When is a non-compete enforceable in China?

How Judicial Interpretation II tightens the rules

Judicial Interpretation II makes clear that a non-compete should only apply where the employee had access to protected confidential information. If that is not the case, the restriction cannot take effect. Standard-form restrictions applied across a whole workforce or to junior staff with no exposure to protected information therefore no longer bind.

Even where a non-compete is justified, it cannot be broader than necessary. Its scope, geographical reach, and duration must be reasonably proportionate to the confidential information being protected. Where they are not, it is the disproportionate part that is invalid rather than the clause as a whole, so an over-broad restriction is cut back but not discarded.

Not every change favours employees. A non-compete operating during employment, agreed with senior management, senior technical staff, or others under a confidentiality duty, is not invalidated by the absence of compensation.

What this looks like in practice

The Supreme People’s Court illustrated this approach in a case published alongside the interpretation. A pharmaceutical executive who had access to confidential information concerning two specific drugs left his position and joined another pharmaceutical company, prompting his former employer to sue for contractual damages.

The court rejected the claim, finding that the non-compete had been applied too broadly. The employee’s knowledge related only to two specific drugs, so his restriction could not automatically extend to the employer’s entire pharmaceutical business. Although his new employer also operated in the sector, the court found the products were not sufficiently similar to establish a competitive relationship. 

The most defensible clauses identify the confidential information at stake, name the competitors concerned, and set out how the monthly compensation will be paid after termination.

Beyond non-competes

The same interpretation clarifies other key employment contract items, such as when two consecutive fixed-term contracts trigger an open-ended contract, counting automatic renewals, longer extensions, and changes of contracting entity. Arrangements with retirement age staff are addressed separately.

Employment terms drafted before September 2025 were written against a different standard. For most employers with a workforce in China, a review of existing non-compete clauses and renewal practices is overdue.

---

As a Partner at MSA, Harm supports foreign companies in navigating challenges related to market entry and operations in China and Asia. He specialises in structuring businesses for efficient cross-border transactions, tax optimisation, and seamless international reporting.