Friday, November 16, 2007

What Has Labour Contract Law in China to do with IP?

According to article 39 TRIPs undisclosed information, including trade secrets, shall be protected by the WTO members, including China. Now Steven Dickenson of the prolific China Law Blog wrote an article for China International Business about China's new labour contract law, which will go into effect on January 1, 2008.

So what is relevant to intellectual property in China?

Mr Dickenson writes:
"Non-competition agreements restricted. Many foreign employers require most or all of their Chinese employees to enter into non-competition agreements that restrict their right to work for a competitor after termination of employment. The LCL imposes significant restrictions on the use of these agreements. The most important restriction is that non-compete agreements cannot be imposed on all employees. Only senior management and other employees with access to critical trade secrets can be required to enter into a non-competition agreement. The agreement must be limited in duration to two years, must be limited in geographic scope to a reasonable area and the employer must pay compensation to the employee during the period that the non-competition restriction is in effect."

Read Mr Dickenson's article 'Power to the People' here and Dan Harris' blog on China Law Blog here.

Read China's labour contract law in English here, in Chinese here.


China Herald said...

Perhaps most people do sign an agreement where they promise not to join a competitor for a certain period, but nobody sticks to it. In the unlikely case an employer wants a former employee to stick to the agreement, chances are very limited the agreement will stand in court.

Gilman Grundy said...

But it does give employers an extra weapon with which to bash wayward former employees in cases like this: .

As for the chances that the agreement will stand in court, this is not nearly so important as the chilling influence that such agreements can have on head-hunting and IPR theft.

China Herald said...

I do not see that much chilling effects here :-)
The only successful case I know was the case of Lee Kai Fu, where two US companies fought out such a case. Otherwise I have never heard of companies using that weapon. It might easily turn against them in a tight labor market, where employees do not like companies that might sue them.

Erin-Michael Gill said...

Just posted a long reply about how IP policy in the forming US may, in some ways, predict a bit of China's IP future.

Thanks for the posts.

IP Dragon said...

Thanks for the interesting comments. The effectiveness of the non-competition agreement depends on the key word enforcement.

Yes, I read about the Lee Kai Fu case between Microsoft and Google. See here:


IP Dragon