Non-Compete Agreements in China: A Guide for Foreign Employers

Non-compete agreements in China bind only certain employees, and only under specific conditions. This guide sets out what a non-compete must satisfy to be valid, eligible employees, monthly compensation, trade-secret access, proportionality, and what foreign employers should check in their contracts.

Non-compete agreements are harder to enforce in China than many foreign employers assume, and such employers are the most exposed when they get them wrong. China’s Supreme People’s Court (SPC) has released Judicial Interpretation II on the Application of Law in Labor Dispute Cases (Fa Shi [2025] No. 12, “Judicial Interpretation II”), together with illustrative cases to guide the lower courts, significantly tightening already strict limits on non-competes in employment contracts.

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It targets non-compete clauses, intended in Chinese labor law only to protect trade secrets held by particular, often senior, employees, inserted into contracts at every level. 

A clause is void if the employee never had access to the employer’s trade secrets, regardless of what the parties agreed. Scope, geographic area, and duration must be proportionate to the information protected; anything beyond this is invalid.  

Foreign employers, who often insert boilerplate non-compete clauses as a matter of global policy, face compliance risks. This guide sets out the requirements that now apply, how they affect existing agreements, and what to do. 

Why non-competes have become harder to enforce in China 

Non-compete clauses have long occupied a difficult-to-navigate place in the Chinese employment relationship. Recognized under the Labor Contract Law since 2008, they are meant only for a narrow class of senior and trade-secret-bearing staff. In practice, they were inserted far more widely and enforced in courts, creating uncertainty for employers and employees alike. 

Courts have moved to close this gap between regulation and practice. Across 2024, a series of published cases steadily narrowed when a non-compete would hold up. 

The first was eligibility. In one of the model cases issued by the SPC in 2024, a masseur was found to be neither senior management nor a technician, and the court rejected the employer’s damages claim: employees without genuine confidentiality obligations are not bound, even where they signed.  

The second was compensation. In a Shanghai case, the court found paying only the local minimum wage, 5.8 percent of the employee’s former salary, unfair and ordered 30 percent instead. 

When is a non-compete clause unenforceable? 

A non-compete can be struck down on several grounds, even where both parties signed it. Judicial Interpretation II, with six published representative cases, sets these out and tightens the earlier position.

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Clauses are invalid where the employee had no actual access to the employer’s trade secrets or related confidential information, and the burden of proving access falls on the employer. 

A new proportionality test requires scope, geography, and duration to be reasonably tailored to the secrets the employee actually possessed. A subsequent Ministry of Human Resources and Social Security (MHRSS) compliance guideline, issued that September, reinforced the same direction.  

These reforms move Chinese regulation closer to approaches foreign businesses know better. The reasonableness and proportionality tests resemble the common-law presumption against non-compete clauses; while the compensation and duration requirements resemble practice in many European jurisdictions. Employers should nonetheless tailor their China contracts to Chinese law. 

How do non-compete clauses now work in China? 

Read with existing legislation, the Interpretation means a non-compete clause must meet the following to be valid and enforceable: 

• The employee must have been a senior executive, senior technician, or otherwise had confidentiality duties
• It must be in writing, in the employment contract or a separate document
• It can run for a maximum of two years
• Compensation must be at least 30 percent of the employee’s average wage or the local minimum wage, whichever is higher
• The employee must have had actual, not merely possible, access to trade secrets or other confidential material
• The employee’s new employer must actually compete; a named-competitor list is not sufficient
• The court did affirm that in-employment non-compete clauses are acceptable and require no compensation. 

How this affects foreign employers 

For foreign-invested enterprises, these changes clarify obligations on both sides and require a review of current practice.  

Many foreign firms routinely apply broad, role-blind non-compete clauses across their China workforce, mirroring overseas jurisdictions where such clauses cover a large share of staff. The SPC’s Interpretation has turned this into a compliance risk.  

What to do about non-compete agreements in China 

China’s approach reflects a broader tightening, with labor mobility the throughline: confining non-competes to the narrow purpose legislation originally set for them, safeguarding genuine trade secrets rather than deterring ordinary staff turnover. It aligns with international efforts to narrow such clauses and limit their “chilling effects” on competition. 

Employers are advised to take the following actions: 

• Audit who is bound: The employer must prove genuine trade-secret access, and courts apply this strictly: in one illustrative case, a non-compete on a security guard was struck down because his duties involved no confidential information. FIEs should restrict clauses to senior management, senior technical staff, and genuine confidentiality-holders, and document why each qualifies.
• Budget for compensation: Courts are enforcing the compensation requirement more strictly. Finance teams should provision monthly payments of at least 30 percent of prior salary, for up to two years, on every restraint it intends to enforce.
• Tailor scope to the secret: The proportionality test requires scope, geography, and duration to match the confidential information the employee actually held. A named-competitor list is no longer self-executing; courts now ask whether competition is substantive, so blanket global or open-ended restraints invite invalidation. 
• Start with other protections: The MHRSS guidelines, issued alongside the Interpretation, advise protecting trade secrets through measures other than non-competes first: IT access controls, data encryption, and clear declassification timelines. 

The reflexive, all-staff non-compete is now a liability rather than a safeguard. Firms that move early, auditing contracts, scoping restraints to genuine secret-holders, building layered protections, will retain enforceable tools where they matter. The proportionality test’s finer contours remain unsettled, an area to keep under review. 

How Dezan Shira & Associates can help 

The finer contours of how this is enforced in the courts will be settled case by case. Dezan Shira & Associates works with FIEs across China to audit existing employment contracts against Judicial Interpretation II, scope restraints to genuine trade-secret holders, and put alternative confidentiality protections in place. To arrange a consultation, please contact our local team. 

Building teams and managing people compliantly requires local expertise and resources. Our professionals in HR, Payroll, Recruitment, and HRMS assist clients with managing their human capital in Asia effectively and in full regulatory compliance.

David Niu

Partner

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