Legal issues on matching non-competition agreement with labor contract | enterprise risk control
Competition restriction is a legal system in which an enterprise prohibits its employees from engaging in business that competes with the enterprise or working in other enterprises that have competition with the enterprise or other interests within a certain period of time after leaving the enterprise in order to keep trade secrets or maintain competitive advantages. Non-competition clauses refer to specific agreements or texts, including special non-competition contracts and non-competition clauses agreed in labor contracts. Non-competition clauses are one of the important means for enterprises to keep trade secrets and maintain competitive advantages.
1. Statutory and agreed non-competition obligations
The statutory duty of non-competition is mainly aimed at the directors, senior managers, partners, investors and other personnel of the company, who have no specific procedures to work or investment entities during their tenure. Article 147 of the Company Law stipulates that the directors, supervisors and senior managers shall abide by laws, administrative regulations and the articles of association of the Company, and bear the duty of loyalty and diligence to the company. Article 148: Directors and senior managers shall not take advantage of their positions to seek business opportunities belonging to the company for themselves or others, or to operate or operate for others the same business as the company they work for. Article 32 of the Partnership Enterprise Law stipulates that a partner may not operate or cooperate with others in any business that competes with the partnership. A partner may not transact with the partnership. A partner may not engage in any activity detrimental to the interests of the partnership.
The non-competition obligation is mainly targeted at executives and R&D personnel who have access to important trade secrets in their work. Article 23 of the Labor Contract Law stipulates that where a worker violates an agreement on competition restriction, he shall pay liquidated damages to the employer in accordance with the agreement. Article 24: The persons subject to competition restriction are limited to the senior managers, senior technical personnel and other personnel under the confidentiality obligation of the employing unit. After rescission or termination of the labor contract, the period of competition restriction for the personnel mentioned in the preceding paragraph shall not exceed two years when they enter into competition with other employing units that produce or engage in the same kind of products or engage in the same kind of business with the same unit, or when they set up their own operations to produce or engage in the same kind of products or engage in the same kind of business.
2. Invalidity and termination of the non-competition agreement
Competition restriction is to protect the business secrets, competitive advantages and other core interests of the employer from being infringed, and to better develop the employer in the market. In essence, it protects the development right of the employer. For workers, competition restriction means that workers can not engage in the same or similar work with the original unit in a certain period of time, and there are certain restrictions on the rights of employment and survival of workers. When the employment rights and survival rights of ordinary employees conflict with the development rights of the employer, in order to protect the basic rights of the workers, the legislation and judicial practice make it clear that ordinary employees are not subject to competition restrictions. Even if the two parties sign a competition restriction agreement, ordinary employees can claim that the agreement violates the mandatory provisions of the law.
In addition, before the termination or termination of the labor contract, the competition restriction has not officially started. When the employer terminates the competition restriction agreement, it will not have any impact on the worker, and the worker's rights are not restricted in any way, and he can freely choose another job. Therefore, the employer has the right to terminate the competition restriction agreement before the termination or termination of the labor contract. After the labor contract is rescinded or terminated, if the employer suddenly rescinds the competition restriction during the competition restriction period, the worker needs a certain amount of time to choose another job, in order to protect the basic survival rights of the worker, the worker should be compensated accordingly. To this end, Article 9 of the Supreme People's Court's Interpretation of Several Issues concerning the Application of Law in the Trial of Labor Dispute Cases (IV) stipulates that "within the period of competition restriction, when the employer requests to terminate the competition restriction agreement, the people's Court shall support it." When terminating the non-competition agreement, the worker requests the employer to pay the worker an additional three months of economic compensation for non-competition, the people's court shall support."
To sum up, enterprises should pay attention to the following when signing competition restriction agreements:
First, since the enterprise needs to pay the non-competition compensation to the contract object of the non-competition agreement, it is not appropriate to expand the contract object and increase the cost of the enterprise. Generally speaking, the contract object of the non-competition agreement should be controlled to the key technical personnel or management personnel who have mastered the important trade secrets of the enterprise or have an important impact on the competitive advantage of the enterprise.
