Confidentiality, Non-Competition and Intellectual Property Ownership Agreement
When he graduated from graduate school, Chen Xin made a wish to earn more money while he was young, and then brought his parents to Nanchang.
He was born in a village in Chongren County, Fuzhou City, Jiangxi Province, and his family made a living from farming. After the high school entrance examination, he was poached by Linchuan No. 1 Middle School, the best high school in Jiangxi. Despite his abnormal performance in the college entrance examination, he still got into one and became one of the few college students in the village. As soon as he entered the university, Chen Xin was determined to fight for a better future with the postgraduate entrance examination. In 2019, Chen Xin entered Shanghai University of Foreign Business for graduate studies, a veteran professional college specializing in business.
Chen Xin is one of the few students studying at the old campus of Shanghai Foreign Trade. The old campus is in the ancient north of Changning, an area that has developed by virtue of open and convenient foreign affairs and foreign trade activities. Diagonally opposite the school, across a Gubei Road, is a thriving business district. Since his graduate studies, Chen Xin has been looking forward to working at a nearby company A. For him, this thriving new Internet giant means an opportunity to make money and learn some skills, and it also means better development.
In June 2022, he signed a labor contract with Company A and joined the operation post in Nanchang with a monthly basic salary of 12,375 yuan. The employment contract is accompanied by a "Confidentiality, Non-Competition, and Intellectual Property Ownership Agreement", which is required for all employees who join Company A.
The non-compete agreement, titled "Confidentiality, Non-Competition and Intellectual Property Ownership Agreement", is based on Article 22 of the Labor Law and Articles 23 and 24 of the Labor Contract Law. In the past 10 years, in order to protect corporate trade secrets and prevent competitors from "free-riding", similar restrictive system clauses have become more and more complete among domestic Internet companies.
Nowadays, the non-compete agreements of Internet companies have changed from binding executives and core technical personnel to non-discriminatory non-competition.
The non-compete agreement signed by Chen Xin stipulates that employees who leave Company A and its affiliates for any reason shall not be allowed to join more than 40 enterprises and their affiliates, investors and direct or indirect service providers within two years. These more than 40 enterprises include almost all the leading Internet companies and e-commerce companies except Company A and its affiliates.
Chen Xin did not know at the time that signing such an agreement meant that once he left his job, he would have two years to say goodbye to domestic Internet companies.
In June 2023, Chen Xin and his colleague Hezhi successively resigned from Company A and signed the "Notice of Non-Competition" when they left. Hezhi had been working for Company A for almost two and a half years, and for the first time learned that he would have to sign such a document when he left the company. His operations team has a high turnover rate, but he has never heard of a non-compete being activated for a junior employee like them. In his opinion, they don't have any trade secrets, and even the warehouse they are responsible for can only see three data, such as GMV and gross profit, and core data such as traffic and repurchase rate are locked by the company.
Signing the Non-Compete Notice not only means that the employee cannot join more than 40 first-tier Internet companies and their affiliates, but also means that Company A will pay a non-compete compensation of 30% of the average monthly salary before tax before leaving the company.
Although Chen Xin and Hezhi have similar incomes, Chen Xin receives 3,700 yuan per month and Hezhi receives 1,700 yuan per month because of the difference in the salary composition of the two men, the latter is performance-oriented and is paid non-compete compensation according to the monthly base salary of 5,975 yuan.
"My compensation is lower than the minimum wage in Nanchang, and I still don't know if it's legal. Hezhi said.
As the first person in the group to sign the Non-Compete Notice, Hezhi realized that his job change was starting to be risky. "I also think about the consequences, but I have to live, I have a car loan and a mortgage to repay, and I can't live for 1,700 a month. "If I fully accept this agreement, I may really have to start a different line." A bit cornered. ”
Between continuing to endure, bid farewell to the Internet industry and take risks, Chen Xin and Hezhi chose the last one and joined another Internet e-commerce company, M.
Since then, there have been two more people who have been hiding in Tibet from Internet companies because of non-compete restrictions. As for the wish to bring his parents to Nanchang, "push it back," Chen Xin said.
At the beginning of 2024, the Internet giant Z Company responded to Han Yurui's post, saying that it had false and one-sided content, saying that the company had initiated a non-compete restriction to protect the leakage of core trade secrets.
