Are NDAs and Non-Compete Agreements Enforceable in China?

Protecting confidential information and preventing employees from joining competitors are major concerns for foreign companies operating in China. But are NDAs and non-compete agreements actually enforceable? The answer is nuanced.

Non-Disclosure Agreements (NDAs)

NDAs are generally enforceable in China, but with important caveats.

What Makes an NDA Enforceable

• Specificity: Clearly define what information is confidential
• Reasonable scope: Don't try to protect publicly available information
• Proper execution: Signed by authorized representatives, preferably with company chops
• Chinese language: Chinese version should govern in case of disputes

Common Problems

• Vague definitions of "confidential information"
• No evidence that information was actually treated as confidential
• Difficulty proving breach and damages
• Weak enforcement mechanisms

Non-Compete Agreements

Non-compete agreements in China are subject to strict legal requirements under the Labor Contract Law.

Who Can Be Bound

Non-competes can only apply to:

• Senior management personnel
• Senior technical personnel
• Other personnel with confidentiality obligations

You cannot impose non-competes on ordinary employees.

Mandatory Compensation

This is critical: You must pay the employee monthly compensation during the non-compete period. Without compensation, the non-compete is unenforceable.

• Minimum: Local regulations vary, but typically 30-50% of pre-departure salary
• Payment must continue throughout the restriction period
• If you stop paying, the employee can terminate the non-compete

Maximum Duration

Non-compete periods cannot exceed 2 years after employment ends.

Geographic and Industry Scope

The restriction must be reasonable in scope. Overly broad restrictions (e.g., "cannot work in any technology company worldwide") will likely be narrowed or invalidated by courts.

Enforcement Challenges

Even with properly drafted agreements, enforcement faces practical challenges:

Proving Breach

• How do you know an ex-employee joined a competitor?
• How do you prove they disclosed confidential information?
• Gathering evidence in China can be difficult

Damages

• Courts may not award the liquidated damages specified in your agreement
• Proving actual damages is often difficult
• Damages awards in China tend to be lower than in Western countries

Speed

• By the time you get a court judgment, the damage may be done
• Preliminary injunctions are available but not always granted

Best Practices

For NDAs

1. Use China-specific agreements drafted under Chinese law
2. Clearly define and mark confidential information
3. Implement actual confidentiality measures (access controls, training)
4. Include reasonable liquidated damages provisions
5. Specify Chinese courts or CIETAC arbitration for disputes

For Non-Competes

1. Only use for employees who genuinely have access to sensitive information
2. Budget for the required compensation payments
3. Keep the scope reasonable and specific
4. Include clear definitions of "competitor"
5. Have a system to track compliance and make payments

Alternative Protections

Don't rely solely on legal agreements:

• Technical measures: Limit access to sensitive information
• Compartmentalization: No single employee knows everything
• Exit procedures: Thorough offboarding and return of materials
• Retention strategies: Keep key employees happy so they don't want to leave