For foreign-invested enterprises (FIEs) operating in China, non-competes are often necessary, especially for staff with access to confidential information or in managerial positions.

The Labor Contract Law of the PRC (in Chinese: 《劳动合同法》) (“Labor Contract Law”) is the primary legislation governing non-competition obligations in China. In furtherance of existing regulations, on September 4, 2025, the General Office of China’s Ministry of Human Resources and Social Security issued the Notice on the Publication of the Corporate Compliance Guidelines for Implementing Non-Competes (“Non-Compete Guidelines”) (in Chinese: 《企业实施竞业限制合规指引》). The release of these Non-Compete Guidelines marks a step forward in balancing the protection of commercial secrets and the legitimate rights and interests of employees in China.

Notably, the Non-Compete Guidelines serve as advisory guidance, and as such, they are not statutory laws or regulations and do not possess legally binding force. Nonetheless, the Non-Compete Guidelines offer useful guidance on good practices, helping employers implement non-compete restrictions both appropriately and effectively.

This article provides an overview and practical guidance on enforcing non-competes under Chinese law, taking into account the Non-Compete Guidelines.

1. Who Are Subject to Non-Competes?

According to the Labor Contract Law, only certain categories of employees can be legally bound by post-termination non-compete clauses. These include:

• Senior management personnel: Those with authority over majorbusiness decisions and the organization’s strategic direction.

• Senior technical personnel: Employees who possess access to critical technologies, know-hows, or core business processes.

• Other key employees with confidentiality obligations: Staff who obtain, create, or process trade secrets or sensitive information.

Employers should limit non-compete obligations to these positions. Attempts to unilaterally impose such restrictions on employees outside these roles, such as ordinary administrative staff or frontline workers, will likely render any agreements that contain such overreaching restrictions void. This scope is specifically designed to be focused to achieve an equilibrium between corporate interests and employee mobility, an approach that aligns with China’s judicial emphasis on proportionality.

Accordingly, enterprises should regularly review their list of such “key positions” and thereby maintain clear, up-to-date records identifying employees who should be subject to non-compete obligations. Internal guidelines or policy handbooks should also be updated to outline relevant roles and the justification for their inclusion.

2. Duration of and Compensation for Non-Compete Obligations

In China, non-compete obligations are limited to a maximum of 24 months following termination of employment.

Regarding the non-compete compensation, China’s legal regime mandates that employers shall punctually pay monthly compensation for the duration of the post-employment non-compete period. According to prevailing statutes and the new Non-Compete Guidelines, the baseline monthly compensation must be at least 30% of the average monthly salary received by the employee in the 12 months before departure and must never fall below the local statutory minimum wage. Notably, some economic regions (e.g., Shenzhen) have set higher thresholds, such as 50%.

The Non-Compete Guidelines further specify that, in case where the duration of non-compete obligations exceeds one year, the monthly compensation generally should not be less than 50% of the employee’s average monthly salary. However, as noted earlier, the Non-Compete Guidelines are not legally binding. In practice, our experience indicates that most employers currently continue to adhere to the 30% standard.

Failure to meet these statutory payment requirements, whether in terms of amount, timing, or continuity of payment, may invalidate a non-compete agreement altogether. Specifically, if an employer fails to pay the required compensation for more than three months, the affected employee has the right to unilaterally terminate the non-compete agreement.

On the other hand, if an employee violates a valid non-compete agreement, such as by joining a direct competitor or starting a competing business, the employer may seek contractual remedies, commonly including liquidated damages or compensation for actual losses. It is advisable to specify these remedies clearly in an agreement with the employee to facilitate enforcement.

3. How to Execute a Non-Compete Clause

A legally effective non-compete requires written agreement. Most commonly, these clauses are included in the labor contract, but they may also be formalized in a separate agreement. To avoid disputes, employers should ensure that both parties fully understand and acknowledge the constraints being imposed.

The non-compete obligation generally comes into effect upon the termination or expiration of the employment. It is critical to formally notify a departing employee either prior to or, at the very latest, on the termination date, preferably in writing and with clear timelines, about the commencement and specific terms of the non-compete during offboarding procedures.

4. Conclusion

For FIEs in China, adherence to statutory requirements and good practices provided under the Non-Compete Guidelines is beneficial not only for protecting business interests but also for supporting a healthy and fair labor market. It is advisable for companies to take the following actions:

• Compliant Drafting: Ensuring non-compete agreements are carefully drafted at the time of hiring or during employment, explicitly defining scope, duration, compensation standards, covered roles, and liabilities—crucial elements for enforceability. It is also advisable to review and update existing templates in light of the Non-Compete Guidelines to ensure good practice and compliance.

• Timely Notification: Confirming in writing that non-compete obligations will take effect before an employee’s departure, to help mitigate disputes.

• Payment of Compensation: Ensuring full and timely payment, as non-payment or delays could invalidate the non-compete.

• Legal Involvement: Engaging legal counsel throughout the process, from drafting to enforcement, to ensure compliance with current legal requirements, thereby reducing operational risks and strengthening enforceability.

With careful planning, robust documentation, and ongoing legal support, FIEs can implement non-compete clauses that are both enforceable and equitable. When properly managed, these can serve as a strategic asset, supporting sustainable business development while upholding employees’ rights and fostering mutual trust.