Are NDAs legally binding in China? A guide for employers

Three things you need to know about NDAs and NNNs in China

1. There are big differences between NDAs and NNNs

NNNs and NDAs are both legal contracts designed to protect confidential information and trade secrets. However, they serve different purposes and cover distinct aspects of confidentiality.

NDA (non-disclosure agreement):

• Scope: An NDA focuses primarily on the protection of confidential information. It establishes a legally binding agreement between two or more parties to keep certain information confidential and restricts its disclosure to third parties.
• Parties involved: An NDA is typically used between two parties, such as a company and an employee, two businesses, or a client and a service provider.
• Purpose: The primary purpose of an NDA is to maintain confidentiality and prevent the unauthorized disclosure or use of sensitive information. For example, preventing an employee from sharing proprietary information with the public.

NNN (non-disclosure, non-use, and non-circumvention) agreement:

• Scope: An NNN agreement (also known as an NNNA) goes beyond the protection of confidential information and includes additional provisions related to non-use and non-circumvention.
• Parties involved: An NNN agreement is commonly used in international business transactions, particularly when dealing with Chinese manufacturers, suppliers, or distributors. For example, if a Chinese factory will be creating products for your company.
• Purpose: The purpose of an NNN agreement is not only to safeguard confidential information but also to prevent the recipient party from using the disclosed information to compete with the disclosing party and from circumventing the relationship established between the parties.

While NDAs primarily focus on confidentiality, an NNN encompasses broader aspects, including non-use and non-circumvention, making it particularly relevant in international business relationships where there is a need to protect against unauthorized use of information and potential circumvention of business arrangements.

2. There are essential components to make NNNs enforceable 

These are the things that should be done to make the NNN comprehensive and enforceable:

• Clearly indicate the parties involved. This should include their names and roles, including who will be sharing and receiving confidential information (i.e. the disclosing party and the receiving party) and who they will be sharing such information with.
• Define the nature of the confidential information. This should include the general topic of information covered by the NNN, as well as the scope of information that's covered. It should also define how confidential information is shared; for example, is written information considered confidential but oral information is not?
• Security measures must be taken to protect those technical or trade secrets. If a dispute arises, the courts will determine whether the information qualifies as confidential—and your confidentiality measures are a huge factor in that decision. Use multiple security measures, such as strong passwords, two-factor authentication, and marking sensitive data and communications as “confidential information.”
• Exclusions from confidentiality. If there are any cases when parties in the NNN are allowed to disclose confidential information (for example, after it's been made public), those should be included in the contract.
• Terms of the agreement. How long does the NNN last? For employment-related NNNs, they typically last for the duration of the working relationship, but they can last for years after termination as long as both parties agree to those terms.
• What will happen if the NNN is breached. It's a good idea to include provisions that outline any injunctions, damages, or other consequences for breaching the NNN.

3. There are legal requirements for enforceable NNNs in China

For NNNs to be enforceable in China, they need to meet the following requirements:

• The documents should be written in Chinese so that disputes do not later arise due to mistranslations. If there are bilingual versions (both English and Chinese copies), the meaning and obligations should be consistent across them. In this case, using a bilingual lawyer and/or a law firm with expertise in Chinese law can be helpful.
• Chinese laws should govern the agreement to avoid complications and misinterpretations of the document’s terms. The NNN should be exclusively enforceable in Chinese courts, as obtaining foreign judgments may actually lead to an inability to enforce the NNN in China. 
• The NNN must be signed and executed by all parties.
• The NNN should be reasonable, meaning that the monetary damages named in the NNN should not be too high or punitive (punishing). 

To protect yourself further, make sure that your ability to enforce your NNN extends beyond the signing party to any other companies, contractors, sub-contractors, and representatives they may work with so that you can seek damages if they breach the agreement.

When would an employee or contractor sign an NNN?

It's common for employees and contractors in China to sign trade secrecy and confidentiality agreements during their onboarding or when they start a new work contract. An NNN may also be included as a confidentiality clause in a new hire's offer letter or employment contract. 

NNNs are also common when companies outsource production, manufacturing, or supply to Chinese companies to protect designs, patents, business secrets, and other confidential information. 

Frequently asked questions about NDAs in China

Are NDAs enforceable in China?

While NDAs may be considered legally binding contracts in the US, Canada, and elsewhere, they may not be comprehensive enough to be upheld in Chinese courts. Instead, non-use/non-disclosure/non-circumvention agreements are favored. 

However, note that employment laws and other regulations that affect NDAs and NNNs can change—always research how legislation around NDAs/NNNs has shifted in China before creating a new employment agreement.

Why aren’t NDAs always enforceable in China?