Since April 2023, Han Yurui and Company Z have started a tug-of-war over non-compete restrictions. The result given by the Beijing Haidian District Arbitration Commission was to adjust the 600,000 yuan of non-compete liquidated damages claimed by Company Z to 180,000 yuan. Subsequently, the Haidian District People's Court upheld the original judgment in the first instance, and Company Z appealed again, and the Beijing No. 1 Intermediate People's Court continued to uphold the original judgment.
On the eve of the second trial, Han Yurui wrote his experience as "I worked hard for Company Z for two years, was maliciously persuaded to quit and asked for a refund of all wages". During the tug-of-war between him and Company Z, his father's glioma worsened, he was unable to stand and needed to undergo surgery again. As tears wet the letter, my mother re-transcribed it.
After the release of "Worked hard for Company Z for two years, was maliciously persuaded to retire and asked for a refund of all wages", Han Yurui received a communication from the legal counsel of Company Z, and the other party proposed to settle and only need to return the non-compete compensation (37,800 yuan), plus a total of 50,000 yuan in liquidated damages. The condition is that the post is deleted, and a public apology is made and a commitment not to infringe on the reputation of the company and its employees.
Both Mr. Han and his parents rejected the settlement plan, insisting that he had not told a lie and could not publicly apologize. He publicly responded to Company Z by saying that he had frequently consulted the core data of the company for several years before leaving the company, and he proved that he had consulted all the product knowledge documents that were completely open within the company, and did not involve the core data.
One counter-attack, even with a bit of humor, was that Han Yurui countersued Company Z for overtime pay, based on his average working hours of more than 12 hours a day. The overtime pay he claimed was almost equal to the non-compete compensation.
Some companies will also include overtime pay in the calculation of liquidated damages: the higher the total income, the higher the liquidated damages, and the more labor paid, the more claims will be made.
"In a sense, my case is still not over. Han Yurui said, "Since the other party fights through the law, I still hope to fight through the law as much as possible." ”
Before the trial of the first instance, the judge told Han Yurui separately that based on the current law and past precedents, the non-compete agreement between him and Company Z could not be ruled invalid. At the end of the trial, the judge suggested that the representative of the enterprise report the situation to his superiors: "His rank is not high, so there is no need for this."
Since December 2023, a number of employees who have been sued by non-compete arbitration and litigation have started to post on the Internet to seek help. Among them, a number of recent college graduates, who worked for up to one year, were all sued for arbitration compensation, ranging from 260,000 yuan to 430,000 yuan. There is also a fresh graduate who left his job after working for a large Internet company for two years and five months, and received the arbitration result at the end of February 2024: he was required to pay 1.15 million yuan in liquidated damages.
In an interview with Southern People Weekly, most of the non-compete agreements of Internet companies such as Alibaba, ByteDance, Tencent, Pinduoduo and Baidu were signed along with the labor contracts. These non-compete agreements stipulate that employees who leave their jobs for any reason cannot join the vast majority of Internet companies for a certain period of time.
With this non-compete agreement, sometimes called a confidentiality, non-competition, and intellectual property ownership agreement, even if an employee refuses to sign a non-compete notice when he or she leaves the company, the company can use it to file a lawsuit against an employee who joins another internet company. Despite the suspicion of violating the law, some companies will still threaten employees to sign by refusing to issue a resignation certificate.
"I can't accept it, and while I can only accept it, I'm still angry about the non-compete agreement. This is the overlord clause for workers, and the entire industry is like this, and there is no room for choice at all. It's not that if you don't join this one, you won't sign in another. A veteran Internet employee who has been saddled with three non-compete restrictions told us.
An employee who left after working for more than four months was given a six-month non-compete restriction (provided by the interviewee)
"Other persons under a duty of confidentiality"
Over the past five years, indiscriminate non-compete restrictions have spread unchecked. On the website of judgments, the abuse of non-compete restrictions is concentrated in the Internet, new energy, and education and training industries.
Article 24 of the Labor Contract Law stipulates that the non-compete restriction shall be limited to the senior management personnel, senior technical personnel and other personnel who are obliged to maintain confidentiality. On the other hand, the grassroots employees who are subject to non-competition are regarded by the enterprise as "other personnel with confidentiality obligations", which is the legal basis for non-discriminatory non-competition.
