Shall Employer Pay Severance where Non-competition Right Given up?

Nutshell

Mr Cai entered into a network technology company on March, 2014 as a technical director, with a monthly salary of 20000 yuan. The term of labor contract is March 1^st, 2014 to February 27, 2014. The two parties also entered into a non-competition agreement providing that when the contract terminated, Mr Cai shall fulfill the non-competition duty of 6 months with a monthly compensation of 6000 yuan.

On February 20^th, 2015, the company informed Mr Cai that the contract would not be renewed when the term due, and Mr Cai did not need to fulfill the non-competition duty. On February 27^th, Mr Cai went through the resignation procedure, the company paid him one-month salary as severance.

April 5^th, Mr Cai asked the company for 6000 yuan as compensation of non-competition for March, the company turned down. Mr Cai raised labor arbitration to claim 6-month non-competition of 36000 yuan according to the non-competition agreement.

Issue

The issue of this case is whether the notice by the company to Mr Cai not to fulfill non-competition duty on termination notice effective.

The employer believes that it already noticed to Mr Cai not to fulfill non-competition duty, the company can give up the right.

Mr Cai believe that the non-competition agreement is agreed by two parties which cannot be abandoned by just one party, therefore it affects his career choices after the contract is terminated.

Judgment

The tribunal holds that the conclusion of non-competition contract is aiming to protect the business secret of the company, usually the compensation cannot remedy the loss suffered by the employee, therefore it is a right to the company that can be given up. In this case, the company on February 20^th,2015 inform Cai not to fulfill the non-competition duty, there is no base for Cai to claim the compensation.

Comment by Lawyer Tang

This is a dispute on non-competition. Art 23 of Labor Contract Law part II provides that if a Employee has a confidentiality obligation, the Employer may agree with the Employee on competition restriction provisions in the employment contract or confidentiality agreement, and stipulate that the Employer shall pay financial compensation to the Employee on a monthly basis during the term of the competition restriction after the termination or ending of the employment contract. We could see that non-competition is to protect the employer from business secret leaking when the former employer involving himself in the same type product business after termination. During the non-competition period, if the former business secret entered into public domain or the company thinks it no longer need the employee keep the duty, the company can make the decision whether to fulfill the non-competition duty by notice to the employer without agreement by the employee..

But it shall be noticed that during the non-competition period, if the company unilaterally terminate the non-competition agreement, the court shall support it. The employee can claim three-month wage as compensation. As in this case, the non-competition duty shall be performed after the labor terminated. The company informed Cai not to perform the non-competition duty where it did not renew the labor contract, therefore it need not to pay the compensation. If the company terminates the non-competition agreement on Feb 28^th, the compensation shall be paid for it is during the non-competition period.

The non-competition clause can play an important role in protecting business secret it properly settled. But some employers misunderstand that non-competition is a legal obligation, so that to put the clause in the labor contract format applied to those employee who not at all are the non-competition stall as the Labor Law defines. The company ends up in paying the compensation afterwards.