Non-compete agreements are enforceable in China — but far more narrowly than the clause most foreign employers roll out. Chinese law limits who can be bound, caps the restraint at two years, and requires the employer to pay the former employee every month for the privilege. Since 1 September 2025 the courts have tightened it further: a non-compete against an employee who never actually held trade secrets is void, whatever the contract says.
- Only three categories can be bound — senior management, senior technical personnel, and other staff under a confidentiality obligation (Labour Contract Law Article 24). A company-wide clause is not one of them.
- No pay, no restraint. Post-termination compensation must be paid monthly. If the agreement is silent, courts apply 30% of the employee's average monthly wage over the previous 12 months, and not below the local minimum wage.
- Two years is the ceiling, running from the end of employment.
- Since 1 September 2025 a court will declare the clause invalid where the employee had no access to trade secrets or IP-related confidential information — and scope, geography and duration must be proportionate to what they actually knew.
- Start with confidentiality, not the non-compete. A confidentiality obligation costs nothing, has no two-year limit, and is what the trade-secret regime actually protects.
1. Who can lawfully be bound
The framework sits in the Labour Contract Law. Article 23 allows an employer to agree confidentiality terms with an employee and, for those employees, a post-termination non-compete — with monthly compensation during the restricted period and liquidated damages if the employee breaches. Article 24 then limits who may be covered: senior management, senior technical personnel, and other personnel under a confidentiality obligation. The restricted scope, territory and duration are for the parties to agree, but may not exceed two years after the employment ends.
The practical failure mode for foreign employers is uniformity. A group template applied to the whole China payroll — sales assistants, support staff, junior engineers — will not be enforced against the people who were never inside the confidential information, and the attempt now carries its own risk. Non-competes have to be an eligibility decision made role by role, and the burden of showing that a particular employee actually had access sits with the employer.
2. What changed on 1 September 2025
The Supreme People's Court's Judicial Interpretation II on the application of law in labour dispute cases took effect on 1 September 2025 and is the most significant tightening of Chinese non-compete practice in years. Two changes matter most.
Invalidity where there was no secret to protect. Under Article 13, where an employee did not know of and had no access to the employer's trade secrets or confidential matters connected to intellectual property, and asks the court to declare the non-compete clause invalid, the court will support that claim. The signed agreement is not the end of the analysis; the employee's actual exposure is.
Proportionality. The restricted scope, region and duration must be proportionate to the confidential information the employee actually held. A restraint that reaches beyond that is vulnerable, and a list of named competitors is no longer self-executing — courts ask whether the new employer is in substantive competition with the old one. Blanket nationwide or worldwide restraints, and open-ended industry definitions, invite invalidation rather than deterrence.
A month later the Ministry of Human Resources and Social Security issued Compliance Guidelines for Enterprises Implementing Non-Compete Agreements (4 September 2025). They are guidance rather than binding law, but they point the same way and are a fair statement of what an administrative body and a court now expect: enumerate the competing businesses rather than describing them abstractly; keep the territory to the employer's actual operating footprint; tie the duration to how long the information stays confidential; and pay in money, monthly, without setting it off against wages or past bonuses.
3. The price: monthly compensation
This is where foreign employers most often lose. Compensation for a post-termination non-compete is a condition of enforceability, not a nicety, and it must be paid monthly during the restricted period — not as a lump sum inside the final salary, and not folded into the pay the employee already received.
Where the agreement fixes no figure, the Supreme People's Court's earlier interpretation supplies the default: 30% of the employee's average monthly wage in the 12 months before termination, and in no event below the local minimum wage. Local standards vary and several places apply a higher floor, so the applicable city matters. The MOHRSS guidelines suggest going further — a ratio of 50% or above where the restraint runs beyond one year.
Two consequences follow directly:
- Stop paying and you lose the restraint. Where the employer fails to pay for three months, the employee can have the non-compete brought to an end. The 2025 guidelines are stricter still, suggesting the employee is released where payment is more than a month late and still not made after a reminder.
- Budget before you draft. A two-year restraint on a senior engineer is roughly seven months of that engineer's salary, payable after they have left. Restraints companies are unwilling to fund are restraints they will not enforce — so decide at the drafting stage which roles are genuinely worth it.
Restrictions during employment are different: they flow from the employee's duty of loyalty and need no separate payment.
4. Breach, liquidated damages, and getting out early
A non-compete is one of only two situations in which Chinese law permits an employer to impose liquidated damages on an employee — the other being repayment of training costs under a service period. That makes it a genuinely useful clause where it is properly constituted. But the amount has to be defensible: the 2025 guidelines suggest liquidated damages should not exceed five times the total compensation payable for the restricted period, and courts will reduce figures that look punitive rather than compensatory.
