Ruling From Supreme People's Court Referenced Case Database 

Summary of the Court Ruling

If a non-compete agreement restricts an employee from pursuing a job in which they excel or have expertise during the specified period, and this significantly affects their livelihood and employment opportunities, the application of such restrictions must be strictly aligned with legal provisions. In practice, determining whether an employee qualifies as non-compete personnel hinges on their access to trade secrets and confidential information related to intellectual property rights. If an employee does not possess such confidential information, they do not fall under the legal definition of non-compete personnel. Therefore, if an employer asserts that an employee is liable for breaching a non-compete agreement—despite the employee not having access to trade secrets—the court will not uphold the employer's claim in accordance with the law.

Case Overview  

This case involves a non-compete dispute between a catering management company based in Nanjing and an individual surnamed Liu. The court's perspective on the matter was centered around whether Liu  qualified as a non-compete individual under the law. 

According to the first paragraph of Article 24 of the Labor Contract Law, individuals subject to non-competition are those who have access to or knowledge of their employer's trade secrets. This typically includes senior management, research and development staff, technical employees, as well as personnel in management, accounting, and other key roles. Given that non-compete restrictions can significantly hinder an employee's ability to pursue their expertise or familiar work during the specified period, it is essential to apply these provisions strictly in accordance with the law.

In practice, determining whether an employee falls under the non-compete category hinges on their access to trade secrets and confidential information related to intellectual property. If an employee does not possess any confidential information, they are not bound by the non-compete agreement, even if they have signed one.

In this case, although Liu entered into a non-compete agreement with a catering company in Nanjing, his role as a chef involved preparing standard cold dishes, such as cold cucumbers and boiled edamame. This did not sufficiently demonstrate that he had access to the employer's confidential information. Furthermore, the catering company failed to provide evidence that Liu had acquired any technical secrets related to dish preparation during his employment. By categorizing Liu as someone with confidentiality obligations, the catering company improperly restricted his rights, rendering the agreement invalid. Consequently, the court did not support the catering company's request for liquidated damages or compensation for losses from Liu.

Court Analysis and Summary

The non-compete system is designed to strike a balance between safeguarding a company's trade secrets and respecting employees' rights to pursue their chosen careers. According to Article 23 of the Labor Contract Law, employers and employees can mutually agree to maintain confidentiality regarding trade secrets and intellectual property rights. Additionally, they may establish a non-compete clause. However, the lack of clarity in the first paragraph of Article 24 regarding "other persons with confidentiality obligations" has led to differing interpretations in practice. Some believe that employees who have signed a non-compete agreement should continue to uphold these obligations even after leaving the company. This has raised concerns that the non-compete system may be misused by employers to unjustly limit the employment opportunities of departing employees.

The Supreme People's Court has emphasized that the non-compete obligations should be confined to employees who have access to trade secrets or confidential information related to intellectual property. Therefore, when employers negotiate a non-compete clause with an employee, it is crucial to evaluate whether the employee indeed possesses such sensitive information. To mitigate the risk of the non-compete clause being deemed invalid in potential disputes, it is advisable for the employment contract or non-compete agreement to explicitly outline the employee's role and the specific information that must remain confidential.