CHINA Trends and Developments Contributed by: Linda Liang, Ai Luo, Faluan Pan and Chutian Wang, King & Wood Mallesons
• The labour arbitration commission held that the Ex-employee’s failure to fulfil the Reporting Obli - gation as agreed can be regarded as a breach of non-compete obligations, thereby obliging the Ex- employee to pay liquidated damages. • The first instance court held that such failure to fulfil the Reporting Obligation can be regarded as a breach of non-compete obligations and therefore justified the Employer stopping payment of the non-compete compensation. However, the first instance court did not rely solely on such failure to fulfil the Reporting Obligation to establish a breach of non-compete obligations, but conducted a detailed review and found that the Ex-employee had indeed engaged in competitive behaviours, and therefore ruled that the Ex-employee should assume liability for breach of non-compete obliga - tions. • In contrast, the second instance court overturned the previous ruling as it viewed that non-compete compensation is in consideration of the restriction on freedom of choice of employment due to the performance of non-compete obligations, rather than the performance of the Reporting Obligation. An employee’s failure to fulfil such obligation is not equal to the breach of non-compete obligations, and thus should not become a basis for stop - ping the payment of non-compete compensation. Consequently, the Ex-employee’s non-compete covenants are terminated due to the Employer’s failure to pay non-compete compensation for more than three months. In such a case, whether there is a breach of non-compete obligations is no longer of concern. The above second instance court’s opinion is not an exception. It is commonly seen that courts believe that an employee’s failure to fulfil the Reporting Obligation alone does not equal a breach of non-compete obliga - tions, so if the employer stops paying non-compete compensation for three months or more on this basis, the employee can request to terminate the non-com - pete covenants and, as a result, the employer would be unable to claim breach of non-compete obligations after such termination.
Summary To sum up, it is good for employers to protect their competitive advantages and confidential informa - tion by appropriately applying non-compete cov - enants, but it is advisable to consider the scope of employees for which to set non-compete obligations, in order to avoid misuse. When implementing non- compete covenants, employers are advised to pay attention to the relevant judicial scrutiny trends – eg, that judicial authorities will conduct substantive review of competitive relationships going beyond the busi - ness scope in the business licence and taking more factors into consideration (including actual business, audiences of product/service, employee’s job with the new employer, industry practice, etc) – and employ - ers need to prepare comprehensively in this regard in case of disputes. With regard to Reporting Obligations, it is good to have such obligations stipulated in non-compete cov - enants in order to help track employees’ performance of non-compete obligations after termination. Howev - er, employers should be cautious about stopping the payment of non-compete compensation based only on an employee’s failure to fulfil the Reporting Obliga - tion, as this may result in the employee’s termination of the non-compete covenants. Protection of workers’ rights and interests under new guidelines for new employment forms With the development of the platform economy and the need for more flexible employment, new forms of employment have developed and infiltrated more and more industries in recent years, and new laws and regulations are regulating these new forms, with the protection of workers’ rights and interests being a key emphasis. In May 2025, the All-China Federation of Trade Unions and six other departments jointly issued the Guidelines for Jointly Safeguarding the Legal Rights and Interests of Workers under New Forms of Employment (“Guide - lines”). Article 10 of the Guidelines emphasises the need to focus on promoting development in emerging sectors and protecting the rights of workers under new forms of employment, proposing corresponding measures regarding consultation mechanisms, algo -
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