China Non-Compete And Trade Secrets Law: A Primer For U.S. In-House Counsel

This is the second in our series on international non-compete and trade secrets law for U.S. corporate counsel. Today, we examine the law in the world's second largest economy, The Peoples Republic of China (PRC). The heated competition for qualified talent in the PRC makes non-compete protections a crucial topic. In a recent survey, members of the US-China Business Council reported that their #1 challenge doing business in China was "talent recruitment and retention":

Companies reported that it is becoming increasingly difficult to recruit and retain talented because the demand for such employees – by multinational corporations (MNCs) and, increasingly, Chinese employers – outstrips availability. In particular, companies noted difficulties in recruiting qualified managerial and technical talent.

USCBC 2011 China Business Environment Survey Results at p. 8. In another study, the MRI China Group surveyed more than 3,000 mid- to senior-level managers in China and Hong Kong, and found with respect to Mainland China respondents that:

64% had received offers in the prior 18 months, and 24% had received three or more offers 46% had moved to a new job with a compensation increase of 30% or more (another 46% received increases of 11 – 30%) 42% are not satisfied with their current compensation 24% had already determined to make a job change sometime in 2011 See MRI China 2011 Greater China Talent Environment Index at pp. 5-6.

All of this adds up to a very competitive and unstable market for key management and technical talent in an enormous and fast-growing economy. There is not much to do about the increasing spiral of salary levels in China, but at least companies are not left empty-handed when it comes to protecting competitive assets such as confidential business information and client relationships. It may come as a surprise to some that, with the advent in 2008 of the Labor Contract Law of the People's Republic of China (also known as the Employment Contract Law or ECL), the rules for employee contracts have been simplified and China's environment has emerged as more friendly to companies seeking to protect their interests than some US states.

Counsel who have been handling US domestic non-compete issues on a multi-state basis may note that, in some ways, the basic outline of non-compete law in PRC looks a bit like Colorado in that it permits covenants, but only for specified types of employees:

Senior management Senior technicians Employees...