The First “White Paper on Trials of Cases with the Non-competition Restrictive Covenant Disputes was Issued by Shanghai No.1 Intermediate People's Court” on July 5, 2018.

On 5th July, 2018, Shanghai No.1 Intermediate People’s Court issued the first “White Paper on Trials of Cases with the Non-competition Restrictive Covenant Disputes” (hereinafter referred to as the “White Paper”). The “White Paper” has selected 5 typical cases, and put forward the judicial judgement standards in dealing with the relevant disputes from 5 aspects, which has a certain guiding significance for the practical operation.

1．Where an employee is obliged to the non-competition restrictive covenant, shall not be employed by another employer which engages in production or business in the same type of products or provision of the same type of services as the employer, and shall not engage in own production or business in the same type of products or provision of the same type of services as the employer, otherwise, this employee will be in violation of the obligations. Although these behaviors did not cause the loss of the former employer’s customers, constitute a strong competition, or have a substantial impact, etc., the employee shall still bear the liability for breach of contract.

2．The scope of non-competition restrictive covenant agreed between the employer and the employee which exceeds the business scope of the employer’s industrial and commercial registration is not necessarily invalid. If the employer exceeds the business scope but actually operates the business, the non-competition restrictive covenant agreement on this business shall be valid. The employer shall bear the burden of proof of the actual operation of the business.

3．Where both parties have agreed on a non-competition restrictive covenant and the corresponding compensation in the labor contract or confidentiality agreement, if the employee claims that non-competition restrictive covenant should be rescinded while the compensation has not been paid for three months due to the employer’s reasons, the court shall be in favor of the employee. After an employee has legally dissolved the non-competition restrictive covenant agreement, the employee shall be still entitled to claim for the default penalty.

4．The employee’s obligation of non-competition restrictive covenant shall not be exempted by the employer’s breach of contract. The defense of the party with the obligation to provide initial performance should perform firstly or the parties should provide the simultaneous performance cannot be used as the exemption reason when the employee fails to perform the obligation. The non-competition restrictive covenant shall be binding upon both parties, even if the dissolved conditions complied with the provisions of the law and the agreement, but the employee has not expressed the intention to dissolve the non-competition restrictive covenant and make it known to the employer.

Where foreigners working in China, despite the minimum wage, working hours, rest periods and off days, labor safety and health, etc.which shall be regulated by the relevant national rules and regulations, both parties could make an agreement on other rights and responsibilities. If the agreement on confidential matters and non-competition restrictive covenant has not violate the mandatory provisions of laws and administrative regulations, such agreement shall be valid.