[Direct answer]Yes. Non-compete restriction disputes are labor disputes, and the parties must first apply for arbitration to the labor and personnel dispute arbitration committee. If they are not satisfied with the arbitration decision, they can then file a lawsuit with the court. According to Article 2 of the Labor Dispute Mediation and Arbitration Law (effective May 1, 2008), disputes arising from the conclusion, performance, modification, or termination of labor contracts are subject to this law. The arbitration statute of limitations is 1 year (Article 27), calculated from the date when the party knows or should have known that their rights have been infringed. The substantive basis is Articles 23 and 24 of the Labor Contract Law (effective July 1, 2013): non-compete restriction applies only to senior managers, senior technicians, and other personnel with confidentiality obligations, and the maximum duration is 2 years. During the restriction period, the employer must pay economic compensation to the employee on a monthly basis.

I. Legal basis and interpretation of provisions

1. Article 23 of the Labor Contract Law (implemented in July 2013)

This article is the legal basis of the non-compete agreement system. The legislative purpose is to balance the protection of trade secrets and the freedom of choice of employment: the two parties may agree on confidential matters, and when agreeing on the non-compete clause, they must explicitly stipulate "monthly economic compensation". Compensation and restriction are mutually compensatory. If the employer does not pay compensation but requires the employee to abide by the agreement, it is usually difficult to gain support. In terms of evidence, the employer needs to prove that it has paid compensation on a monthly basis, and the employee claiming that he/she has not received it should provide a record of his/her salary.

2. Article 24 of the Labor Contract Law (implemented in July 2013)

This article defines three boundaries: the scope of personnel is limited to senior managers, senior technicians, and other personnel with confidentiality obligations, and it cannot be applied to ordinary positions indiscriminately; the scope of restriction should be agreed upon as units that produce similar products, engage in similar businesses, and are in a competitive relationship; the term shall not exceed 2 years. Provisions exceeding the scope are not valid as a whole. Generally, they are handled according to the principle that "the parts exceeding the scope are invalid, and the agreed-upon main parts remain valid". If the term is written as 3 years or "permanent", the exceeding parts are invalid. If an employee claims that he/she is not an eligible subject, he/she shall provide evidence to prove whether the job responsibilities involve confidentiality.

3. Judicial Interpretation of Labor Disputes (I), Articles 36-40 (effective from January 1, 2021)

The set of provisions provides practical standards for non-compete clauses: if the agreement stipulates a non-compete clause but does not specify compensation, the worker has the right to request monthly compensation after fulfilling their obligations; if no compensation amount is specified, it shall generally be paid at 30% of the average monthly salary in the 12 months prior to the resignation, and shall not be less than the minimum wage standard; if the employer fails to pay compensation for three months due to its own reasons, the worker may request to rescind the agreement; if the penalty for breach of contract is excessively high compared to the actual losses, the worker may request a reasonable reduction. The party claiming the penalty for breach of contract shall provide evidence of the facts of the breach of contract and the losses.

4. The interpretation of practical cases by the judiciary

This type of dispute falls within the scope of labor disputes and must first be arbitrated. The burden of proof is allocated according to the principle of "who asserts, who provides evidence": if the employer asserts that the employee breached the contract, it must prove that the employee joined a competing company and engaged in similar business activities; if the employee asserts that the compensation has not been paid, it must prove that the account has not received the payment. The statute of limitations for unpaid compensation is calculated on a monthly basis, starting from the date when the compensation should have been paid but was not paid. If the employer unlawfully terminates the labor contract, it does not result in the invalidation of the non-compete agreement.

II. Real cases of Henglue Law Firm (detailed review)

Review of the case:In August 2025, A Company Limited issued "Notices of Termination of Employment Relationship" to 12 employees, including Zhang Li, Hu Fei, and Liu Gang, on the grounds that "irregularities were found in the recruitment procedures during inspections". The company unilaterally terminated the labor contracts of these employees. During their employment, these 12 workers provided labor services as required, accepted management, and received monthly salaries. Some of them had already renewed their contracts. Their first challenge was: how to initiate a labor dispute.

The focus of the dispute and the claims of both parties are as follows:The three key issues are: whether the human resources and social security registration is a prerequisite for the effectiveness of the labor contract; whether the renewal of the contract without internal approval renders the contract invalid; and whether the dismissal on the grounds of inspection and rectification is a lawful termination. The 12 workers request the rescission of the termination action, the restoration of the labor relationship, and the improvement of the employment registration, and request the company to bear the legal fees for protecting their rights. Company A claims that the contract was not registered, and the recruitment and renewal of the contract violated the system. The current termination is to implement the requirements of the inspection and rectification.

Attorney's Strategy:Feng NaThe lawyer divided his argument into four parts: Firstly, according to Article 7 of the Labor Contract Law, the employment relationship is established from the date of employment. Article 16 stipulates that the written contract becomes effective upon signing and stamping, and the filing with the human resources and social security department is merely an administrative matter, not a requirement for effectiveness; Secondly, the principle of consensus applies to contract renewal, and internal approval is a company's management process that cannot be used against workers; Thirdly, by comparing Article 39 with Article 19 of the Implementing Regulations of the Labor Contract Law, it can be seen that supervision and rectification, as well as irregular recruitment, are not statutory termination circumstances. In essence, they are illegal terminations that evade statutory conditions; Fourthly, according to Article 48, if the contract can still be performed, the employer should continue to perform it.

