Should the Employee Fulfill Non-competition Duty under this Situation?

★Nutshell

Mr Song worked in a Shanghai R&D company from July 6^th, 2004, and entered into an open contract from Oct 1^st, 2015 as senior manager in the technology R&D group. The Art 9 of the labor contract provides that Annex III shall be observed to keep the business secret and safeguard the interest on both sides. Art 2 of Annex III provides that non-competition refers to the prohibition for the employee to be employed or work for the competing companies as partner, employee, consultant, manager, board member, agency, etc, without written consent from the company in two years after the termination for no matter what reason. The employee consented to the company’s discretion on the non-competition compensation in the scope of 50%-100% of the basic salary upon termination according to the job level. If the employee breaches the non-competition duty, he shall return the compensation and pay the damage and other compensation. The damage is 3 times the compensation he already received and his income from the work for the competing company. Though the agreement, if the company did not promise non-competition compensation upon termination, the employee has no right to claim and the agreement shall be deemed void.

On May 10^th 2018, Song resigned and last day would be May 18^th. On May 23^rd, the company send a notice by EMS to Song to notify the non-competition duty that Sony signed receipt on May 25^th. The notice provides that according to the annex III, Song shall observe the non-competition duty from June 1^st, 2018 to May 31^st, 2019, when company would pay 50% of his basic salary as compensation.

On June 19^th, 2018, Song works for a competing company. The company raised labor arbitration to claim damage.

★Issue

The issue of this case lies in whether Song breaches the non-competition agreement.

The company holds that it talked to Song in person to notify the non-competition duty before his termination, but Song refused to sign. As the company notified, Song shall observe.

Song holds that the company did not notify him to fulfill the non-competition duty before termination, therefore the agreement is deemed void.

★Judgment

The arbitration holds that the party shall provide evidence to its claim and bear the negative result if unable to provide effective evidence. In this case, the company claim that Song shall observe the non-competition agreement, but the annex provides that if the company doesn’t require him to fulfill the duty, the clause shall be deemed void afterwards. The company foresees the risk of employee’s termination when the contract was signed, it pays enough attention on it. When Song resigned on May 10^th, 2018 and left the company on May 18^th, as Song states, the company has time to notify Song to fulfill the non-competition duty under the prior notice. The company did not provide effective evidence to prove it notify Song to fulfill the non-competition duty before the last day, or that Song reject the non-competition notice in person. Song receive the notice on May 25^th, 2018, which exceeds the agreed period already. Therefore, Song’s nonperformance is justified. The arbitration holds the agreement void, and Song is willing to return the compensation.

★Lawyer Tang’s Comment

This is a dispute on non-competition.

Non-competition refers to the agreement entered into by the employer and the employee with a good knowledge of business secret or having great impact to the operation, that eh employee shall not be hired by a competing company or run a similar business himself during a period after termination. Non-competition is an important method for the employer to protect intellectual property. The Art 24 of Labor Contract Law provides that non-competition applies only to senior management, high technology employee or other employee with confidential duty. Therefore the employer shall not abuse the right to non-competition to sign the non-competition agreement to the employee beyond this scope, which would intangibly increase the operation cost as well.

Besides, as a confidential measure, on the premises of non-competition agreement signed, the employer has the right to choose whether to perform it or not at the termination. As the company choose to give up the right in this case by not notify the employee within the agreed time, the employer shall bear the result of losing.

If the company notifies the employee not to perform non-competition duty before termination, the employee can be employed by any party afterwards. If on the premises that the agreement is signed, the company notifies after termination, according to the Interpretation IV on Labor Contract Law, the company shall pay the employee another three-month salary as compensation.