China Non-Compete Agreements After SPC Interpretation II

A technology company in Qingdao requires almost every engineer, sales manager and middle manager to sign the same two-year post-employment non-compete. The clause covers “all competitors in China and worldwide.” HR assumes the broadest restriction offers the strongest protection.

A senior engineer resigns and joins a competitor.

The employer starts paying non-compete compensation and prepares to enforce the agreement. The employee argues that the restriction is invalid or excessive because the employee did not actually access the claimed secrets and the geographic/business scope is far broader than the information known to the employee.

The specific issue#

The Supreme People's Court's Interpretation II on Labor Disputes, effective September 1, 2025, makes this problem more concrete.^[1]

This article analyzes one narrow issue:

How should employers redesign non-compete programs so that the employee population, protected information, scope, compensation and exit process are linked to actual confidentiality risk?

This is not a general employment-law overview.

1. The new judicial interpretation makes eligibility evidence central#

Article 13 of Interpretation II states that where an employee did not know or have access to the employer's trade secrets or confidentiality matters related to intellectual property, a court should support the employee's request to confirm that the non-compete clause does not take effect.^[1]

The same article provides that where the agreed non-compete scope, territory or duration is not proportionate to the secrets or IP-related confidential matters known or accessed by the employee, the employee may seek invalidation of the excessive portion.^[1]

This changes how HR should administer non-competes.

A company should no longer treat the signed clause as the starting and ending point.

It needs evidence linking the employee to protected information.

2. Build a role-based eligibility matrix#

The first redesign step is to classify roles.

A practical matrix can use four groups:

Group A — presumptively high risk#

• senior R&D leaders;
• chief engineers;
• key algorithm personnel;
• senior executives;
• strategy leaders.

Group B — fact-dependent#

• product managers;
• sales directors;
• procurement leaders;
• finance leaders;
• senior operations managers.

Group C — limited confidential access#

• routine engineers;
• ordinary sales staff;
• administrative personnel.

Group D — no material protected access#

• employees whose work does not expose them to relevant secrets or IP-related confidential matters.

The company should not automatically impose the same restriction on all four groups.

3. The employee file should identify the protected information#

A non-compete file should contain more than the agreement.

For each restricted employee, HR and the business should document:

• systems accessed;
• projects;
• customer information;
• pricing;
• source code;
• technical drawings;
• formulas;
• strategic plans;
• supplier pricing;
• unpublished product roadmap.

This creates the factual link required by Article 13.^[1]

The company should be able to answer:

What exactly did this employee know that justifies restricting future employment?

4. “Confidential information” should not be defined as everything#

Many agreements define confidential information to include almost all company information.

That can weaken credibility.

The protected information should be categorized:

• trade secrets;
• IP-related confidential matters;
• sensitive commercial information;
• information that is public or routine.

For non-compete purposes, the strongest justification usually comes from information that creates real competitive risk.

A broad definition should not replace evidence.

5. Scope should follow the secret, not the employer's industry label#

Article 13 requires proportionality between the restriction and the information known or accessed.^[1]

If an engineer worked only on battery-management software, a restriction covering every automotive, electronics, energy and technology company may be excessive.

A better clause can define competitors by:

• product line;
• technology field;
• customer market;
• specific competing businesses.

The company should maintain an internal competitor list that can be explained objectively.

6. Geographic scope should be commercially defensible#

A nationwide or worldwide restriction may be attractive to headquarters.

But geographic scope should match the competitive risk.

Questions:

• Where does the employer actually compete?
• Where can the protected information be commercially exploited?
• Is the employee moving to a business outside China?
• Does the product compete globally?
• Is the employee's role regional?

The answer will differ between a local sales manager and a global R&D director.

7. Duration should be risk-based#

Chinese employment law permits post-employment non-compete arrangements for specified categories of personnel subject to legal requirements, and the Labor Contract Law caps the post-employment non-compete period at two years.^[2]

A company does not need to use the maximum for every employee.

Ask how quickly the information becomes stale.

Examples:

• annual pricing data may age quickly;
• product roadmaps may remain sensitive for one or two years;
• manufacturing know-how may retain value much longer, although the non-compete statutory maximum still applies.

The restriction should match the commercial half-life of the information.

8. Compensation is an operational system, not a clause#

A valid post-employment non-compete requires an employer to manage compensation properly under applicable labor-law rules.

The company should have a payroll workflow that begins when employment ends.

