2016.10.07
Tiffany Wu
The Ministry of Labor promulgated Articles 7-1, 7-2 and 7-3 as added to the Enforcement Rules of the Labor Standards Law (hereinafter, the “Enforcement Rules”) via the MOL-Lao-Dong-Guan-Two-1050127775 Directive of October 7, 2016 to clarify the provisions of the non-compete clause between an employer and an employee after employment is terminated.
Under Article 9-1, Paragraph 1, Subparagraph 3 of the Labor Standards Law, the non-compete agreement between an employer and an employee shall not exceed a reasonable scope in terms of the non-compete period and area, scope of occupational activities, and employers. Subparagraph 4 of the same paragraph and article provides that reasonable compensation shall be agreed with the employee. Therefore, Article 7-1 of the Enforcement Rules provides that a non-compete agreement after employment termination shall be executed in writing, specify the above details, and be signed by the employer and the employee with each party keeping one copy.
Under Article 7-2 of the Enforcement Rules, that an agreement does not exceed a reasonable scope means that the following provisions shall be followed: (1) the non-compete period shall not exceed the life cycle of the trade secrets or technical information the employer seeks to protect and shall not exceed two years at the longest; (2) the non-compete area shall be the actual area of the original employer’s actual business activities; (3) the scope of non-compete occupational activities shall be specific and identical or similar to the scope of the employee’s original occupational activities; and (4) the employers with whom employment should not be sought during the non-compete period should be specific and clear, should have identical or similar business activities as compared with the original employer and should be competitors of the original employer.
Article 7-3 of the Enforcement Rules provides that reasonable compensation should be generally governed by the following requirements: (1) the monthly compensation shall not be lower than 50% of the average monthly wage of the employee at the time of termination, (2) the amount of the compensation shall be sufficient to meet the living needs of the employee during the non-compete period after the employment is terminated; and (3) the amount of compensation shall be comparable to an employee’s loss from complying with the non-compete clause. In addition, it shall be agreed that the compensation will be paid at one time in advance or on a monthly basis after the employment is terminated.