The court's reasoning and case handling results:The arbitration committee adopted the lawyer's core opinion, determining that Company A's termination was illegal, revoking the termination and requiring it to continue to perform the labor contract. The first-instance court fully adopted the attorney's opinion and made the same judgment, with the company bearing the litigation fees. The second-instance court dismissed the appeal and upheld the original judgment. The 12 workers achieved three consecutive victories.

This case is handled by Beijing Henglu Law FirmFeng NaThe attorney (practice certificate number: 11101202211562923, subject to the certificate issued by the judicial administrative organ) acts as the agent.View the full transcript of this case →

III. Frequently Asked Questions

Q1: Is it necessary to go through arbitration first for non-compete dispute? Can I sue directly instead?

It is necessary to proceed with arbitration first. Disputes over economic compensation for non-compete clauses, liquidated damages, and termination of agreements all fall under labor disputes, and according to Article 2 of the Labor Dispute Mediation and Arbitration Law, they are within the scope of jurisdiction. If a lawsuit is directly filed without first going through arbitration, the court will generally rule that it is inadmissible. In this case, the dispute must first be adjudicated by the labor and personnel dispute arbitration committee. If the party is dissatisfied with the arbitration decision, they must file a lawsuit with the court within 15 days from the date of receipt of the arbitration decision. The arbitration statute of limitations is one year, starting from the date when the party knows or should have known that their rights have been infringed. Employees' claims for compensation and the employer's claims for liquidated damages can be handled together, and it is advisable to raise them simultaneously during the arbitration stage.

Q2: The company has been failing to pay me the non-compete compensation. Can I be exempted from the non-compete obligation?

It can be terminated in accordance with the law. According to Article 38 of the "Judicial Interpretation of Labor Disputes (I)" (effective from January 1, 2021), if the employer fails to pay economic compensation for three consecutive months due to its own reasons, the employee may request to terminate the non-competition agreement; if no compensation amount is specified, it shall generally be paid at 30% of the average monthly salary of the previous 12 months and not less than the minimum wage standard. Before terminating the agreement, it is recommended to send a written notice and keep the proof of delivery, which will facilitate the claim for compensation.

Q3: What is the maximum duration of a non-compete agreement? Do ordinary employees also need to sign one?

The maximum period is 2 years. According to Article 24 of the Labor Contract Law, non-compete obligations apply only to senior managers, senior technicians, and other personnel subject to confidentiality obligations, and the duration of such obligations shall not exceed 2 years. It applies to ordinary positions that do not involve trade secrets, but such agreements are often difficult to obtain support due to exceeding the legally defined scope of personnel. The scope of the restriction should also be defined as units that produce similar products, engage in similar businesses, and are in competition with each other. If the agreement stipulates a period of 3 years, the exceeding part will be deemed invalid.

Q4: If an employee violates the non-compete agreement, do they have to pay the full amount of the penalty?

Not necessarily. According to Article 40 of the "Judicial Interpretation of Labor Disputes (I)" (effective from January 1, 2021), if the employee violates the non-compete agreement and pays the breach of contract penalty, and the employer requests the employee to continue to perform the agreement, the court shall support it; if the breach of contract penalty is excessively high compared with the actual losses, the employee may request a reasonable reduction. The court usually evaluates it based on the amount of compensation paid, the duration of the breach of contract, and the actual losses. If the employee believes that the breach of contract penalty is unreasonably high, he/she should actively request an adjustment and submit evidence. If the employee passively fails to appear in court, he/she will usually bear the full responsibility.

Q5: What evidence should be prepared for arbitration if one is unlawfully dismissed?

Prepare materials around the four groups of "existence of the relationship, termination of the fact, termination of the violation, and the amount of losses". The core materials include the labor contract and the renewal text, the salary slip or wage notice, the attendance and work communication records, the "Notice of Termination of Labor Relationship" stamped with the company's official seal, and the social insurance or filing inquiry records; if claiming to continue to perform the contract, it is also necessary to explain that the contract meets the conditions for performance. Note that the application must be made within the one-year statute of limitations, and electronic evidence should be fixed to its original carrier as soon as possible.

IV. Suggestions for Protecting Rights

  • For those who have been dismissed or subject to employment restrictions, they should immediately preserve the original copies of the labor contract, the renewal agreement, the payroll records, and the "Notice of Termination of Employment Relationship", which can serve as direct evidence to prove that the dismissal was unlawful.
  • Determine whether the termination falls into the statutory circumstances specified in Articles 39 and 40 of the Labor Contract Law; unstandardized recruitment, internal rectification, and failure to register are not statutory reasons for termination.
  • If the application is made within the one-year arbitration statute of limitations, the party may claim continued performance of the contract, or claim compensation at twice the standard of economic compensation. This decision should be based on whether the position in question can still be performed.
  • Employees who sign non-compete agreements shall check the receipt of compensation on a monthly basis. If the employer fails to pay within three months, the employee shall promptly notify the employer and request the termination of the agreement. The employer shall review the terms of the agreement, limit the scope of personnel involved, set the duration to no more than two years, and specify the compensation standards.

The time limits and evidentiary thresholds for labor disputes are relatively rigid. If you are currently facing disputes over unlawful termination or non-compete agreements, it is recommended that you consult a professional lawyer as soon as possible and bring the above-mentioned materials with you. →Labor arbitration and legal services for work-related injury compensation·Attorney Feng Na·Henglue Law Firm