The system should record:

• amount;
• due date;
• payment account;
• payment proof;
• failed payment;
• employee contact information.

Missed compensation can create avoidable enforcement disputes.

The legal team should not assume finance will remember the obligation.

9. The company needs an affirmative decision at termination#

One of the best controls is a termination-stage review.

Before the employee leaves, the company should decide:

• enforce non-compete;
• narrow non-compete;
• release employee.

The decision should consider:

• current access;
• role;
• destination employer if known;
• information sensitivity;
• cost;
• likelihood of enforcement.

The company should not pay non-compete compensation automatically for employees whose information is no longer sensitive.

10. Article 14 confirms in-service non-compete can be enforceable in specified circumstances#

Interpretation II Article 14 provides that where an employer agrees on an in-service non-compete with senior management, senior technical personnel and other employees subject to confidentiality duties, the employee cannot invalidate it merely because in-service restrictions were agreed or because no separate economic compensation was paid.^[1]

This is important for moonlighting and competitive side businesses.

But the company should still draft the obligation clearly.

In-service restrictions should address:

• competitor employment;
• side businesses;
• consulting;
• beneficial ownership;
• use of company resources.

11. Article 15 addresses consequences of violating a valid restriction#

Article 15 provides that where an employee violates a valid non-compete agreement, the employer may seek return of economic compensation already paid and payment of agreed liquidated damages, subject to the applicable agreement and law.^[1]

This makes evidence of violation central.

The employer should gather:

• new employer information;
• job title;
• business scope;
• public professional profile;
• customer communications;
• social media;
• corporate records;
• other lawful evidence.

Do not rely on rumor.

12. Non-compete is not a substitute for trade-secret protection#

The employer should run two systems:

Non-compete system#

Controls future competitive employment.

Trade-secret system#

Protects specific confidential technical or commercial information.

If a company has weak trade-secret controls, a non-compete may be harder to justify factually.

The two systems should share:

• employee access map;
• confidentiality classification;
• exit process;
• device return;
• evidence preservation.

13. The exit interview should be evidence-oriented#

A high-risk employee exit should include:

• return of devices;
• account closure;
• reminder of confidentiality;
• reminder of non-compete;
• confirmation of personal copies;
• return/deletion certification;
• contact details;
• non-compete compensation instructions.

The interview should be documented.

If litigation occurs, the company can show it actively protected the information.

14. Preserve digital logs before IT systems overwrite them#

For high-risk employees, preserve:

• download logs;
• cloud transfer logs;
• USB records;
• email forwarding;
• repository access;
• printing;
• unusual file access.

Do this lawfully and consistently with data-protection obligations.

If suspicious activity is detected, legal and IT should coordinate immediately.

15. A non-compete should be reviewed after promotion or role change#

An employee may sign a clause when hired as a junior engineer.

Five years later, the employee becomes R&D director.

The original clause may no longer describe the appropriate protected scope.

Conversely, an employee may move from a sensitive role to a routine position.

The company should review restrictions:

• on promotion;
• on transfer;
• on access to major new technology;
• before termination.

16. Social insurance cannot be waived by agreement#

Interpretation II also addresses a separate high-demand employment issue.

Article 19 states that an agreement or employee commitment not to pay social insurance is invalid. Where the employer fails to pay social insurance and the employee terminates under the relevant Labor Contract Law provision, the court should support a claim for economic compensation. Where the employer later lawfully makes up contributions, it may seek return of social-insurance compensation previously paid to the employee under the specified circumstances.^[1]

Employers should therefore not trade mandatory social insurance for cash allowances.

This rule matters during employee exits because a non-compete dispute can be accompanied by claims over social insurance and severance.

17. Contract-renewal procedures also changed in importance#

Interpretation II Articles 10 and 11 clarify circumstances relevant to consecutive fixed-term contracts and continued employment after expiration.^[1]

HR should therefore avoid handling the non-compete in isolation from the employee's termination basis.

If the company mishandles contract expiry or termination, it can face:

• wrongful termination claim;
• wage claim;
• social insurance claim;
• non-compete dispute.

The exit file should be legally coherent.

18. Case study: senior engineer joins competitor#

Assume:

• employee worked on a confidential semiconductor process;
• signed two-year China-wide non-compete;
• company paid compensation after exit;
• employee joins a competitor in a different product division;
• employer sues.

The court may examine:

• what secrets the employee knew;
• whether the new role competes with the protected area;
• whether China-wide scope is proportionate;
• whether compensation was paid;
• whether the employee breached.