However, the scope of "other persons with confidentiality obligations" is very vague and basically left to the unilateral decision of the enterprise.
In 2023, CATL's non-discriminatory non-compete agreement will be exposed, with more than 100 competing companies listed, and this list is not limited. The liquidated damages shall be 5 times of the total pre-tax income or 1 million yuan of the total pre-tax income in the 12 months prior to resignation, whichever is higher. In 2019, CATL claimed RMB 1 million in non-compete damages from five former employees, including a marketing specialist with an average monthly salary of RMB 8,000 and a chief engineer who had been on the job for only three months. Eleven months later, CATL again sued four former employees for violating non-compete. In the nine cases before and after, CATL was awarded 1 million yuan in compensation.
After being fired from a leading pig breeding company, Brother Su received a non-compete compensation of about 2,000 yuan per month, which is one-tenth of the original salary, but higher than the minimum wage standard in Henan, which is in line with the law. This pig company was interviewed by the State Administration for Market Regulation on the grounds of anti-monopoly because of the signing of a mutual non-poaching convention.
With a monthly income of 2,000, Brother Su joined a company, and was subsequently sued by a pig company for violating the non-compete restriction and claiming 1 million yuan. The pig company applied for property preservation, and his bank card, Alipay and WeChat wallet were frozen. "I'm just spending some cash every day. I eat steamed buns and expiring milk in the morning and evening, go to the supermarket at noon to try them, and travel by bicycle, and the daily expenses are controlled within 10 yuan. He said.
In Haicheng, Liaoning, the live broadcast anchor Wang was claimed by the former company for 2 million yuan in liquidated damages for non-competition, and the non-compete period was as long as 3 years in the contract. A Shenyang education and training company sued former employee Liu Shuai, a swimming coach, and asked the court to order him to pay 50,000 yuan in liquidated damages. In the year that Liu Shuai fulfilled the non-compete obligation, the company only paid 1,200 yuan per month as compensation.
More and more companies are learning to use non-compete agreements, even in low-tech industries. Mr. Yang, who was in charge of home broadband installation and operation and maintenance at a company in Shanghai, was required to sign a non-compete agreement after working for one year, and after leaving the company, the company claimed 150,000 yuan from him for violating the non-competition. Li Moumou, who was engaged in sandblasting and protection work in a mold company in Kunshan, was also sued by the original company for violating non-competition after joining the new company.
A fresh graduate who left his job after two years and five months of work received the arbitration result at the end of February 2024: he was required to pay 1.15 million liquidated damages (provided by the interviewee)
Even the employees who packed for the courier company were not spared.
An outsourcing staff in charge of packaging of an emerging cross-border e-commerce company T provided us with an updated corporate generic non-compete contract dated February 14, which stipulates that within two years of leaving Party A, without the written unanimous consent of Party A's board of directors, Party B shall not work for any enterprise and affiliated enterprises that have a competitive or similar business with Party A, covering Greater China, the United States, Canada, Southeast Asia and other countries and regions, and at the same time giving a competition list covering almost global e-commerce.
It is also reported that the number of sorting employees in the domestic collection warehouse of Company T will reach nearly 50,000 in 2023.
Nowadays, even interns may be required to sign a non-compete agreement. Since 2024, Pacific Housing, a Shanghai-based real estate agency, has required all employees and interns to sign a non-compete agreement with a two-year non-compete period and liquidated damages of 2 million yuan.
Yu Shuhong, a professor at Wuhan University Law School, analyzed the judgments of 454 non-compete dispute cases in a paper entitled "Reflection and Reconstruction: Rules for the Review of the Validity of Non-compete Agreements", and found that only 13% of the subjects subject to non-compete are senior managers, 8% are senior technical personnel, 70% are "other personnel with confidentiality obligations", and 77% of the 70% are employees in grass-roots positions, such as training teachers, operators, and even front desk, security guards, cleaning and other personnel.
Among them, some companies have initiated many non-compete agreements, and even continue to file non-compete arbitrations against former junior employees, claiming twice the annual salary of former employees before tax – even fresh graduates who have only worked for six months. But most of the time, some other big Internet companies will let their grassroots employees go, or let the business leaders decide whether to hold them accountable.
