what we think

By Tristan van Veen and Maarten Roos

For international companies operating in China, non-compete agreements remain a key instrument to protect trade secrets and preserve competitive advantage. But recent judicial and regulatory developments show that authorities are increasingly unwilling to accept broad or routine post-employment non-compete clauses without clear justification. Enforcement now depends more on striking the right balance between legitimate corporate interests and employees' rights. These changes raise compliance expectations and increase litigation risks. Understanding the new framework is essential to ensure enforceability and avoid disputes.

Clear Policy Direction from Courts and Regulators

In September 2025, Chinese authorities issued guidance to clarify the legal boundaries of non-compete restrictions. The Supreme People's Court's Judicial Interpretation II guide courts on how they should assess post-employment non-compete obligations. Shortly thereafter, the Ministry of Human Resources and Social Security released the Compliance Guidelines for Enterprises Implementing Non-Compete Agreements (the "Guidelines"), which set out more detailed standards for employment practices. Although the Guidelines are advisory rather than binding, they reflect prevailing regulatory thinking and are likely to be persuasive in labor arbitration and court proceedings. Together, they send a clear and coordinated signal: non-compete clauses must be narrowly tailored, properly justified, and supported by fair compensation.

Trade Secrets as the Legal Foundation

The enforceability of a non-compete obligation rests on the existence of legitimate trade secrets. To qualify as a trade secret, Chinese law requires the information to be:

• Confidential: not publicly known or easily accessible;
• Valuable: capable of generating commercial or competitive advantage; and
• Protected: subject to reasonable confidentiality measures.

Routine know-how, general industry knowledge, or skills gained through ordinary work experience do not qualify. Employers bear the burden of proof to show that certain information is genuinely confidential, valuable, and that protective measures were implemented.

Practical takeaway: Employers should clearly define the scope and content of their trade secrets in agreements, and maintain evidence of protective measures such as tiered access rights, confidentiality training programs, and the use of encryption or other technical safeguards. Documentation should be prepared proactively, not retrospectively during disputes.

Specific Scope of Non-Compete Clauses

Non-compete obligations may only be imposed on employees with access to genuine trade secrets. This category typically includes:

• senior managers;
• technical experts; and
• staff with direct confidentiality responsibilities.

Employees with general skills or routine business knowledge should not be subject to restrictions. Employers bear the burden of proof to demonstrate that the employee in question had access to, or control over, such trade secrets. Even if a non-compete clause has been contractually agreed, it may be deemed unenforceable if the employer cannot demonstrate the (former) employee's access to trade secrets.

Practical takeaway: Employers should document which employees have access to specific trade secrets, and limit non-compete clauses to those roles. Courts increasingly require evidence of actual exposure to confidential information, not just a signed agreement. Employers are advised to adopt measures such as trackable access control mechanisms to strengthen enforceability.

Scope, Geography, and Duration of Non-Compete Clauses

The scope, geographical area, and duration of post-employment non-compete restrictions must be reasonable and proportionate, taking into account the employer's actual business operations, competitive landscape, and the employee's level of access to confidential information. The Guidelines emphasize precision and restraint in drafting. Clauses that are overly broad in scope, territory, or duration may be invalidated.

Practical takeaway: Employers should always consider internal confidentiality safeguards, with post-employment non-compete clauses used to strengthen the protection of legitimate interests. When non-compete arrangements are necessary, employers are advised to carefully assess their reasonableness and proportionality.

Courts increasingly strike down blanket restrictions. To enhance enforceability, employers should:

• List competitors explicitly through an enumerated list rather than using abstract industry descriptions.
• Limit geographic coverage to regions where the company actually operates. Worldwide restrictions are increasingly vulnerable to judicial invalidation unless supported by compelling and well-evidenced justification.
• Align duration with the lifecycle of trade secrets, subject to the statutory maximum of two years. Other factors that should be considered include market dynamics and the reasonable time needed for the employee to be re-employed.

Compensation and Liquidated Damages

Non-compete obligations are enforceable only if the employee receives reasonable compensation during the non-compete period. The Guidelines provide reference benchmarks, though it remains to be seen whether these will be applied by arbitration tribunals and courts. Nonetheless, the safest approach is to set these as your new standards for monthly compensation:

• at least 30% of the employee's average monthly salary over the prior year, and never below the local minimum wage; or
• at least 50% of the employee's average monthly salary over the prior year, if the restriction exceeds one year.

Timely payment of compensation is critical for enforceability. Under the prevailing judicial interpretation, courts shall agree to invalidate the non‑compete obligation if compensation remains unpaid for three months. The newly issued Guidelines adopt an even more employee‑friendly approach: courts may allow employees to cease compliance with the non-compete obligation if compensation is unpaid for more than one month after notice.

The Guidelines also go far when it comes to liquidated damages that a former employee must pay in case of breach. Not only must this be reasonable and proportionate; the Guidelines propose to cap these at five times the total compensation paid. In determining reasonableness, factors such as the potential economic loss arising from a breach and the total amount of non-compete compensation paid should be considered.

Conclusion

The new framework makes clear that non-compete agreements in China can no longer be treated as routine clauses. Instead, they must form part of a broader and well-documented trade secret protection strategy. For employers, these developments significantly raise the standards for both drafting and enforcement. International companies operating in China are advised to review and reassess their existing non-compete agreements and internal policies, to enhance enforceability and mitigate the risk of disputes in this closely scrutinized area of employment law.

R&P China Lawyers advises and supports clients to ensure compliance with China's evolving employment law and regulatory framework, and provides representation and assistance in dispute resolution before courts and arbitral tribunals. Our Employment and Dispute Resolution teams work as an integrated unit, ensuring that agreements are enforceable in practice and that litigation and arbitration strategies are aligned with business objectives. For more information, legal advice and support, please reach out to the authors Maarten Roos and Tristan van Veen at [email protected] and [email protected], or your trusted contact at R&P China Lawyers.