[Q&A] Are Employee's Relatives Bound by Non-Compete Agreements?

2025. 1. 10

Question: Can a non-compete agreement restrict the employment of an employee's close relatives?

Answer: According to our experience the signatories of a non-compete agreement do not include the employee's close relatives. However, under certain circumstances, actions taken by an employee's close relatives that violate the non-compete agreement could also be considered a breach.

Firstly, Article 24 of the Labor Contract Law explicitly states that the personnel subject to non-compete restrictions are limited to senior management, senior technical personnel, and other employees with confidentiality obligations to the employer. This implies that non-compete agreements are personal in nature, and a company does not have the authority to restrict the employment of an employee's close relatives. Conversely, in practice, there have been instances where employees with non-compete obligations have engaged in competitive activities through close relatives (such as spouses, children, parents) after leaving the company, which can be more covert. Allowing such activities unchecked could undermine the non-compete system, harming the economic interests of enterprises.

On April 30, 2024, the Supreme People's Court released Typical Case Four of Labor Disputes, providing new perspectives on the validity and scope of non-compete agreements. In this case, Mr. Zhang, a senior manager of a sports company, had signed a non-compete agreement and subsequently engaged in competitive activities through his spouse’s investment in and management of a competing enterprise after his resignation. The court concluded that, given the close personal and financial relationship between Mr. Zhang and his spouse, their economic interests were aligned. Since the investment activities of his spouse mainly occurred after Mr. Zhang's departure from the sports company, it was determined that Mr. Zhang had breached the non-compete agreement. The court, considering factors such as the damage caused to the employer, the degree of the employee's fault, salary level, position, tenure, breach period, economic compensation payable by the employer, and the local economic level, determined the penalty amount Mr. Zhang should pay to the sports company for the breach of the non-compete agreement and ordered the return of the non-compete economic compensation.

Based on the above case, we can further consider how to prove that an employee's close relatives working at a competing company does not constitute a violation of the non-compete agreement by the employee. Our firm believes that the key is to prove that the employment behavior of the employee's close relatives is not a result of the employee violating the non-compete agreement. This can be evidenced by factors such as employment time, job content, and information isolation. Conversely, if the company can provide evidence of the employee's close relatives working at a competing company, the employee should be obligated to provide self-certification of the above matters; otherwise, it can be presumed that the employee has violated the non-compete agreement.

Indeed, new issues surrounding non-compete agreements continue to emerge, necessitating continuous updates and adjustments to laws and regulations. Considering the importance of maintaining fair market competition and protecting the core competitiveness of enterprises, we acknowledge that, under certain conditions, non-compete agreements can bind an employee's close relatives. This serves as a reminder to enterprises to consider potential risks more comprehensively when formulating non-compete clauses and to take appropriate preventive measures to protect their rights and interests.