Labor Law Compliance: Unveiling Non-Compete Agreements in China, India, Italy and Vietnam.

Navigating the intricate landscape of non-competition agreements requires a nuanced understanding of the terms and conditions that dictate their validity, particularly within the legal frameworks of different jurisdictions. These agreements, pivotal in safeguarding a company's interests post-employment, operate within distinct regulatory landscapes shaped by laws and regulations unique to each country. By delving into the specific terms and conditions that render non-competition agreements valid within these diverse jurisdictions, we aim to unravel the complexities and variations that exist in the legal considerations, contractual obligations, and contextual factors shaping their effectiveness. This article undertakes a comparative exploration, focusing on the jurisdictions of China, India, Italy and Vietnam.


CHINA


In China, regulations governing the validity of post-employment non-competition commitments for employees are clearly defined. Specifically, such commitments can only be applied to (1) senior managers, (2) senior technicians, and (3) other employees with confidentiality obligations due to their access to specific technical or business secrets of the company.


Given the above, the employer and the employee must explicitly agree on the scope, geographical limitations, and duration (up to a maximum of two years) of non-competition obligations. This agreement can be established through a separate non-competition agreement or within non-compete clauses incorporated into the labor contract.


Regardless of the existence of a formal agreement, the effectiveness of non-compete obligations hinges on two conditions: (i) the employer must expressly request the enforcement of non-compete obligations, and this request must be made no later than the termination of employment; (ii) for the fulfillment of non-compete obligations, the employer must provide monthly non-compete remuneration throughout the non-competition period.


In cases where there is no explicit agreement on non-competition remuneration, courts will follow guidelines set by the Supreme People’s Court. According to these guidelines, the economic compensation should be 30% of the employee's average monthly salary in the twelve months before leaving the employer, if 30% of the monthly average wage is lower than the minimum wage standard at the place where the labor contract is performed, economic compensation shall be paid according to the minimum wage standard at the place where the labor contract is performed. The calculation of the average salary includes bonuses and fixed allowances granted during that period. Additionally, local regulations should be taken into account when determining the amount of economic compensation.


INDIA


Under the Indian laws, the legal position on non-compete clauses is also very clear. Section 27 of the Indian Contract Act, 1872 (hereinafter referred to as “the Act”), prohibits any agreement by which anyone is restrained from exercising a lawful profession or trade or business of any kind is to that extend void unless it falls under the narrow exception laid down in the Act. The validity of the non-compete clauses in the agreement are subject to certain exception. The Indian Court have clearly laid down that negative covenant can be enforceable provided they are reasonable and that the purpose of such covenant is to protect the legitimate interest of the employer.  Therefore, the employer can enforce such non-compete clauses and retain the employee only during the period of employment of the employee.  


Hence, any obligation of non-competition that extends beyond the term of employment is void and unenforceable under the Indian laws. The validity of these non-compete clauses beyond the employment period is controversial as the underlying principle is to safeguard the interest of the employee in order to exercise its lawful trade and profession at its will. However, when monetary compensation is paid to the employee in consideration of the non-compete clause, it may be possible to claim a reasonable part of the monetary benefit in case of loss occurred due to violation of non-compete obligation.


ITALY


In Italy, the regulatory framework overseeing non-competition agreements for employees is outlined within the provisions of Article 2125 of the Civil Code, as interpreted by related case law. The above provisions specify that such agreements are only valid if they adhere to the following requirements: (i) provide a non-competition remuneration commensurate with the scope of limitations imposed on the employee through the agreement; (ii) be stipulated in writing; (iii) clearly determine the scope of activities precluded and the territorial validity of the agreement (which shall not be of such magnitude as to preclude any deployment of the worker's professionalism); and (iv) be stipulated for no longer than five years (for managers) or three years (for other employees) following the termination of the employment relationship.


No clear regulatory standard is provided for the determination of the remuneration for the non-competition agreement. The relevant case law clarifies that such remuneration shall be "commensurate with the scope of limitations imposed on the employee through the agreement" and be "determined" but does not suggest a proper standard. In practice, remuneration of around 30% of the gross annual remuneration is normally deemed fair, provided that the actual percentage varies in relation to the scope of territorial and/or operational restrictions imposed on the employee.


Conversely, no fixed rule governs the method and timing of remuneration disbursement. The agreement may prescribe concurrent payment with the salary throughout the employment relationship or a lump-sum payment upon its termination. While certain case law contested the legitimacy of the payment of the non-competition remuneration together with the monthly salary, the most recent case law (e.g., Cassation Court, Labor Section, No. 23418/2021) validated the payment of the non-competition remuneration together with the monthly salary during the term of employment, contingent upon the inclusion of an adequate "minimum guaranteed remuneration," irrespective of the actual duration of the employment relationship.


VIETNAM


Regarding the terms and conditions for the validity of a Non-Compete Agreement in Vietnam following the termination of an employment relationship, it's important to note that neither the Labor Code nor other Vietnamese laws and regulations provide explicit provisions or precise standards for such agreements. Typically, these agreements are considered separate from the Labor Contract and are governed by the Civil Code.


In light of relevant case law, as exemplified by Judgment No. 09/2010/LD-ST, the validity of these agreements may face challenges unless they are applied to personnel in key positions who have undergone training, possess advanced qualifications, are fully cognizant of their rights and responsibilities, and voluntarily agree to execute the non-competition agreement.


In the event of a contract breach by an employee, the employer will be required to quantify and prove the actual losses incurred before the court. The compensation claimed by the employer should correspond to the amount of loss caused by the employee's breach.


Labor Law Compliance: Unveiling Non-Compete Agreements in China, India, Italy and Vietnam.   (图1)Labor Law Compliance: Unveiling Non-Compete Agreements in China, India, Italy and Vietnam.   (图2)Labor Law Compliance: Unveiling Non-Compete Agreements in China, India, Italy and Vietnam.   (图3)Labor Law Compliance: Unveiling Non-Compete Agreements in China, India, Italy and Vietnam.   (图4)

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