On September 13, 2025, the Ministry of Human Resources and Social Security (MOHRSS) released the Guidelines for the Implementation of Non-Compete Compliance by Enterprises. The document provides detailed instructions on how companies should apply non-compete agreements within the framework of the Labor Contract Law, aiming to strike a balance between protecting trade secrets, safeguarding employee rights, and ensuring fair competition in the labor market.
Clarifying the Scope of Non-Compete
The guidelines address long-standing concerns over the broad and sometimes arbitrary use of non-compete clauses. Enterprises are explicitly prohibited from extending restrictions on workers who have no access to trade secrets or sensitive commercial information. Knowledge that is considered industry common sense, professional skills widely shared across the sector, or publicly available business information does not qualify as a trade secret.
This clarification narrows the scope of eligible employees and prevents companies from imposing excessive constraints on staff with no confidentiality obligations, thereby supporting greater mobility in the labor market.
Economic Compensation Standards
One of the core elements of the guidelines is the requirement for enterprises to provide fair and transparent compensation during the non-compete period. Compensation must be paid in monetary form on a monthly basis, separate from wages or bonuses previously earned.
The guidelines establish clear benchmarks:
- For non-compete periods of up to one year, the monthly compensation should generally not be less than 30% of the employee’s average salary over the preceding 12 months and must not fall below the local minimum wage.
- For non-compete periods exceeding one year, the compensation should generally rise to at least 50% of the employee’s average salary over the same reference period.
This framework seeks to ensure that restrictions on post-employment opportunities are offset by sufficient financial support.
Provisions on Liquidated Damages
To further balance the rights and obligations of both parties, the guidelines also refine rules on liquidated damages. The amount should be aligned with the potential economic losses from a breach of confidentiality and proportionate to the compensation already provided. In principle, liquidated damages should not exceed five times the total agreed non-compete compensation.
This measure aims to discourage both excessive penalty clauses imposed by enterprises and deliberate breaches of contract by employees.
Implications for Enterprises and Workers
For enterprises, the guidelines introduce a more standardized and legally consistent framework. They require firms to assess carefully which employees are subject to non-compete obligations, document the commercial rationale for restrictions, and ensure compliance with compensation requirements.
For workers, the guidelines strengthen legal protections by clarifying the boundaries of trade secrets and guaranteeing financial safeguards during restricted periods. This is intended to reduce disputes, protect professional development, and improve the transparency of labor relations.
Conclusion
The issuance of the Guidelines for the Implementation of Non-Compete Compliance by Enterprises reflects the government’s effort to refine labor regulations in line with both market efficiency and worker protection. By setting clearer rules on scope, compensation, and damages, the policy aims to prevent abuse of non-compete agreements while preserving the legitimate interests of enterprises.
In practice, companies will need to integrate these requirements into their HR and compliance frameworks, ensuring that non-compete arrangements are not only enforceable but also fair, transparent, and consistent with broader labor policies.