Second, because the wage level and consumption index are not comparable, the payment standard of compensation can not be uniformly stipulated. Enterprises should generally determine a minimum and reasonable range of compensation according to the average social wage level in the provincial administrative region and consider the actual annual income of employees, so as to ensure that the interests of employees are not harmed. Also try not to increase the unreasonable expenditure of enterprises;
Third, the area and period of competition restriction are important factors to determine whether the freedom of employees is unreasonably restricted. Employees at different levels have different areas of competition restriction. The less they have access to company secrets and the lower their level, the smaller the competition restriction area. The period of competition restriction includes the period of employment and the period after resignation. The law stipulates that the latter shall not exceed two years, but the development cycle of different industries is different, and the technical information of high-tech enterprises may have no value to the enterprises within a few months. If the competition restriction is still implemented within two years, the enterprises may unreasonably restrict the re-employment freedom of employees. It also increases the cost of unnecessary compensation.
【 Case Study 】
On March 6, 2013, Jiang Feng joined Weibster as the senior director of facilities in China, and the two parties signed the "Non-compete Agreement", which stipulates that Party B (Jiang Feng) shall have non-compete obligations for two consecutive years from the date of termination or dissolution of the labor relationship between the two parties, and also stipulates the amount and method of non-compete compensation. On September 9, 2014, the labor relationship between Jiang Feng and Weibast was terminated. On October 21, 2014, the Shanghai branch of Beijing XX Co., Ltd. handled the social security transfer procedure for He Jiangfeng. On September 9, 2015, the company handled the social security transfer procedure for He Jiangfeng. The scope of the company's business is quite different from that of Weibast. So, does Weibast company need to pay He Jiangfeng non-competition compensation?
The employer should not abuse the non-competition agreement to infringe on the rights of the workers. Competition restriction, in essence, is a restriction on the labor rights of workers, which protects the employer's right to trade secrets and restricts the realization of workers' right to choose jobs freely. In this case, both parties expressly agree that He Jiangfeng shall bear the non-compete obligation for two consecutive years from the date of termination or dissolution of the labor relationship between the two parties, and agree that if He Jiangfeng does not violate the agreement, Weibster Company shall pay 50% of the non-compete compensation within one month. According to the facts of this case, He Jiangfeng has indeed performed the obligations stipulated in the agreement, and Weibast has not paid the corresponding non-compete compensation to He Jiangfeng as agreed in the agreement, so Weibast has breached the contract. If the employer's failure to pay compensation is deemed as terminating or rescission of the non-competition agreement, it is obviously unfair to the worker who still performs the non-competition obligation due to trust. If the employer does not need the worker to perform the non-competition obligation, it shall terminate the non-competition agreement through negotiation with the worker or by sending a written notice, initiating arbitration or litigation. Both parties in this case said that neither party had proposed to the other party to terminate or terminate the non-compete agreement, so Weibast's claim that it does not need to pay He Jiangfeng non-compete compensation lacks legal basis.
Confidentiality agreement and competition restriction both belong to the means of enterprises to prevent workers from causing additional losses to themselves after leaving the company. The difference is that competition restriction restricts workers more strongly in a short period of time, so enterprises need to provide the workers with competition restriction subsidies and make certain compensation for them. The object of non-compete grant is more targeted than the non-compete agreement, and usually only the senior management of the company has to agree to non-compete. In this case, He Jiangfeng and Weibast have entered into a non-compete agreement. If such non-compete agreement is not rescind by both parties in accordance with the agreement or by law, the agreement shall take effect. After He Jiangfeng has fulfilled his obligations as agreed, Weibast shall pay the corresponding non-compete compensation in accordance with the agreement. The claim put forward by Weibast Company that the employer's failure to pay compensation is regarded as the termination or dissolution of the non-compete agreement is unfair to the workers and is generally not recognized by the court.