For non-discriminatory competition, the company has the initiative to decide whether to pursue responsibility. In absolute terms, a small number of people were prosecuted, and most of them started new jobs with the anxiety of non-compete.
"This is actually a manifestation of the abuse of non-compete. Guo Zongjie, deputy dean of Jinan University's Law School, said, "If it is not actually necessary for the non-compete to take effect, then why should it be signed? ”
During the 2024 National People's Congress and the National People's Congress, Chen Yifang, President of the First Civil Trial Division of the Supreme People's Court, summarized the four characteristics of current non-compete disputes: they are mainly distributed in the computer, Internet and education and training industries, the main disputes of the subject of litigation obligations are mainly concentrated on "other persons with confidentiality obligations", the proportion of non-compete economic compensation agreed in the agreement is low compared with wages, and the people's court has a large adjustment of the agreed amount of liquidated damages.
Hong Zhifeng, a partner at Zhongwen (Shanghai) Law Firm in Beijing, who represented former employees in non-compete disputes with Company A, concluded the case by writing: "I have to say that Company A has done a very good job in the non-compete clause, which is worth learning from a considerable number of enterprises. ”
He received inquiries from more than a dozen Internet employees, and he couldn't give a better suggestion to employees who had already been found to have violated the non-compete agreement: it was difficult to defend the non-compete agreement that had already been agreed upon, and there was a violation. He hoped that the judicial interpretation would intervene to strike a balance between the rights of both enterprises and employees.
But at present, the advice that many lawyers interviewed by Southern People Weekly can give is to be an "invisible person" after changing jobs, so as not to be discovered by the former company as much as possible.
"There's an issue of employment rights. Young people who leave the company, no matter what the reason, need to survive, and they still need the next job. Hong Zhifeng suggested that for employees with lower ranks, there is no need to agree on the non-compete to death, "The non-compete compensation is not much, and there are no other related benefits, if there is no job for two years, then the young person is also living very badly." ”
Judge Chen Yifang also mentioned the right to employment in an interview: "In practice, there are cases of employers abusing non-compete clauses to infringe on employees' right to choose employment."
In December 2022, the Supreme People's Court released Guiding Case No. 190: Wang Shan v. Wind Information Technology Co., Ltd., a non-compete dispute. This is one of the few cases in which an employee has won a non-compete dispute. Wu Shigang, the defense lawyer of the winning party in the case, told the media that in judicial practice, the court does not require the enterprise to provide substantive evidence on whether the employee has the trade secrets. The employee is also unable to effectively prove that he or she is not in possession of the trade secrets. If the company claims that the technical or operational personnel are aware of the trade secret, the court generally accepts the company's view. This provides a huge amount of room for enterprises to abuse non-compete restrictions.
How it's managed
Sometimes, filing a non-compete lawsuit against a grassroots employee is still a management method. When a team's turnover rate is too high, non-compete restrictions are often used to set an example.
In November 2023, three months after leaving the company, Company A filed a non-compete arbitration against Chen Xin and Hezhi, claiming 430,000 yuan and 270,000 yuan respectively. In a private communication, the representative of Company A said that you took the lead in leaving the company and played a very bad role.
According to a media report, an e-commerce company that implements non-compete agreements more extremely, has about 40 human resources specialists who are responsible for handling resignation and other matters, including handling non-competition-related issues with the legal department, accounting for about 20% of the total number of employees. Former members of the company's management described the goal of filing a non-compete lawsuit as "the company can still make a profit after paying the costs of HR and legal performance, bonuses, etc."
In 2021, a former junior employee of the company joined the competing company, and the supervisor did not initiate a non-compete with him. Half a year later, a senior executive of the company learned about it. The company was unable to sue the former employee because the non-compete was not initiated at the time, but the company declared the multi-million dollar stock incentive in the name of the supervisor in question void. The above report reads.
At the same company, a former employee was told when he left that if he could provide the whereabouts of his former colleagues, he could exchange it for a non-compete opportunity. Another fresh graduate revealed his next job after his supervisor promised to give "help with career planning and avoid detours". The next day, she was notified to activate the non-compete.
