Keeping Chinese tech talent

by DLA Piper

DLA Piper

The Chinese government announced plans in May to promote innovation-driven development, with the aim of becoming an 'innovative nation' by 2020, an international leader in innovation by 2030, and a scientific and technological powerhouse by 2050. As the country's economy shifts from manufacturing to innovation-driven technology, demand for talented workers will continue to rise. 

However, since 2012, there has been a steady decline in the size of the working-age population, with the biggest drop coming last year with a 4.87 million fall to 911 million. Competition for skilled workers in China will thus continue to intensify, especially in industries such as e-commerce, high-tech, software development, mobile applications and digital entertainment where many domestic companies have been growing rapidly. 

Given the complex regulatory environment, with rules that are often unclear or are applied inconsistently, it will be crucial for multinationals operating in China to defend against the loss of talent and know-how to local competitors. 

It is common for companies in China to reward employees with large incentive bonuses at the end of the year or quarter, only to see high performers resign to join local competitors immediately afterward.

Companies need to stay on top of salary trends and develop smart incentive packages that reward workers not just for good performance, but also for long-term commitment. 

Claw-back provisions and forfeiture clauses in bonus policies are prone to legal challenge in China. The courts normally take the view that it is unfair to take away what employees have earned through past performance on the basis of present conditions. However, when drafted carefully, incentive policies can maximize the value placed on long-term contributions and avoid paying workers who only pursue short-term rewards. 

Many companies provide employee incentives in the form of overseas training or secondments. It is not uncommon for talented employees to pursue other opportunities, often with competitors, shortly after their return to China from such travels. A well-drafted and enforceable training contract is needed before the start of the training. China has a very different system of intellectual property protection from many other countries. Foreign-based confidentiality and non-compete agreements may be unenforceable in China, and relying on them can expose companies to loss of know-how and talent to local competitors. Many foreign-based non-compete agreements focus on defining competitive activities and using court injunctions to stop infringement. However, for agreements to be enforceable, Chinese law requires employers to pay compensation to employees for requiring them to sign, and injunctions are difficult to obtain. It is therefore important to include provisions prescribing monthly payment of the compensation due to employees and specifying the damages due from employees for every breach. In many jurisdictions, such penalty provisions are as uncommon as they are unenforceable, but they are very useful in Chinese non-compete agreements. 

Differences in ethical standards and expectations between head offices and local employees in China can cause problems. Local industry practices may tolerate more regular sharing of company materials outside of work, or staff taking them home without returning them when employment ends. 

To address this, employees should be regularly educated on policies about keeping company information secure and on rules about handling valuable or confidential information or property, including talking about company business in the media or on social media. These policies and rules need to be introduced through legally compliant processes, including employee consultation, in order to be binding. 

Employees should also be asked to confirm the company's right to monitor any communications or activity that takes place in the company's premises or using its information technology systems. 

Whistleblower protection 

When employees decide to join local competitors, taking the company's secrets with them, the first people to find out are often work teammates. 

In a country that values group harmony over speaking up, workers are unlikely to report policy violations unless there are clear procedures that encourage this and ensure that whistleblowers are protected. A clear procedure that provides strong protection for whistleblowers would therefore help to identify and defend against any intellectual property or trade-secret infringement by employees. 

When a company finds out, say from a whistleblower, that its intellectual property or trade secrets may have been infringed by an employee, it may want to investigate the issue thoroughly before taking any action. This is especially important in China because the law gives employees so much protection. 

However, the company also needs to investigate fast enough to avoid further transfers of confidential material by the wrongdoers, who might also be trying to persuade team members to join them in switching employers. It is also often difficult to investigate alleged wrongdoers if they are still part of the organization. Terminating contracts quickly may therefore help to contain the damage and prevent further losses. 

Before making a decision, it is advisable to get an intellectual property and labor law expert to provide an assessment of the potential risk of infringement. Intellectual property infringement and breaches of non-compete agreements are difficult to prove in China. However, it is not impossible to win such cases. In July, the Shanghai Intellectual Property Court granted an injunction prohibiting a former employee of drug maker Eli Lilly from disclosing or using company trade secrets which the former employee had downloaded. Companies need to weigh the cost of bringing a lawsuit against the economic or reputational loss suffered and the prospects of recovering losses in the form of cash. 

Some companies seek to enforce their rights by offsetting the amount of loss against money that is due to be paid to the employee. While this may breach the company's legal obligation to the employee, some companies that have made a thorough assessment of the preliminary evidence might take the risk. The employee might be unwilling to trigger a counter-claim for intellectual property infringement or breach of non-compete obligations by bringing a claim for outstanding pay.

This article was initially published in Nikkei Asian Review and is reproduced with permission from the publisher.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© DLA Piper | Attorney Advertising

Written by:

DLA Piper

DLA Piper on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.