Does the Employee Violate Non-compete Agreement?

[Case Brief]

Liu worked as an engineer in a chemical company (hereinafter the Company). There was a non-compete agreement concluded between Liu and the Company, which stipulated that Liu shall not enter into competition of any kind with the Company for 12 years following the end of employment. On August 2017, Liu quit the job and the Company paid Liu compensation of RMB 8405 each month as agreed in the non-compete agreement. In August 2018, the Company found that Liu was working for its competing company. The Company then sued against Liu and claimed for return of the total amount of compensation. 

 

Liu argued that he was not working for the competing company. He was just dispatched to the competing company for a joint project by his own employer. There was no employment relationship between Liu and the competing company. 

 

The court held that it does not matter whether Liu served the competing company as an employee or not. It was clearly agreed in the non-compete agreement that “Employees shall not directly or indirectly own, operate, manage, participate in or otherwise work for competitors whether as an operator, principal, partner, representative, agent, employee, consultant, independent contractor.” Broadly speaking, Liu was prohibited from serving the competing company in any form. The court ruled that Liu shall return all the compensation to the Company.

 

[Comments]

 Non-compete agreements are commonly used by employers to prohibit employees from revealing proprietary information or trade secrets of the company. The enforcement and recognition of non-compete agreements are disputable in legal practice. Generally, the court will balance the need of protecting the employer's legitimate business interests with the burden placed on the employees by enforcing the agreement. We suggest employers clearly specifying the reasonable duration and scope of non-compete in the agreement, and employees should always fulfill the duty of non-compete with good faith.