The employer can also release the employee. An employer may unilaterally end the non-compete during the restricted period — but the employee is then entitled to claim an additional three months' compensation. Building a clean waiver mechanism into the agreement, and using it at termination for employees who no longer matter, is usually cheaper than paying out a restraint you will never enforce.
5. Confidentiality is the better first line
Because the non-compete is capped, priced and now narrowed, the confidentiality obligation is doing more of the work. It has none of the same limits: no statutory two-year ceiling, and no requirement to pay for it. It can be agreed with a much wider group of employees — and Article 24 itself contemplates exactly that, since "personnel under a confidentiality obligation" is a category that only exists if you created it.
The enforcement side has also strengthened. The revised Anti-Unfair Competition Law, in force 15 October 2025, raised the ceiling on penalties for trade-secret infringement and allows damages of one to five times the amount based on actual loss or illegal gains where infringement is intentional and serious. Protecting information as a trade secret — access controls, need-to-know segregation, exit interviews, documented declassification — is what makes that route available. A non-compete is a blunt substitute for it, and an expensive one.
Both sit alongside the rest of the employment file: a compliant written contract from the start (see hiring your first employees in China), and a lawful exit at the end (see terminating an employee in China). Note that employee personal data leaving China is its own regime — see PIPL for HR.
6. What a defensible China non-compete looks like now
- Name the roles, not the payroll. Identify the specific positions with genuine access to confidential information and document why. Everyone else gets confidentiality only.
- Describe the restricted business concretely — enumerated competitors or a defined product and service field, rather than "any competing business".
- Match the territory to your operations. If the business is Yangtze Delta manufacturing, a global restraint is not a stronger clause; it is a weaker one.
- Set the duration to the shelf life of the information. Two years is a ceiling, not a default; many technical secrets are stale well inside it.
- State the monthly compensation expressly, at or above the local standard, and set up payroll to actually pay it from month one after departure.
- Include a waiver right so you can release employees you decide not to restrain — and use it at termination, in writing.
- Keep the evidence. What the employee could access, what was marked confidential, what the new employer actually does. Enforcement turns on proof, not on the wording of the clause.
If you are auditing China employment templates written before September 2025, this is the clause to look at first. For the wider practice, see our corporate, compliance & data page.
Frequently asked questions
Yes, but only against senior management, senior technical personnel and other employees under a confidentiality obligation, for a maximum of two years after employment ends, and only where the employer pays monthly compensation throughout the restricted period. Since 1 September 2025 a court will also invalidate the clause where the employee had no actual access to trade secrets.
If the agreement fixes no amount, courts apply 30% of the employee's average monthly wage over the 12 months before termination, and never less than the local minimum wage. It must be paid monthly during the restricted period. Local standards vary, and the 2025 MOHRSS guidelines suggest 50% or above where the restraint runs longer than a year.
The employee can be released from the restraint. Three months of non-payment is the established threshold, and the 2025 compliance guidelines suggest the employee is no longer bound where payment is more than a month late and is still not made after a reminder. In practice, unpaid compensation is the most common reason a Chinese non-compete fails.
No. The Labour Contract Law limits non-competes to senior management, senior technical personnel and other staff genuinely subject to confidentiality obligations, and the September 2025 judicial interpretation invalidates clauses imposed on employees with no access to trade secrets. Use confidentiality obligations for the wider workforce instead — they require no payment and no time limit.
Yes. An employer may unilaterally end the restraint during the non-compete period, but the employee is then entitled to claim an additional three months' compensation. Building an express waiver right into the agreement, and exercising it in writing at termination, is usually cheaper than funding a restraint you do not intend to enforce.
Sources
- DLA Piper — post-termination risks in China under the new Supreme Court interpretation — Judicial Interpretation II, the MOHRSS guidelines of 4 September 2025, and the five-times cap on liquidated damages.
- CMS — implementing non-competition obligations in China after the SPC's Opinion II (in force 1 September 2025; invalidity where the employee had no access to confidential information).
- L&E Global — restrictive covenants in China — the two-year cap, the 30% default and local minimum wage floor, release for three months' non-payment, and the additional three months on employer waiver.
- China Briefing — non-compete agreements in China — eligibility, proportionality and what foreign employers should change.
- Osha Bergman Watanabe & Burton — China's Anti-Unfair Competition Law amended, effective 15 October 2025 — trade-secret penalties and one-to-five-times damages.
- Internal: hiring your first employees in China; terminating an employee in China; PIPL for HR.
This article is general information for foreign companies, not legal advice on any specific matter. Rules and practice change; please take advice on your facts.