A Study On The Application Of Liquidated Damages Under Non-compete

Non-competition system is a preventive means to protect business secrets of enterprises.In the current law system,liquidated damages of non-competition after the dissolution or termination of a labor contract has become a statutory liability for breach of contract,but the liquidated damages of non-competition during the term of labor contract has not been clearly stipulated in the law,and there are also different views in the theory and judicial practice.The application of the liquidated damages of non-competition during the term of labor contract mainly includes two logically contiguous issues,"applicability" and "how to apply"."Applicability" addresses the applicability of liquidated damages under current law,while "how to apply" addresses the prerequisites,applicable considerations,and applicable standards of liquidated damages.Due to the nature of liquidated damages and its double functions of performance guarantee and damage compensation,it is necessary and reasonable for the employer and the employee to reach an agreement of liquidated damages of non-competition during the term of labor contract.Liquidated damages helps to form behavioral constraints on employees,and urge them to fulfill their non-competition obligation during the term of labor contract with the deterrent of adverse consequences of liquidated damages.At the same time,liquidated damages,as a form of damage compensation,provides a more convenient and reliable way for companies to seek damage relief.Based on the analysis of the nature and function of liquidated damages,it can be clarified that the liquidated damages of non-competition during the term of labor contract can be legally applied through the analysis of relevant liquidated damages clauses in the labor contract law,using the legal interpretation methods of semantic interpretation,systematic interpretation,natural interpretation,teleological interpretation and constitutionality interpretation.On the basis of recognizing the applicability of liquidated damages of non-competition during the term of labor contract,the prerequisite,consideration and standard of liquidated damages are three important interrelated issues.The non-competition obligation during the term of labor contract,which is the prerequisite for the application of liquidated damages,is in nature a sub-obligation of the duty of loyalty.The aim of this obligation is to protect the business secret of the enterprise.The characteristic of "dynamic duty group" of the loyalty obligation determines that its connotation to each employee will be different due to the differences in work contents and responsibilities.Therefore,as a kind of loyalty obligation,there exists flexibility and difference of application in the scope of subject who should undertake non-competition obligation during the term of labor contract.When determining whether an employee should be subject to the non-competition obligation during the term of labor contract,the proportional principle should be observed,and the balance between the interest of both parties in the labor relationship and the public and private interest should be considered,and the comprehensive judgement should be made by analyzing the possibility and degree of contact between the employee and the core resources of the employer,including trade secrets.On the basis of confirming that an employee should assume the non-competition obligation during the term of labor contract,not all acts of competition constitute a violation of the duty.Generally,the short-term preparatory competitive behaviors that an employee engages in by using their own experience,knowledge and skills that has not yet affected the substantive interests of the employer shall not be seen as the violation of the non-competition obligation during the term of labor contract.In addition,the application of liquidated damages shall be based on the premise that both parties in the labor relationship specify the non-competition obligation during the term of labor contract through an agreement,which does not change the nature of non-competition obligation during the term of labor contract as the duty of loyalty,and the scope of the obligation shall not be arbitrarily expanded.The existence of non-competition obligation during the term of labor contract is the prerequisite for the application of liquidated damages,and whether the application of liquidated damages is based on the economic compensation is also an important issue that should be further clarified.Based on the analysis of the nature and function of the economic compensation for non-competition and the basic rights of both parties in the labor relationship,the economic compensation can be applied to the employee's fulfillment of the non-competition obligation during the term of labor contract,but it should be subject to a written agreement,and the calculation basis should be made clear.Furthermore,the economic compensation should be listed separately in the distribution process.For the loyalty duty nature of non-competition obligation during the term of labor contract,and considering the balance between the existence and employment rights of employee and the protection of business secrets,the economic compensation does not constitute the consideration of liquidated damages.The employer not paying the economic compensation cannot be a sufficient reason for the employee not to pay liquidated damages,which seems to be inequivalent in form but can fully realize the substantial equivalence of the rights and obligations of both parties in the labor relationship.The applicability,applicable prerequisite and consideration of the liquidated damages above are all qualitative issues.Only when they are combined with the issue of quantitative standard of liquidated damages can a relatively complete theoretical framework be formed.In judicial practice,the court usually determines the specific amount of liquidated damages based on the principles of good faith and fairness,and combines objective factors with employees' subjective fault factors.Combining judicial decisions,the amount of the non-competition liquidated damages during the term of labor contract shall be based on the economic loss of the employer and be determined comprehensively from three aspects including market(industry)factors,employer's cost factors and employee's behavior factors.