In judicial practice, some companies impose indiscriminate non-compete restrictions on employees under the pretext of protecting trade secrets, or use exorbitant liquidated damages to restrict employees from leaving. Judicial review will become stricter regarding such abuse of non-compete restrictions.

　　The two parties agreed on a 24-month non-compete period, with 1 million yuan in damages for breach; the employee's monthly salary during employment was 45,000 yuan, yet the compensation was only the Shanghai minimum wage standard of 2,590 yuan per month, about 5.8% of the pre-departure salary...

　　This is a non-compete dispute case recently released by the Shanghai No. 2 Intermediate People's Court. The court determined that a certain technology company should pay non-compete compensation at 30% of employee Su Moumou's normal pre-departure salary standard, i.e., 13,500 yuan per month.

　　Su Moumou's experience is not an isolated case. Questions such as how to calculate non-compete liquidated damages and compensation reasonably, and where the scope of non-compete should lie, remain the focus of disputes in such cases in judicial practice.

　　Some companies abuse non-compete restrictions under the pretext of protecting trade secrets

　　A scholar reviewed 454 judgments in non-compete dispute cases and found that: 79% of the subjects bound by non-compete obligations were "other personnel with confidentiality obligations," of whom 77% were employees in grassroots positions, such as product sales, frontline workers, and security guards; 87% of rulings confirmed or默认 upheld the validity of non-compete agreements, and most workers received non-compete compensation of less than half their base salary per month while bearing high liquidated damages.

　　"According to legal provisions, personnel subject to non-compete restrictions are limited to senior managers, senior technical personnel, and other personnel with confidentiality obligations of the employer. At the same time, employers that believe they have confidentiality and non-compete needs may sign non-compete agreements with workers," explained Chen Ying, deputy head of the civil trial team of the Shanghai No. 2 Intermediate People's Court. "The law clearly stipulates that the maximum term shall not exceed two years."

　　Why is the non-compete agreement, which has a clear scope of application, abused in practice?

　　Li Huaping, a member of the legal advisory group of the Shanghai Municipal Federation of Trade Unions, believes the main reason is that some companies take extreme measures to protect their own trade secrets. "If there is no agreed non-compete obligation between the parties, it is very difficult for an employer to prove that a worker has infringed on trade secrets," Li Huaping said. "By comparison, the burden of proof for violating non-compete restrictions is more convenient for employers. Therefore, some employers spare no effort in abusing non-compete measures to achieve the purpose of protecting their own competitive advantages."

　　In the process of technological competition, some companies' "anxiety" to maintain their leading edge has led to an expansion of non-compete restrictions, even imposing indiscriminate non-compete restrictions on employees under the pretext of protecting trade secrets. In this regard, Chen Ying analyzed: "Relevant laws stipulate that the scope, territory, and term of non-compete restrictions shall be agreed upon by the employer and the worker. Given that the specific content of non-compete restrictions is not a statutory mandatory right and obligation, judicial review respects the parties' autonomy of will, but the non-compete agreement must not violate the provisions of laws and regulations."

　　"For employers, unreasonable non-compete restrictions may lead to recruitment difficulties, increased brain drain, and reduced corporate reputation, which is not conducive to the long-term stable development of the enterprise," Li Huaping said.

　　Determining whether a competitive relationship exists requires substantive review

　　After receiving the arbitration award, which required him not only to continue performing his non-compete obligations but also to return part of the non-compete compensation and pay 2 million yuan in liquidated damages, Wang Shan was dissatisfied and filed a lawsuit with the court. The first-instance judgment held that Wang Shan should still pay the former company 240,000 yuan in liquidated damages. The Shanghai No. 2 Intermediate People's Court, in the second instance, held that when judging whether a competitive relationship is constituted, a comprehensive assessment should be made in light of factors such as the company's actual business content and audience, and ultimately ruled that Wang Shan need neither return the compensation nor pay liquidated damages.

　　The Shanghai No. 2 Intermediate People's Court held that, as internet companies, their registered business scopes often overlap. If this alone were taken as the basis, it would obviously create great obstacles for the re-employment of internet workers, especially software engineers, cause great waste of social human resources, and also run counter to the legislative intent of the non-compete system. Therefore, when judging whether a competitive relationship is constituted, a comprehensive assessment should also be made in light of factors such as the company's actual business content and audience. Providing financial information services and providing cyberspace for users to upload videos and communicate do not overlap, and Wang Shan was therefore exempted from compensation.

　　"The key lies in accurately assessing whether a competitive relationship is formed between the original employer and the worker's self-operated business or the entity the worker joins," Li Huaping said. "When making a determination, adjudication departments will make a comprehensive judgment based on whether the actual business content, service targets or product audiences, and corresponding markets overlap, rather than simply determining based on whether the legally registered business scopes overlap."

　　"Similarly, adjudication departments conduct a substantive review of whether a worker's conduct violates non-compete restrictions, examining whether the worker uses a lawful form to conceal the unlawful purpose of engaging in competitive conduct, thereby achieving a balance of interests between the employer and the worker," Li Huaping added.

　　How should compensation and liquidated damages be set to be reasonable

　　In judicial practice, many employers calculate compensation based on the base salary, and the non-compete compensation is significantly lower than the liquidated damages. Although the agreement is reached through negotiation between the parties, workers are often in a weak position in negotiations. Chen Ying said that in practice some companies abuse non-compete restrictions for the purpose of restricting the free flow of employees' labor.

　　"Non-compete restrictions involve a balance between workers' right to employment and enterprises' autonomy in business operations. At present, some employers, especially internet companies, tend to generalize non-compete restrictions, disregarding employees' positions and responsibilities and using means such as having all employees sign non-compete agreements and imposing high liquidated damages to restrict workers from leaving, thereby restricting the right to freedom of career choice granted to workers by law," Chen Ying said.

　　Chen Ying mentioned that Internet Plus office work means workers' employment content, location, and time are no longer subject to excessive constraints, and the scope of non-compete restrictions on workers should be limited to the same or similar business scope of the employer. If it is arbitrarily expanded and harms workers' legitimate rights and interests, the judiciary will review its reasonableness.

　　Li Huaping added that when the amount of liquidated damages agreed upon is obviously excessively high, adjudication departments will comprehensively consider factors such as the degree of subjective fault in the worker's breach, the standard of non-compete compensation paid by the employer, the length of the non-compete period, and the actual losses caused to the employer, and may appropriately reduce the amount of liquidated damages.

　　How can workers protect their own rights and interests when signing contracts? Chen Ying said that when signing a contract, one should carefully read the terms, and may require the employer to clarify or explain standard-form terms or terms with unclear rights and obligations. At the same time, when hiring senior managers, senior technical personnel, and other personnel with confidentiality obligations, employers should also have reasonable assessment procedures, and only when it is truly necessary after assessment should non-compete requirements be initiated for a specific small number of personnel, avoiding the phenomena of "universally initiating non-compete restrictions for all employees" and "arbitrary non-compete" that do not conform to legal provisions.

　　"Some new employers guide workers to establish labor relationships with investment-affiliated companies or labor outsourcing companies; some workers indirectly set up self-operated companies through spouses, parents, relatives, and friends, or work at competing entities through labor dispatch, attempting to evade their non-compete obligations through concealed means. The judiciary does not recognize this. The original employer may safeguard its rights and interests and make up for losses by claiming liquidated damages from the worker, and at the same time require the worker to continue performing the non-compete agreement," Chen Ying reminded workers to pay attention to relevant issues and avoid breaking the law without knowing it.