CHINA Trends and Developments Contributed by: Ting Liu, Fang Pan and Xiangru Chen, King & Wood Mallesons
Non-compete legal reforms and the elevated internal investigation burden for employers On 1 August 2025, the PRC Supreme People’s Court issued the Interpretation (II) of the Supreme People’s Court on Issues Concerning the Application of Law in the Trial of Labor Dispute Cases (the “Labor Dispute Interpretation (II)”), which formally came into effect on 1 September 2025. Among its key provisions, Arti - cle 13 governs the validity of non-compete clauses between employers and employees. It marks a nota - ble shift that PRC judicial authorities now tend to link the validity of non-compete clauses to trade secret protection. This connection, in turn, places a heavier burden on employers when they conduct internal investigations into whether employees bound by non- compete obligations have breached such terms. Emphasising non-compete restrictions premised on trade secret protection and abuse prevention The current Labor Contract Law of the People’s Republic of China establishes non-compete restric - tions to protect employers’ trade secrets, though such restrictions inevitably limit employees’ career freedom. To balance these interests, it restricts non-compete applicability to senior personnel, technology person - nel, and other staff with confidentiality obligations. In practice, however, many employers have abused this regime by imposing non-compete obligations – particularly post-employment ones – on unqualified employees, undermining employees’ employment rights and disrupting market order. To rectify this, judicial authorities have shifted towards substantive review of non-compete agreements since the PRC Supreme People’s Court’s 2022 guiding case, clari - fying that enforceability of non-compete agreement hinges on an employee’s actual role and work prod - ucts, not merely the existence of a signed contract. The Labor Dispute Interpretation (II) further clarifies this rule. According to paragraph 1 of Article 13 of the Labor Dispute Interpretation (II), if employees claim that they were unaware of or had no access to their employ - ers’ trade secrets or confidentiality matters related to intellectual property, they may assert the invalidity of the non-compete clauses, even if they have voluntarily signed a non-compete agreement with their employer.
On 4 September 2025, the Ministry of Human Resourc - es and Social Security issued the Compliance Guide - lines for Enterprises Implementing Non-Compete Agreements (the “Non-Compete Guidelines”). Arti - cles 2 and Article 3 of the Non-Compete Guidelines reaffirm that non-compete restrictions only apply to employees obligated to protect trade secrets (includ - ing intellectual property). This provision aligns with the spirit and content of the Labor Dispute Interpretation (II), aiming to restore non-compete restrictions to their essence of trade secret protection. It also prevents employers from abusing such clauses by imposing non-compete obligations on employees who have no access to or knowledge of trade secrets in their daily work, thus safeguarding the latter’s legitimate employ - ment rights. Implications for employers’ internal investigations related to non-compete restrictions First, PRC employers now bear a heavier burden to prove that an employee is a qualified subject of non- compete obligations. Specifically, such proof must establish that the employee knew of, or had access to, the employer’s trade secrets. Under the current PRC laws, proving that certain information constitutes a trade secret is highly challenging, as it must simulta - neously satisfy three statutory requirements: • secrecy – the information is not generally known to the public; • commercial value – it can bring actual or potential economic benefits and competitive advantages to the employers; and • confidentiality measures – the employers have adopted corresponding appropriate and reason - able measures to protect the claimed confidential information. Articles 5 and 6 of the Non-Compete Guidelines explicitly link the enforcement of non-compete restric - tions to the employer’s own trade secret protection practices, mandating that employers first internally confirm the content and scope of their trade secrets and prioritise protective measures – such as encryp - tion, access permission controls and declassification periods – before imposing non-compete obligations. These require additional internal investigations for
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