controlled by the local area where the employee is located. Some people also refer to the standards stipulated in Shenzhen or Zhuhai and propose that the average annual compensation should not be less than 2/3 or 1/2 of the total annual salary. The author believes that the amount of compensation must not only satisfy the employees' living standards without significantly reducing them, but also fully reflect the regulatory function of the non-competition.

In the specific operation, the minimum standard is no less than 1/2 of the employee's total salary in the year before he resigned, and the method is adopted to increase it year by year, with 2/3 in the second year and the entire salary in the third year. In this way, the longer the term, the greater the burden on the employer. The employer will consider the non-competition period and adjust the amount of compensation fees to make the non-competition period more reasonable.

[Editor]

Some issues regarding non-competition

(1) Regarding whether employees should bear non-compete liability for their non-job skills The issue of obligations

Non-duty technical achievements refer to the results of technical achievements completed by people who do not mainly use the material conditions of the unit, but are the results of their own research. The right to use and transfer non-work technical achievements belongs to the person who completed the technical achievements. After a non-office technical achievement person transfers his technology to the company, should he bear the obligation of non-competition after he leaves the company? In this regard, the author believes that non-job technical achievement persons do not bear non-competition obligations. Because the rights to non-job technical achievements belong to the person who completed them, he has the right to deal with his own technical achievements. After he transfers his technological achievements to this unit, he establishes a technology transfer contract relationship with this unit, and the rights and obligations of both parties should be determined in accordance with the provisions of the contract. If any party fails to perform the contract correctly, it will only be liable for breach of the technology transfer contract. This is essentially different from the liability for breach of contract in a non-competition contract that is in the nature of an employment contract.

(2) Regarding the issue of whether compensation should be given to the legal non-compete obligors

The legal non-competition obligors are the company’s directors, managers, partners, etc., and their interests closely linked to the interests of the company. The law stipulates that the direct purpose of a non-competition between a company and a non-compete obligor is to safeguard the interests of the company. The final beneficiary is the non-compete obligor. Therefore, there is no compensation for the legal non-compete obligor. necessary. Moreover, the law does not provide for the payment of compensation fees for statutory non-competition obligations. Therefore, the legally prohibited obligor should not be compensated.

(3) Procedural issues regarding the handling of non-competition disputes

Disputes arising from violation of statutory non-competition obligations are by nature a dispute in which the parties violate the provisions of the law and infringe upon the rights and interests of the company . To resolve the dispute, the parties may directly file a lawsuit with the People's Court. Agreed non-competitions must be treated on a case-by-case basis. If a non-compete clause exists in a labor contract and the party violates the non-competition agreement, the dispute arising from the violation of the labor contract should be determined, and according to the existing legal arrangements, the arbitration department will first arbitrate the dispute. If a non-compete is stipulated in a separate agreement, such as a confidentiality agreement, disputes should not be arbitrated first. Because a confidentiality agreement entered into after the labor relationship between the employee and the employer is established does not fall within the scope of the labor contract, any non-competition dispute that arises is not subject to labor dispute settlement procedures and should be filed directly in court. This is consistent with the regulations of the National Science and Technology Commission.