The employer's strongest evidence may be the role/access map created before resignation.

19. Case study: sales manager with generic customer access#

Assume:

• regional sales manager;
• customer contacts widely known in industry;
• no access to pricing strategy;
• worldwide two-year non-compete.

Under Article 13, the employer may face difficulty if it cannot show access to relevant secrets or IP-related confidential information.^[1]

The correct response may be:

• confidentiality agreement;
• narrower non-solicitation strategy where legally appropriate;
• customer data protection;
• no post-employment non-compete.

The strongest program does not maximize restrictions. It applies them selectively.

20. HR needs a written non-compete governance policy#

The policy should define:

Eligibility#

Who can be restricted.

Approval#

Who authorizes restriction.

Scope#

How competitor, territory and duration are set.

Documentation#

What information justifies restriction.

Compensation#

Who pays and monitors.

Exit#

Decision process.

Enforcement#

Evidence and escalation.

This reduces inconsistent treatment.

21. Manager training is essential#

Managers may tell employees:

• “everyone is subject to non-compete”;
• “you can never work for a competitor”;
• “we will sue wherever you go.”

These statements can create expectations or disputes inconsistent with the actual legal position.

Managers should be trained to refer questions to HR/legal.

22. A 30-day redesign project#

Days 1–5#

Inventory all signed non-competes.

Days 6–10#

Classify employee roles.

Days 11–15#

Map protected information.

Days 16–20#

Redraft scope standards.

Days 21–25#

Build compensation and exit workflow.

Days 26–30#

Train managers and launch review.

23. Audit metrics#

The company should track:

• number of restricted employees;
• percentage in truly sensitive roles;
• compensation cost;
• releases;
• enforcement cases;
• disputes lost due to scope;
• missing access evidence.

If 80% of the workforce is restricted, the program probably needs scrutiny.

24. Conclusion#

Interpretation II makes the factual foundation of non-compete obligations harder to ignore.

Article 13 links enforceability to actual knowledge or access to trade secrets and IP-related confidential matters and requires proportionality of scope, territory and duration.^[1] Articles 14 and 15 address in-service restrictions and breach consequences.^[1]

The practical lesson is:

A non-compete program should be built from information access, not job title alone.

Employers should document why each employee is restricted, tailor scope to the protected information, administer compensation, make a reasoned exit decision and preserve evidence before a dispute occurs.

25. Employers should separate confidentiality, non-solicitation and non-compete objectives#

Companies sometimes use one broad non-compete clause to address several risks:

• employee taking secrets;
• employee poaching staff;
• employee soliciting customers;
• employee joining competitor.

These are different problems.

The employer should identify which risk it actually needs to manage.

A technical employee with deep process access may justify a carefully designed non-compete.

A sales employee with customer relationships may require stronger confidentiality and customer-data controls.

Using the most restrictive tool for every risk can make the program harder to defend.

26. Compensation budgeting should influence eligibility#

Post-employment restrictions cost money.

The company should calculate the annual non-compete budget.

If 500 employees are restricted, the compensation obligation can become significant.

That cost creates a useful governance discipline.

The employer should ask whether each restriction protects enough value to justify:

• compensation;
• administration;
• enforcement cost.

This is another reason to move away from blanket restrictions.

27. New-hire onboarding should document sensitive access from day one#

A non-compete program should not begin at termination.

At onboarding, the company should:

• explain confidentiality;
• identify restricted systems;
• assign access;
• obtain acknowledgments.

When the employee later moves into a more sensitive role, update the record.

This creates a chronology showing how access developed.

28. Investigation of a suspected breach should be legally controlled#

If HR suspects an employee has joined a competitor, it should not immediately contact the new employer with accusations.

The company should first verify:

• employment relationship;
• role;
• competing business;
• scope of restriction;
• compensation payment;
• evidence.

An unsupported accusation can create unnecessary legal and reputational risk.

29. The employer should prepare a proportionality memo before enforcement#

Before filing a claim, counsel should prepare a short internal memo explaining:

• information known by employee;
• competitive relevance;
• restricted business scope;
• territory;
• duration;
• compensation;
• why each element is proportionate.

This forces the company to test the restriction against Article 13.^[1]

If the memo is difficult to write, the restriction may be too broad.

30. International employers should not simply translate headquarters templates#

A U.S., European or Asian headquarters may have global restrictive-covenant templates.

China HR should not import them without localization.