In 2022, the real estate agency Pacific Housing will sue a group of former employees above the store manager level, more than 40 people. In the past year, these employees were generally called to the headquarters to sign a non-compete agreement. A number of former employees sued by Pacific Housing said that when they signed the non-compete agreement, they did not know the specific content of the document, but were only told which page to turn to and sign somewhere. The name of the signed document is "Employee Remuneration and Professional Standards Manual".
A number of former employees of Pacific Housing said that the company suddenly set up a non-compete agreement on front-line employees, first, to deter employees, and second, to generate revenue.
At the beginning of 2023, Qiu Tian, a former employee of Pacific Housing who had left his job for three months, received a transfer of 9,116 yuan, which was remarked as non-compete compensation. At the same time, Pacific Housing filed a non-compete arbitration against Qiu Tian and claimed 500,000 yuan. In April 2023, Qiu Tian was compensated 400,000 yuan by arbitration, and he immediately filed a lawsuit with the court, and received the judgment at the beginning of this year, and the non-compete liquidated damages were adjusted to 200,000 yuan.
Others were afraid of the company and admitted that they did not understand the law, so they did not file a lawsuit again like Qiu Tian. Unable to pay the non-compete damages, they chose to return to work at Pacific Housing, and were then required to sign a new agreement, one of which was that Party A agreed to Party B's re-entry into Party A's unit or affiliated enterprise. The minimum service period of Party B is three years, which is calculated from the date of signing the labor contract and going through the entry procedures.
To return to work in the original company to deduct non-compete compensation, Chen Xin also had such an idea. During the negotiation with Company A, he offered to return to work for the company. "If we really have the trade secrets of Company A, then we must also have the secrets of Company M now, so can we go back?" was immediately rejected.
After leaving Company A, Chen Xin and Hezhi both joined Company M, which was recruiting a large number of people: the salary remained the same, but M's working hours were 9 to 5.
"9 to 5, it's a life that I couldn't have imagined before. We all felt very tempting, so a lot of people walked at the time. Hezhi said.
The reason for Chen Xin and Hezhi's resignation was that they were mentally and physically unable to withstand the high-intensity work all year round, "It was like clockwork, very tired, and they had to do a fixed thing at a fixed time every night." "There is no day off for 365 days a year, including Chinese New Year's Eve." Even if I go to the movies with my girlfriend on Sunday night, I have to go out of the theater with my computer at 10:50 to hand in the materials. ”
Chen Xin hated his leader, and he also hated that he had to learn to scold like the other party, or communicate with others in a tough questioning and accusatory tone. The leader said that you are a graduate student, why can't you do this? How did you graduate? What did you study?
In the first week of employment, Chen Xin submitted his resignation, and he felt that "the contrast between the ideal and the reality is too great, and he can't accept it at once." He was naïve enough to think that he had found a job he was interested in, and that in a creative Internet business, the leader would encourage you to try new ideas.
The initial resignation request was persuaded by manpower. The human resource says that social security has been paid, you are no longer a fresh graduate, and it is difficult to find a job. Chen Xin stayed, and then gradually learned to scold.
"When the supplier's price is high, I squeeze the supplier, and the supplier will generally hold on, and I will say that if you can't do it, you will get out, and they will say that I will do it." Chen Xin said.
He often had nightmares at night, dreaming that the leader was scolding him, and dreaming that he didn't say a word.
Leaving your job became an inevitable choice. Now, when we asked Hezhi how he felt on the weekend, his voice jumped with joy: "It's so cool!
"They don't have any conditions, they just want to lose money. ”
The outside world has used "invisible person" and "big factories have no such person" to describe employees with non-compete restrictions, and Peng Qi is a qualified "invisible person".
After changing jobs from Company A, she did not sign an employment contract with the new company, but was affiliated with a third-party company. She doesn't use her real name in the company, wears a hat and mask to work, and doesn't attend any parties.
But at the end of 2023, she still received a labor and personnel dispute arbitration filed by Company A - by this time, her non-compete period had passed, and her new colleagues had just learned what she looked like hidden under hats and masks.