US-style NDAs typically focus on information being kept secret from the public. Those NDAs are written in English, subject to US law, and enforceable in the US. Foreign judgments are not typically enforceable in China, and foreign arbitration awards aren’t always enforced. In fact, the existence of a foreign judgment may even prevent your ability to get a Chinese judgment. 

However, companies operating in China don’t just need their information protected from public knowledge. They want to prevent individuals and businesses from using their information as a competitive benefit.

Though Chinese law protects trade secrets under NNNs, the document needs to be written in Chinese, governed by Chinese law, and solely enforceable in Chinese courts. 

What does NNN stand for and what does it cover?

An NNN is a non-use/non-disclosure/non-circumvention agreement. Here’s how that breaks down:

• Non-use prevents the other party from using your ideas or information to compete against your organization.
• Non-disclosure creates an obligation for the other party to maintain confidentiality. This covers the same obligations as an NDA.
• Non-circumvention creates an obligation for the other party to not create similar products to circumvent you and sell to potential customers. For example, the other party wouldn’t be able to leverage the information they got from you for product development so they could then sell cheaper versions of your product.

What information can be covered by an NNN?

In China, information that's considered confidential or proprietary can be covered by an NNN. This includes:

• Trade secrets and proprietary information. This can include things like manufacturing processes, formulas, designs, and technology that are unique to a company and provide a competitive advantage.
• Financial information, including confidential financial statements, budgets, sales figures, and projections.
• Customer information, like customer contact information, purchasing history, and preferences.
• Employee information. This can include information about employees, such as their salaries, job duties, and performance evaluations.
• Intellectual property, which can include patents, trademarks, copyrights, and other types of intellectual property that are owned by a company.

NNNs also:

• Protect the use of your ideas or information to compete against you.
• Prevent the other party from creating similar products to circumvent you on the market. 

When should you use an NNN?

Common situations to use an NNN in China include:

• When an invention or business idea is being presented to a potential partner, investor, or employee
• When financial information is being shared with a potential partner or investor
• When a new product or technology is being shown to a prospective buyer
• When sensitive company information is shared with an employee or contractor
• When access to proprietary or confidential information is given to employees or contractors
• When customer information is shared with employees or contractors 
• When engaging with a new Chinese manufacturer/factory, supplier, or producer

Are there other legal protections employers should consider?

In addition to using NNNs, organizations can seek IP protection in China for designs, utility models, inventions, and brands. The China National Intellectual Property Administration (the Chinese Patent Office) is the patent office for the country.

If a manufacturer will be converting your rough designs into commercial products, then you can use a Product Design and Development Agreement or Commissioned Processing Contract. This legally binding document outlines who owns the IP and designs. You’ll also want to make sure that, if your products require custom molds, you have control and ownership over them, as well as any background IP the manufacturer might bring to the table while working on your product.

Rippling makes it simple to create and send out an NDA as part of a job offer package.

Is an NDA or NNN the same as a confidentiality agreement?

Non-disclosure agreements, NDAs, and confidentiality agreements all mean the same thing. NNNs contain confidentiality as part of their scope.

Is an NDA or NNN the same as a non-compete agreement?

No. An NDA is different from a non-compete clause or non-solicitation agreement. While both types of agreements are used to protect a company's interests, they serve different purposes.

A non-compete prevents an employee from engaging in activities that could be considered competitive (such as taking a job at a competing company) for a certain period of time.

Are non-competes enforceable in China?

Non-compete agreements can be difficult to enforce under China’s Labor Contract Law. Regular employees cannot be subject to non-competes; only high-level employees (managers or higher) or employees with special status can be subject to non-competes. The agreements have to have a limited period and scope, and employees must be compensated throughout the non-compete period.

What are the benefits of confidentiality in China?

There are many benefits to a confidentiality agreement in China, not least of all protecting a company’s confidential information, intellectual property, and other proprietary assets that could harm the business if they became public. 

Other benefits include: Providing the company with legal protection and legal recourse should business information that should be kept confidential, such as intellectual property, be unlawfully shared with a third party by the receiving party. 

What happens if a China NNN agreement is breached?

If an NNN is breached in China, the consequences and available remedies will depend on the specific circumstances of the breach, the terms and provisions of the NNN, and the applicable laws and jurisdiction. There may be legal proceedings against the breaching party, injunctive relief to prevent further disclosure or use of the information, and compensation for losses or damages. 

Under China’s Anti-Unfair Competition law, you may be able to seek additional damages. This can include the breaching individual or company giving up profits they made, punitive damages (additional monetary awards as punishment for misconduct), and public apologies.

However, navigating the Chinese legal system can be complex, especially for foreign companies. Work with lawyers who are well-versed in Chinese law if you decide to enforce the terms of an NNN.

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Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.