Dilemma of competition restriction while an employee is employed

Article 23 (2) of the Employment Contract Law specifies that an employer can specify with a worker who bears a confidentiality obligation a non-compete clause and liquidated damages for breach of the non-complete provision in his or her employment contract or a non-disclosure agreement.

Article 24 further specifies the persons to whom such a competition restriction applies, and the terms, and the second paragraph of that article specifies that the non-compete term may not exceed two years after the termination or ending of the employment contract.

Dilemma faced by an employer. That the above-mentioned non-compete term commences to count upon termination or ending of the employment contract is the usual understanding and expectation of the public. However, in practice, a client that the author advised ran into a rather awkward situation; the company discovered that one of its employees in a sales position had concurrently been working for a company in the same industry for several years, and despite its having executed a non-compete agreement with that employee, it did not seem to have any way of sanctioning that employee or recovering its losses, other than dismissing that employee.

Felix Wu is a senior attorney at Xin Bai Law Firm