Problems may include:

• worldwide competitor list;
• undefined compensation;
• law/forum mismatch;
• overbroad employee population.

The China clause should be drafted for Chinese labor law and Chinese judicial practice.

31. Multiple affiliated employers create special risk#

Interpretation II Article 3 addresses scenarios where related entities alternately or simultaneously employ an employee and provides rules for determining the employment relationship and, in certain circumstances, liability among affiliated entities.^[1]

Multinational groups should therefore avoid informal secondments or shared employment where documents and payroll do not match reality.

Non-compete obligations should be signed with the legally correct employer and should identify whose secrets are protected.

If an employee serves several affiliates, the confidentiality and IP ownership structure should be clarified.

32. Foreign employees are expressly addressed#

Interpretation II Article 4 addresses circumstances in which foreigners working with domestic employers can seek recognition of employment relationships, including where they have permanent residence, valid work authorization and lawful stay, or have completed other required procedures.^[1]

Foreign-invested companies should therefore include expatriates in HR compliance review.

A senior foreign executive may have access to extremely sensitive information.

The company should ensure:

• work authorization;
• employment documentation;
• confidentiality;
• applicable non-compete arrangement.

33. Fixed-term contract management should be connected to the exit decision#

Articles 10 and 11 address consecutive fixed-term contracts and continued work after expiration.^[1]

An employer should not wait until the last day of a contract to decide:

• renew;
• offer open-ended contract;
• terminate;
• enforce non-compete.

The contract-expiration calendar should trigger legal review months in advance.

34. Illegal termination can complicate enforcement#

If the employer terminates unlawfully, it may face reinstatement or compensation claims.

That dispute can run alongside the non-compete.

Interpretation II Articles 16–18 address circumstances concerning continued performance and wage consequences of illegal termination.^[1]

The employer should therefore ensure the termination basis is sound before focusing on post-employment restrictions.

A weak termination case can undermine settlement leverage.

35. Occupational-health checks can affect termination timing#

Article 17 addresses employees exposed to occupational hazards and the legal effect of failing to conduct required pre-departure occupational health checks.^[1]

Manufacturers should incorporate this into exit procedures for relevant workers.

A senior engineer or plant employee may be both:

• subject to non-compete;
• subject to occupational-health requirements.

The legal team must coordinate both.

36. HR should maintain an exit decision matrix#

For each departing employee:

| Issue | Yes/No | |---|---| | Sensitive secrets? | | | IP-related confidential information? | | | Non-compete signed? | | | Scope proportionate? | | | Compensation ready? | | | Occupational health check needed? | | | Social insurance current? | | | Contract termination lawful? | | | Device preservation needed? | |

This prevents the non-compete from being handled in isolation.

37. Settlement agreements should not create contradictory obligations#

When resolving an employee dispute, the settlement should state:

• whether non-compete continues;
• compensation treatment;
• confidentiality survives;
• return of property;
• release of claims.

If the settlement is silent, the parties may disagree later about whether the non-compete remains in force.

38. Management should understand the difference between deterrence and enforceability#

A very broad clause may frighten employees but be hard to enforce.

A narrower evidence-backed clause may create stronger legal leverage.

The goal should be enforceability, not intimidation.

That cultural change is important for HR leadership.

39. Annual audit questions#

Once a year, the company should ask:

• Are restricted roles still sensitive?
• Are competitor definitions current?
• Are compensation processes working?
• Have any restrictions been released?
• Have courts rejected any clauses?
• Are access records reliable?

The policy should evolve.

40. Final practical rule#

Before enforcing, ask:

Can we prove this employee knew specific secrets and that the restriction is proportionate to those secrets?

If not, the company should reconsider the claim.

That is the operational consequence of Interpretation II.

41. Final implementation note#

Document every eligibility decision and compensation workflow consistently across the workforce. Consistency reduces preventable disputes.

Legal sources#

^[1] Supreme People's Court, Interpretation on Several Issues Concerning the Application of Law in the Trial of Labor Dispute Cases (II), Fa Shi ^[2025] No. 12, effective September 1, 2025, especially Articles 10–15 and 19: https://www.court.gov.cn/zixun/xiangqing/472691.html

^[2] Labor Contract Law of the People's Republic of China, including the statutory framework for confidentiality and post-employment non-compete obligations and the two-year maximum period. Official NPC database: https://flk.npc.gov.cn/

This article is general legal information, not advice on a particular employee dispute.