China — the latest guidance from the Supreme People's Court

Three years after the Third Interpretation of the Supreme People’s Court on Certain Issues regarding the Law Applicable to Labor Dispute Cases Hearing was published in September 2010, the Supreme People’s Court issued its Fourth Interpretation on the same topic on 1 February 2013. Taking effect on 1 February 2013, the interpretation addresses important issues such as non-competition and its related economic compensation, verbal amendments to an employment contract, consultation with the trade union upon termination, and foreign nationals’ employment in China.

The PRC Employment Contract Law (the “ECL”) is silent on the parties’ rights and remedies where:

  • They have failed to stipulate on the compensation for non-competition obligations in the employment contract or a confidentiality agreement, or
  • The employer has failed to pay non-compete compensation or intends to cancel a noncompetition agreement.

The Interpretation seeks to fill this gap. Under Article 6 of the Interpretation, where an employer and its employee have reached an agreement on post-employment non-competition restriction, but fails to mention payment of compensation for such non-competition restriction, if the employee has fulfilled the non-competition obligation, he or she is entitled to a monthly compensation by the employer based on 30% of the average monthly salary over the 12 months preceding the termination or expiration of employment…

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