Bifurcating Corporate NNN Agreements and Individual PRC Labor Contracts
Corporate NNN agreements cannot bind individual PRC workers directly without compliant labor contract non-competes backed by monthly statutory stipends.
Non Disclosure Covenant
Meaning
Contractual clauses designed to protect proprietary information prevent the unauthorized dissemination of trade secrets, technical designs, and business strategies during and after a commercial relationship. Non disclosure covenant represents the formal commitment by a contracting party to maintain strict confidentiality and restrict access to shared information. In Chinese business practice, these covenants are essential components of joint venture agreements, supply chain contracts, and employment relationships.
They are governed by the PRC Civil Code and the Anti-Unfair Competition Law, which establish the legal framework for protecting commercial secrets.
Technical Safeguard
The scope of protected information must be clearly defined in the contract and backed by internal administrative security measures to be recognized as a trade secret under Chinese law. Simply signing an agreement is insufficient; the disclosing party must demonstrate that it has taken reasonable steps to protect the confidentiality of the information. These steps include limiting access to designated employees, using encrypted servers, and marking documents with clear confidentiality labels.
If these practical measures are absent, Chinese courts may rule that the information does not qualify as a trade secret, rendering the covenant unenforceable in a dispute. This means that a robust security policy on the factory floor is just as important as the legal text of the agreement itself.
Remedial Liquidation
Contractual remedies for breach usually include pre-agreed liquidated damages to bypass the difficulty of proving actual financial loss. Under the PRC Civil Code, these liquidated damages must represent a reasonable estimation of the harm caused. To justify the damages amount, the covenant should outline the potential impact of the breach on the company’s market share.
This helps the court uphold the agreed-upon penalty during litigation.
Enforcement Action
Pursuing a breach of a non disclosure covenant involves filing a lawsuit in a Chinese court or initiating arbitration as specified in the dispute resolution clause. The plaintiff must present clear evidence of the breach, such as server logs, unauthorized patent filings, or the competitor’s use of identical manufacturing processes. If the breach is proven, courts can issue injunctions to stop the use of the stolen data and award damages.
This judicial action is essential for foreign manufacturers who must protect their proprietary designs from being copied by domestic suppliers.