She even found a suspected candid photographer doing a non-compete investigation, and called the police on the spot to deal with it, but the other party refused to admit it, and the matter was over. Later, it was determined that the core evidence of her breach of the non-compete agreement was not clandestine photography: after the first arbitration hearing lacked core evidence and Peng Qi refused to settle, Company A applied to the court to issue a co-investigation order to the third-party company. The third-party company replied directly, and Company A obtained evidence of Peng Qi's employment in the new company.
Before the second arbitration hearing, Peng Qi agreed to mediate and was willing to return all the non-compete compensation, about 80,000 yuan, and more than 300,000 yuan that he had saved three years after graduation. However, Company A said that it was impossible to settle if it was less than 900,000 yuan.
"This year, you have to work hard, get a good performance, save more money, and lose more money. She never told her parents about this matter, and the compensation was beyond her parents' understanding, and she only hoped that this matter would end as soon as possible.
It is well documented that in non-compete disputes, third-party companies submitted relevant data to the court as early as 2017. In accordance with article 67 of the Civil Procedure Law, the court has the right to collect evidence from the relevant unit, and the relevant unit may not refuse.
"Non-compete agreements can cover almost the entire Internet industry and become a means for enterprises to unilaterally bind their employees. In the face of the investigative resources that the company can call, employees are basically unable to dodge. Some media wrote in a report in 2021.
A complete set of industries has been formed around the non-compete investigation, and the investigation price ranges from 40,000 to 180,000 yuan. A company that "hired risk management experts" contacted by a reporter from Southern People Weekly under a pseudonym has been deeply involved in non-compete investigations for more than four years, claiming to have done a case of compensation of 4 million yuan, and can provide 6-10 candid videos that can stand up to notarization and court recognition, and supplement the evidence by contacting the company's front desk, sending a courier to get a signature to take back the receipt, etc. They can also provide legal advice, entity information of the company under investigation, and the latest entity information of the respondent, including verified ID card, phone number, home address information, etc.
These candid videos are usually written by employees entering and exiting the new company for multiple days in a row to prove that the employee has joined the new company. The employee's express delivery record at the new company has become evidence of a common non-compete violation since at least 2019.
Another account manager of a company that provides non-compete investigations said that although the unit price of the investigation is not low, "the compensation for non-compete is generally 500,000 yuan now, and after you win the lawsuit, you actually make money." ”
At the arbitral tribunal, the evidence submitted by Company A was a photograph of Chen Xin and Hezhi entering M's office building for a week.
Secretly photographing former employees entering and exiting the competing company is the most common method in non-compete litigation – clandestine photography often occurs in a public place such as the entrance of the former employee entering and exiting the competing company, and does not involve a private place, so that the evidence can usually be admissible by arbitration institutions or courts.
Faced with the arbitration hearing a month later, Chen Xin, who was at a loss, searched around for non-compete restrictions. Douyin pushed two Shanghai lawyers to him, and Chen Xin got in touch. He and Hezhi hired two lawyers for 5,000 yuan, and the other party claimed to be able to help them negotiate the compensation of 70,000 or 80,000 yuan.
The reality is that the two fell out across the board in the arbitration phase.
"I think as long as you can reduce the losses, I say that I will accept any conditions you offer. But they don't have the conditions, they just have to lose money. ”
During the mediation, Chen Xin and Company A negotiated the compensation of 300,000 yuan. The lawyer told him that the court also sentenced him to 14-24 months of monthly wages before tax. If the sentence is 24 months, it is better to reduce the loss, he thought. He didn't have 300,000 yuan in cash, so he asked if he could pay back 10,000 yuan a month - his monthly salary before and after he changed jobs was more than 10,000 yuan. The other party refused and demanded to pay it off within half a year.
At the end of the mediation, Chen Xin searched for Internet non-compete on Maimai, Weibo, and Douyin, and he contacted an employee who was sued for liquidated damages of 4.5 million yuan, and refused to mediate under the persuasion of the other party.
The employee who was sued for 4.5 million yuan in compensation is called Zou Jie, who worked in a large Internet company for four years and five months, because he and his wife were successively diagnosed with thyroid nodules 4A and malignant tumors, he proposed to resign in February 2023, and established a small company with a friend in June 2023. Four months later, the company filed a non-compete lawsuit against it, demanding the return of all equity incentives, based on the "Confidentiality and Non-Competition Commitment Agreement" re-signed with the employee after the equity allocation, in which Party A promised that "Party B will pay a certain amount of equity incentives to Party B during Party B's employment as consideration for Party B's commitment to confidentiality and non-competition...... In view of the aforesaid consideration relationship, if Party B's confidentiality and non-competition commitment is found to be invalid for any reason, Party B's income from exercising the equity incentive shall be returned to Party A in full (unless Party A waives Party B from the obligation to return in writing).
