China Clarifies Non-Compete Rules with New Compliance Guidelines

Introduction: Bringing Clarity to a Contentious Area of Labor Law

On September 4, 2025, China’s Ministry of Human Resources and Social Security
(MOHRSS) issued new compliance guidelines for the use of non-compete
agreements, bringing much-needed clarity to a contentious area of labor law. These
guidelines, which are effective immediately, aim to balance the protection of
employers’ trade secrets and competitive advantages with the rights of employees
to freely seek employment. For multinational companies operating in China, these
guidelines provide a clearer roadmap for drafting and enforcing non-compete
agreements that are both effective and compliant with Chinese law.

Non-compete agreements have long been a source of dispute in China, with courts
often taking a critical view of overly broad or restrictive clauses. The new guidelines
from MOHRSS are a response to this uncertainty, providing a more detailed and
practical framework for the implementation of non-compete agreements. This
article provides a comprehensive overview of the new guidelines, their key
provisions, and their practical implications for employers in China.

Key Provisions of the New Non-Compete Compliance Guidelines

The new guidelines clarify several key aspects of non-compete agreements,
including the scope of employees subject to such agreements, the duration of the
non-compete period, and the amount of compensation that must be paid to
employees during the non-compete period.

Scope of Employees: The guidelines specify that non-compete agreements
should generally be limited to senior management, senior technical
personnel, and other personnel who have confidentiality obligations. This
clarification is intended to prevent the overuse of non-compete agreements
for employees who do not have access to sensitive company information.

Non-Compete Period: The guidelines reiterate the statutory limit of two years
for non-compete periods, but they also encourage employers to agree on a
shorter period with employees based on the specific circumstances. This
suggests that courts may be more inclined to uphold shorter and more
reasonable non-compete periods.

Economic Compensation: The guidelines provide more specific guidance on
the amount of economic compensation that must be paid to employees
during the non-compete period. While the law requires compensation, the
guidelines suggest that the amount should be determined through
negotiation between the employer and the employee, and it should be a
reasonable amount that is not less than the local minimum wage. The
guidelines also clarify that if the parties have not agreed on a specific amount,
the employee can request compensation equal to 30% of their average
monthly salary for the 12 months prior to termination, but not less than the
local minimum wage.

Practical Implications for Employers

The new guidelines have several important practical implications for employers in
China. Companies should review and update their non-compete agreements and
related policies to ensure they are in compliance with the new guidelines. Key
action points include:

Review and Revise Non-Compete Agreements: Employers should review
their existing non-compete agreements to ensure they are consistent with the
new guidelines. This includes ensuring that the scope of employees subject to
non-compete agreements is appropriate, that the non-compete period is
reasonable, and that the economic compensation is clearly defined and meets
the minimum requirements.

Tailor Agreements to Specific Circumstances: The guidelines encourage
employers to tailor non-compete agreements to the specific circumstances of
each employee. This means that a one-size-fits-all approach is no longer
appropriate. Employers should consider the employee’s position, their access
to confidential information, and the nature of the company’s business when
drafting non-compete agreements.

Document Negotiations: The guidelines emphasize the importance of
negotiation between the employer and the employee. Employers should
document these negotiations to demonstrate that the non-compete
agreement was entered into voluntarily and that the terms are reasonable.

Conclusion: A More Balanced Approach to Non-
Competes

The new compliance guidelines for non-compete agreements represent a
significant step forward in the development of Chinese labor law. By providing
greater clarity and predictability, the guidelines will help to reduce disputes and
create a more balanced and equitable framework for the use of non-compete
agreements. For employers, the guidelines provide a clear roadmap for drafting and
enforcing non-compete agreements that are both effective and compliant. By
following the new guidelines, companies can protect their legitimate business
interests while respecting the rights of their employees.