TIPS^®  Taiwan Intellectual Property Special

China Updates

Labor Contract Law Regulates Obligation to Confidentiality of IPR
National People’s Congress Standing Committee of China ratified the long-waited Labor Contract Law on June 29, which marks a new milestone for the country’s legal system related to labor, as the current Labor Law was introduced thirteen years ago. The new Labor Contract Law not only enhances the rights of the employees, but also sets forth their obligations. The Labor Contract Law has a total of eight chapters consisting of provisions regulating the contracts between employees and employers concerning trade secrets and intellectual property rights, termination of labor contracts, restriction of competition, etc.

Article 23 of Chapter 2 stipulates that the employer and the employee can make an agreement in a labor contract to keep the confidentiality of the trade secrets and matters related to intellectual property rights of the company. For an employee under the obligation of confidentiality, the employer may include non-compete clauses in the labor contract or confidentiality agreement. Clauses related to financial compensation during the period of non-competition after the termination of employment, may also be included in the aforesaid labor contract or confidentiality agreement. The employer is responsible for the financial compensation and the employee is obliged to the non-compete agreement. The employee is also liable for momentary penalties in case of violation of the non-compete agreement. The Labor Contract Law also clearly states that the non-compete clauses may only apply to senior management, senior technicians, and other personnel under the obligation of confidentiality. Nevertheless, the term in which the employees are subject to non-competition in working for a competing company that produces the same products or services, or starting a business for the same product or service shall not exceed two years.