In the ever-expanding non-compete restrictions, equity incentives, which were originally part of the annual salary package, have quietly become the consideration for the non-compete restrictions.
A former employee who was sued by a Shanghai company for the return of the equivalent of shares in cash told Southern People Weekly that the recruitment notice he received in 2018 clearly stated that stocks were included in the salary structure. He also signed two non-compete agreements, the first was signed at the time of employment without mentioning the stocks, and the second was signed after the issuance of the shares, specifying that the shares were used as non-compete consideration.
Employees who receive equity incentives are subject to both non-compete and non-compete compensation after leaving the company, as the former company asserted that equity value has replaced compensation – a claim that is currently upheld by court judgments in some related lawsuits.
As to whether equity incentives can replace non-compete compensation, the caliber of adjudication varies from place to place. In the case (2018) Hu 01 Min Zhong No. 1422, an employee had accepted restricted shares granted by a holding company as wages and salaries, and the court ruled that X should return the granted shares to the company based on the Confidentiality and Non-Competition Commitment Agreement signed by the two parties.
However, there have been precedents in Beijing and Guangzhou that do not support this claim.
In the case (2018) Yue 01 Min Zhong No. 619, the Guangzhou Intermediate People's Court held that the non-compete compensation is compensation for the loss of certain interests caused by the impact of the employee's right to choose a job during the non-compete period, and it does not belong to the employee's wages or other benefits, and has nothing to do with whether the employee has violated discipline during the period of employment, etc., and is exclusive, and the compensation should also be determined.
In the case (2021) Jing 01 Min Zhong No. 1751, the Beijing No. 1 Intermediate People's Court held that the Labor Contract Law clearly stipulates the payment method of non-compete compensation, with the aim of solving the difficulties that may be caused by the employment restriction caused by the non-compete restriction and providing continuous economic security for the employee's livelihood. This legislative purpose is best served by the monthly payment method, which is therefore mandatory.
The Beijing No. 1 Intermediate People's Court further pointed out that if the agreement between the parties on the payment method and time of compensation is more favorable to the employee than the above-mentioned mandatory provisions, there is no need to evaluate the agreement between the parties as invalid, and if the agreement between the parties appears to be unfavorable to the employee compared with the above-mentioned mandatory provisions, the agreement should be deemed invalid.
Not long ago, Chen Yifang, president of the First Civil Tribunal of the Supreme People's Court, said that the next step of the Supreme People's Court will be to promote work in three aspects: first, to hear labor dispute cases involving non-compete in accordance with the law, and resolutely correct the application of non-compete clauses in accordance with the law. The second is to publish typical cases to clearly deny illegal non-compete behaviors that infringe on workers' right to choose employment, unblock the channels for the social flow of labor resources, and promote the healthy development of the market economy; third, strengthen the investigation of labor disputes related to non-competition, and strive to promote the establishment and improvement of institutional mechanisms including improving the labor market, creating a fair employment environment, and strengthening vocational skills training.
In April 2024, Chen Xin and several other fresh graduates who were compensated between 200,000 and 400,000 yuan by arbitration received a settlement intention from Company A, and the amount will be significantly reduced to less than 100,000 yuan.
Another former employee who was compensated Company A with RMB 1.46 million by arbitration in May 2023 was absent from the arbitration because she missed the court call and the wrong address for the delivery of documents, so she filed an Enforcement Objection to the arbitration result, and subsequently received a rejection on April 3. She is a mother of two children, and she has also become a dishonest person subject to execution due to a non-compete agreement, and after retaining 2,000 yuan in monthly salary, the rest will be directly transferred by the bank to Company A.
(At the request of the interviewee, the names of the employees who were subject to the non-compete restriction in the article have been changed)
Southern People Weekly reporter Yang Nan intern reporter Chen Shiyu
Editor-in-charge: Li Tuimao