The following special categories may not be terminated in the event of collective redundancies or, for the above reasons, with a period of 30 days. In addition, they cannot be terminated at the end of a fixed-term contract. However, they may continue to be terminated by mutual agreement or be immediately terminated for prohibited conduct. China allows contractual sanctions against employees who violate their non-compete clauses. Competition bans imposed on workers are one of the few cases where Chinese employers are allowed to impose a sanction on their employees. This can be done with a contractual compensation provision that obliges the worker to pay a certain amount of damages for non-compliance with the non-competition. However, for non-competition to be effective, it must be appropriate. If a Chinese court or arbitration body finds that your contractual damages are too great, this amount will be reduced or even eliminated altogether. For difficulties in obtaining a reasonable amount of contractual damages, see the extent of contractual damages in contracts with China. China`s labor laws generally allow non-compete agreements that prevent a worker from competing with their former employer for up to two years after the end of the employment relationship. But there are all sorts of restrictions on these agreements, as explained below. Competition bans are often used by companies to protect important proprietary assets and information. These clauses are generally allowed in China and can apply up to two years after the end of the work.
There are, however, many restrictions on these agreements. Often, Western companies accept non-competition clauses as moral clauses – they don`t really intend to enforce them, they use them anyway. This approach exposes the employer to compensation. This is a common solution in China when it comes to severance pay and may include an agreement by the employee that accepting the highest amount prevents any kind of right after the employment relationship. A higher amount may be paid to avoid possible litigation or if the reasons for termination are not necessarily justified by law. However, certain rights cannot be invoked by law, including minimum wage violations, overtime and unpaid benefits. We had a client with an employee in China who first wanted to know what minimum legal compensation was due, but then opted for a mutual compensation agreement with the employee. We let them know that this was allowed as long as the amount was above the legal minimum, so they agreed to pay 2 months` salary to the employee (based on the employee`s average for 12 months).
In China, there are contractual penalties against employees who violate non-competition clauses. Employers should add a contractual provision for damages to employment contracts in order to enforce these conditions. But they must be reasonable. Chinese courts can reduce or eliminate damages they deem inappropriate. The geographical scope of the non-competition rules must be appropriate. Employers cannot prematurely end competition bans without paying workers an additional three months of non-competition. . . .