Study Of Non-competition Legal Issues

Non-compete is a legal instrument widely used by employers in developed countries toprotect commercial secret. This instrument has been proved to be playing an importantrole in promoting fair competition, improving business environment, as well asencouraging employers to invest in their people and technological upgrading. Sincenon-compete not only relates to employers' interests, but also concerns employees' rightto work, right to freedom and right to survive, how to balance the interests of employersand employees, and avoid unreasonable behaviors has become a new subject of theresearch in the field of labour law. This dissertation attempts to analyze five aspects ofthis issue.The first part of this dissertation discusses the definition and classification ofnon-compete. According to the internationally-recognised classification, non-competecan be statutory non-compete, contractual non-compete, employee non-compete,non-compete of former employee after resignation, sole non-compete and non-competewith obligation to protect commercial secret. After looking at various types ofnon-compete, the dissertation proceeds with analyzing background under which theinstitution of non-compete has been developed, and relevant regulations set up by othercountries, as well as theoretical debate around this issue, particularly about employeenon-compete and non-compete of former employee after resignation. Based onanalyzing various positions around this issue, this dissertation concludes that employeenon-compete should be introduced in China's labour legislation, and employee's right towork and their freedom to choose employment should not be fulfilled at employer'slegal interests and rights. As to non-compete of former employees, it should be based onthe principle of freedom of agreement, viz. the parties concerned may enter into thenon-compete agreement without jeopardy of public interests.The second part of this dissertation deals with restrictions on non-compete. Sincenon-compete, to a degree, restricts workers' right to work, there is a necessity to imposereasonable restrictions on the use of non-compete. This part looks at necessaryconditions enacted in legislations of other countries for a non-compete clause to beeffective. Based on international domestic practice, it is concluded that an legallyeffective non-compete clause should meet six conditions: 1) there should be interests toprotect;2) the duration of non-compete should not exceed 2 years;3) non-competeagreement should be concluded in writing;4) non-compete clauses are applied to rightworkers, and different non-compete agreements should apply to different categories ofworkers;5) the use of non-compete should be restricted to the same regions and sectors;6) workers to which non-compete clauses are applied should be compensated reasonably,at not less than 1/2 of his/her annual salary.The third part of this dissertation analyses non-compete and protection commercialsecret. The main purpose of non-compete is to protect employers' commercial secret inorder to maintain their competitive advantages. This part elaborates the definition andcomponents of commercial secret, and gaps in the existing legislation with regard tocommercial secret. It is also emphasised the advantages of non-compete clauses as aprecautionary measure to protect commercial secret.The next part discusses the conflict between allowing non-compete and protectingworkers' rights. Right to work is a fundamental right endowed by the Constitution.However, the use of non-compete unavoidably restricts the fulfilment of thisfundamental right. This part explores how to balance non-compete and the fulfilment ofright to work by taking reference to international experience and making theoreticalanalysis.Finally, this dissertation looks at existing domestic legislation regarding to non-compete.At present, there is no unified national-level legislation concerning non-compete.Provisions on non-compete are only seen in administrative and local regulations, whichdiffer from place to place. At the national level, provisions on non-compete areintroduced in the draft of Labour Contract Law. This dissertation analyses relevantarticles in the draft of Labour Contract Law and makes recommendations to furtherimprove them. The recommendations include further clarifying workers to whichnon-compete clauses can apply, and differentiating legal effect of non-compete clausesin case of dissolution of labour contracts on different grounds, and etc.