Confidentiality Agreement or Non-competition Agreement?

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Confidentiality Agreement is an agreement signed by and between the employer and its’ employee, requiring the employee keeps the employer’s trade secret and priority information. A confidentiality agreement is a kind of confidentiality measure commonly used by the employer. Both confidentiality agreement and non-competition agreement are means of preventing the company from leaking it’s trade secrets.

However, many employers can’t tell the differences between a confidentiality agreement and a non-competition agreement, and they always confuse one with another. Now, let’s see how they are different in the following aspects:

1. Nature of the liability

The duty of confidentiality is a statutory obligation based on direct provisions of the law or a collateral obligation of the labour contract. The employee is obliged to keep confidentiality regardless of whether he and his employer have signed a confidentiality agreement.

However, the non-competition obligation is an agreed obligation based on the mutual agreement between the employer and the employee. Any employee is not required to fulfil the obligation of non-competition without a non-competition agreement.

2. The focus of the liability

Mainly speaking, confidentiality obligation requires an employee not to divulge it’s employer’s trade secrets, meaning “not to disclose”. While non-competition obligation requires an employee not to work with any company who compete with his previous employer or to start a competitive business himself, meaning “not to compete’.

3.Term of the liability

Generally speaking, the duration of the obligation of confidentiality is as long as the existence of trade secrets. The duty of confidentiality exists not only during the period of the labour relationship but also after the end of it, as long as the trade secret is not being publicly disclosed. Or put it in another way, as long as the trade secret exists, the duty of confidentiality exists.

However, the period for competition limitation is comparatively shorter, no more than two years technically.

4. liability for breaching the agreement

The employer shall not specify any penalty for breaching the confidentiality agreement. However, the employer may ask the employee compensation for any actual losses he causes by breaching his confidentiality liability. So the employer needs to specify in the confidentiality agreement on how to calculate the loss in case of any breaching.

However, an employer may specify liquidated damages in a non-competitions agreement. If any employee breaches his non-competition liability, the employer can directly require the employee to pay the specified liquidated damages without proving how much damages the employee has caused,

5. Condition to observe the agreement

Duty of confidentiality is a statutory obligation for the employee, performance of this obligation is not on the condition that his employer pays any confidentiality fee. In other words, the employee should keep his employer’s business secrets without any premise or condition.

However,the employer has to pay a certain amount of fee while asking the employee to observe the non-competition agreement. Usually, the amount of the fee shall be 30% of the employee’s salary before the end of the labour contract or no less than the minimum local average salary.

Source: Sophie Mao from ChinaLawHelp.com

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