Non-disclosure and Non-competition Agreements in the PRC

Non-competition and Non-disclosure agreements are becoming increasingly popular in employment contracts all over China. How can these be enforced, and how can an employer design an effective agreement to protect their commercial secrets and prevent staff from being poached by third parties?

INTRODUCTION

The chief engineer of your company has just resigned and joined one of your toughest competitors, taking with him technical and management know-how and other proprietary information. Soon thereafter, your competitor starts producing what is described as a new and improved version of your product and selling its products at a much lower price. As a result, the sales of your company plummeted. What is your legal recourse?

The top sales person of your company is lured away by your competitor with a high guaranteed salary and incentive bonus. The top sales person knows your pricing intimately, your customers and your marketing strategies. Unknown to you, she has downloaded the customer list from the computer.  You thought the three-line non-competition clause in your labour contract with her should prevent her from being able to join the competitor. You brought the case to the Labour Arbitration Commission.  However, the arbitration panel stated that the non-competition clause in your labour contract is unenforceable, because the top sales person is not compensated monetarily for the non-competition obligation. But, you thought that part of the reason that she was the highest paid sales person in the department was to keep her from jumping ship. What went wrong with the non-competition clause?

As China's economy becomes more market driven and the people more mobile, it is increasingly important for each employer to ensure that the valuable employees and their knowledge are not used to the detriment of the employer, and that the training the employer provides to the employees will benefit the employer. 
There are various laws and legal theories under which a non-disclosure agreement and a non-competition agreement can be enforced. 

LAW IN THE ABSENCE OF A SPECIFIC AGREEMENT