Can an employee claim non-compete compensation when the parties have reached a settlement which agreed “no further employment dispute”?

★ Brief

On October 26, 2020, Zhang joined a Shanghai enterprise management company as a commercial manager, and the two parties signed a non-compete agreement, agreeing that Zhang should perform a 24-month non-compete period regardless of the reasons for termination of employment relationship, except for obtaining prior written consent from the company, during which the company would give Zhang monthly compensation. However, two weeks after joining the company, the company terminated the employment relationship with Zhang on the ground that he did not meet the hiring conditions.

Zhang was not convinced and applied for labor arbitration to the local labor arbitration committee on December 18, 2020, demanding payment of compensation for illegal termination of labor contracts, etc. After the arbitration committee’s mediation, the two sides reached an agreement, the company paid the mediation money, and Zhang gave up the case, “the two sides no longer have other labor disputes.

On March 8, 2021, Zhang reminded the company to pay the non-compete compensation, but the company lost the original agreement due to the relocation of the office address, so it replied that he was free for employment, and the previous conciliation letter had agreed that there would be no further labor disputes between the two parties.

Zhang then applied to the labor dispute arbitration committee, demanding the company to pay non-compete compensation.

★The verdict

After hearing the case, the court held that although the previous mediation agreement stated that “there is no further labor dispute between the parties”, according to the relevant arbitration transcript, the mediation between the parties was limited to the rights and obligations during the duration of the labor relationship and did not involve the content of non-competition, so it should be understood that there was no other labor dispute during the duration of the labor relationship.

The non-competition compensation claimed by Zhang is the economic compensation that should be paid by the employer after the labor relationship ends because the worker has fulfilled the obligation of non-competition, which does not belong to the rights and obligations during the existence of the labor relationship. The company did not exercise the right to exempt Zhang from the non-competition obligation in time after he left the company, so the company should pay the compensation for non-competition.

★ Comment by Lawyer Tang

This case is a dispute arising from the employer’s negligent failure to timely exempt the worker from the non-compete obligation.

Non-competition is a special means to protect the company’s business secrets and prevent improper competition, which is strictly regulated by law because it restricts the workers’ right to freely choose their jobs. According to Article 37 of ‘Interpretation of the Supreme People’s Court on Several Issues about the Application of Laws for the Trial of Labor Dispute Cases (I) ’ if the parties have agreed on the non-competition obligation and economic compensation, the employer shall pay economic compensation if the worker fulfills the non-competition obligation unless otherwise agreed.

Here, we would like to remind all employers that there is no trivial matter in labor and employment, and employees who are not required to fulfill their non-compete obligations should be informed in time to avoid unnecessary disputes.