China: The Supreme People’s Courtroom clarified substantive assessment of competitive romantic relationship in non-contend disputes

Mr. Wang (“Employee”) joined the Enterprise W (“Previous Employer”) on July 2, 2018, doing the job in the place of clever knowledge evaluation. The registered small business scope of the Former Employer provided: enhancement and sale of pc hardware and software, specialized progress, know-how transfer, engineering consulting and complex providers in the industry of pc skills and products and solutions. On July 23, 2019, the Worker signed a Non-Contend Arrangement with the Former Employer, agreeing that the non-compete period of time is 24 months soon after the termination of the work romantic relationship with the Former Employer.

Following a single 12 months, the Staff resigned from the Previous Employer and later on joined Enterprise B (“New Employer”) on August 6, 2020, whose registered business enterprise scope features: facts technology, computer hardware and software program, technologies development, technology transfer, specialized consulting, technological expert services in the field of network engineering, and so on.

The Former Employer then applied for arbitration to the Labor Arbitration Commission of Shanghai Pudong New Region, professing the Worker to conduct the non-competition obligations, return non-level of competition payment, and pay back liquidated damages for non-levels of competition.

The circumstance went by means of arbitration, to start with occasion and second instance. The arbitration committee and the court docket of initial occasion each held that the Personnel had violated the non-levels of competition obligation and shall bear the corresponding legal responsibility for breach of agreement. However, the court of 2nd occasion held that the existence of a aggressive romance must be judiciously and considerably examined and decided, and its helpful judgment concluded that there was no competitive connection amongst the Previous Employer and the New Employer. Thus, the Staff did not violate the non-competition agreement and did not need to have to return the non-level of competition payment or spend the liquidated damages. This case was cited by the Supreme People’s Courtroom as a guiding circumstance.

Vital Action Points

To a specified extent, the guiding conditions display a alter in the courts’ attitude toward the dedication of competitors in non-competition disputes from the preceding formal assessment based mostly only on the registered small business scope to the substantive examination of the actual company scope. It is conducive to guarding the legitimate employment legal rights of staff and sustaining social equity, but it also raises the company’s obligation to review the aggressive relationship. Consequently, for the employer, it is recommended that the business shall describe the actual enterprise scope in detail when placing the non-level of competition obligation on the staff members and delineate the scope of competitors dependent on the actual company scope.