Labor Arbitration is Different from Commercial Arbitration

No common solution to the “best” jurisdiction exists; Chinese law is vague as to whether or not parties can take an employee non-compete agreement dispute directly to court without prior labor arbitration.

While labor and intellectual property (IP) disputes are different in China, the jurisdiction under which non-compete agreements fall varies. The distinction matters because if it is treated as a labor law dispute, parties must first go through labor arbitration before filing suit. Labor arbitration cases fall under local arbitration centers—not the China International Economic and Trade Arbitration Commission (CIETAC) which are used for commercial disputes.

In practical situations, different regions in China have different understandings of how to categorize employer-employee non-compete disputes. To illustrate, some courts in Zhejiang province and in Hangzhou are of the opinion that such dispute are labor law disputes and without a labor arbitration award, neither party can bring a suit in court. In Shanghai, frankly speaking, employer-employee non-compete cases must first go through labor arbitration (note each district within Shanghai may have different requirement). However, some courts in Beijing believe that not every non-compete dispute must go through labor arbitration before litigation, and instead have ruled that claims for violating a non-compete agreement are “normal civil disputes” that can go straight to litigation.

Chinese law stipulates the statute of limitations for labor law disputes is one year while two years for IP which means the time to file a non-compete dispute will vary with each jurisdiction. So if you fail to allot enough time for labor arbitration, the statute of limitation may expire. Under the current legal regime it is possible, especially if the employer does not have a clear dispute resolution clause or is slow to pursue its non-compete claims.

The point is know how the jurisdiction handles non-compete contracts and give adequate time to go through the labor law proceedings.