- Banning former employees from working for or starting a competing business for a certain period of time after leaving the job, non-compete agreements are prevalent in China’s tech sector.
- Despite holding junior positions, former employees of Pinduoduo are facing lawsuits demanding hundreds of thousands of yuan for allegedly violating non-compete agreements.
- Prohibited from seeking employment in major companies in the relevant field for a considerable period of time, workers who follow the non-compete struggle to survive on the compensation.
In February, over 10 former employees of Pinduoduo took to social media to report that Pinduoduo was suing them and seeking sky-high damages over violating non-compete agreements. The revelation has sparked public conversation on whether the e-commerce titan is abusing the law.
Eleven workers joined together to collectively expose this practice and their experiences. Source: Internet
One of the former employees shared her story through the Weibo account “Grass girl”. After graduating from college in 2022, “Grass girl” joined Pinduoduo and started her career as a sales and marketing officer in the grocery delivery department (Duoduo Maicai) with a basic salary of 8,100 yuan. Eight months into her employment, she left the company after experiencing significant weight loss and health issues due to long working hours and demanding workload.
The non-compete agreement was enforced upon her resignation, prohibiting her from joining a rival company and compensating her only 2,400 yuan per month during a nine-month period. When she joined another company within the timeframe, Pinduoduo initiated a labour arbitration case against her. The ruling favoured Pinduoduo, and Grass Girl was ordered to pay damages, lawyers' fees, and return the compensation received during the non-compete period, amounting to a total of 280,000 yuan, nearly four times her earnings during employment.
The case has plunged this 25-year-old worker into heavy debt and despair. She wrote in her post, “I feel that life has no hope. If I die, will Pinduoduo let me go? Does the debt need to be paid by my parents?”
A table listing 11 workers who were involved in non-compete lawsuits indicates Pinduoduo’s ubiquitous and aggressive enforcement of non-compete clauses. Most listed workers are recent graduates or workers in their twenties or early thirties, having spent only one or two years in Pinduoduo. The workers consider themselves unable to attain confidential business information, but are now faced with possible damages ranging from hundreds of thousands to millions in yuan, a number much higher than their earnings and could shatter their lives.
Another worker Coding Meow worked at Pinduoduo for four years and four months, and Pinduoduo demanded 4.5 million yuan for his violation of non-compete agreement. He wrote, “Non-compete agreements resemble a modern day indentured servitude contract”.
Workers do not have the bargaining power to escape non-compete agreements
According to China’s Labour Contract Law, employees who may be subject to non-compete obligations include not only “senior management and senior technical personnel'', but also those who have “confidentiality obligations”. The latter one is believed to be exploited to target low and mid level employees, including recent graduates.
The terms of these agreements are being accused of being excessively stringent and greedy. According to Caixin, listed competitors in an agreement of a Pinduoduo’s operations position include several dozens of major Internet companies across the country, blocking all major paths to re-employment during the non-compete period.
During the non-compete period, the employer is obligated to pay compensation, normally 30 percent of the basic salary, to employees for the performance of non-compete obligations. While Pinduoduo has surpassed Alibaba to become China's most valuable e-commerce company in 2023, the compensation provided to former employees during the non-compete period is way too low to even sustain workers’ livelihoods. According to one former employee sued by Pinduoduo, his agreement prohibited him from working for rivals for nine months, during which time he would receive 3,700 yuan a month, which is “too little to live on”.
In addition to its content, Pinduoduo’s enforcement of the agreements have also placed workers in a much disadvantaged position. They are left with the choice of either living on a meager compensation fee, or bearing the risks of facing potential exorbitant damages.
Lacking bargaining power, many employees are required to sign away their rights in non-compete agreements as a condition of full-time formal employment. One former employee also reported that Pinduoduo would not approve his resignation without him signing the agreements.
Workers have also reported that Pinduoduo hired private investigators to tail them in order to collect footage of them entering rival companies’ offices, which was later submitted as evidence of them joining competitors. One former employee changed his phone number, wore masks to work, and didn’t install any Pinduoduo apps, only to discover that he was under surveillance when he saw himself in the videos Pinduoduo presented. Another worker claimed that Pinduoduo would send packages to their new companies. Once the package had been signed, it would also be evidence used against them in court.
Workers trying to expose injustice are met with censorship
Despite their struggle receiving public attention and media coverage, workers’ grievances and frustrations are subjected to censorship. Reports detailing workers’ experiences have been deleted after gaining a significant number of viewership. A worker reported that multiple posts were quickly removed and their social media accounts on several platforms had been blocked.
In a quickly deleted post, Coding Meow reported that Xue Wen and Mintao Xu, former high-ranking officials of the Shanghai Municipal Market Supervision Administration, both started their work as executives in public relations department at Pinduoduo within a year of leaving government position, which raises workers’ questions on potential wrongdoings as the law prohibits government officials from joining companies under their regulatory purview for a minimum of two years after leaving office.
Workers have also expressed their distrust in the judicial and law enforcement system, especially when the cases are handled in Shanghai, where Pinduoduo and many other tech and internet companies are headquartered. Grass girl said her work didn’t take place in Shanghai, but the case was somehow transferred to Changning district in Shanghai. It has been observed that all Shanghai cases have been ruled in favour of the company, while Beijing and Guangzhou judgments may show favour to the employees.
Union representation and changed legislation can help workers increase their bargaining power
The law of non-competes is changing globally. In the US, the Federal Trade Commission has proposed a new rule that would ban employers from imposing non-competes on their workers. The UK government announced in 2023 that it intends to limit the enforceability of non-compete clauses to three months after the last day of employment.
In China's tech sector, where the culture of overtime work prevails, the ability to exit and explore other opportunities is particularly crucial for workers. But now, non-compete clauses are being exploited and weaponized to intimidate and control current employees, minimising the number of resigning workers and lowering turnover.
Obligated to represent workers, trade unions in China should collectively negotiate with employers regarding the duration and damages of non-compete agreements, monitor the possible abuse of clauses, and provide legal assistance to workers when needed. Additionally, unions should also advocate for legislative and judicial reforms, such as reducing the enforcement period from the current 24 months.
Recently, a judge of China’s Supreme People's Court gave an interview on the abuse of non-compete agreements and emphasised the need to rectify illegal practices of applying non-compete clauses to an unjustifiably broad group of workers. However, Pinduoduo has yet to withdraw the ongoing lawsuits, and workers still need to face courts to fight for their rights.