China's Ministry of Human Resources and Social Security issues Compliance Guidelines on Non-Compete Agreements for Enterprises
Time:2025-09-15 18:43:31Source:Click:次
This briefing provides an explanatory overview of the Compliance Guidelines on Non-Compete Agreements for Enterprises, issued by the Ministry of Human Resources and Social Security of China in September 2025. The Guidelines are designed to strike a balance between protecting enterprises’ trade secrets and ensuring employees’ freedom to seek new employment opportunities. They establish lawful and reasonable standards for the conclusion, implementation, and termination of non-compete agreements.
Purpose and Scope
The Guidelines clarify that non-compete agreements may only be applied to employees who have access to trade secrets, such as senior management, senior technical staff, or others entrusted with confidential information. Ordinary employees who merely possess industry knowledge or general business information should not be subject to such restrictions. Trade secrets are defined as non-public technical or business information with commercial value that is protected through confidentiality measures.
Core Principles
Enterprises are required to adopt a necessary and reasonable approach when imposing non-compete restrictions. They should first implement effective measures to safeguard trade secrets, such as controlling access, encrypting data, or setting de-sensitization periods, before resorting to post-employment restrictions. The scope of restriction must be clearly defined, limited to competing enterprises or products, and geographically aligned with the enterprise’s business area. Nationwide or global restrictions are generally not encouraged unless justified. The duration of a non-compete must not exceed two years.
Compensation and Employee Rights
Enterprises must provide financial compensation to employees who are bound by non-compete obligations. As a baseline, monthly compensation should be no less than 30% of the employee’s average salary during the last 12 months of employment, and never lower than the local minimum wage. For agreements lasting longer than one year, the compensation should generally not be less than 50% of the employee’s previous average salary. If the enterprise fails to pay for more than three months, employees are entitled to cease complying with the restrictions. Employees may also seek recourse through labor authorities or dispute resolution mechanisms, including mediation, arbitration, and litigation.
Breach, Termination, and Enforcement
If an employee breaches the non-compete obligation, they may be liable for liquidated damages, usually capped at five times the total compensation received, though enterprises may claim additional compensation if actual losses exceed this amount. Enterprises may choose not to enforce a non-compete at the time of termination or may later negotiate modifications. They may also terminate the agreement during its performance by paying at least three months’ compensation. To ensure compliance, enterprises may request employees to report their employment status during the restriction period and may verify such information through lawful means.
Oversight and Safeguards
The Guidelines emphasize fairness and the principle of good faith. Enterprises are prohibited from imposing non-compete obligations in an abusive or coercive manner. Labor unions are empowered to raise objections to inappropriate practices and to protect employees’ rights. Where enterprises fail to fulfill their compensation obligations, employees may lodge complaints with labor authorities. The overall framework reflects a balanced approach that protects legitimate business interests while safeguarding employees’ right to pursue new career opportunities.
Effective Date
The Guidelines took effect on September 4, 2025.
