Restriction even for employees who worked 8 months and resigned
Triple the 8-month salary penalty claimed for employment at another company
Last March, Mr. A, a Chinese employee who resigned from Pinduoduo, experienced an absurd situation where the company demanded a penalty fee from him. After graduating from university in July 2022 and working for eight months, Pinduoduo imposed a restriction preventing him from working in the same industry for nine months. The company provided a total subsidy of 14,000 yuan for five months, part of the restricted period, but Mr. A could not endure the long unemployment and joined another internet company within the restricted period. Upon discovering this, Pinduoduo charged Mr. A a penalty of 260,000 yuan, an amount exceeding three times his salary (76,000 yuan) during his employment.
Chinese Pinduoduo Holdings, which operates the e-commerce platform 'Temu,' is causing controversy by applying employment restrictions against lower-level employees and demanding high penalty fees. While local labor laws stipulate that employment restrictions apply only to senior management or personnel requiring confidentiality, Pinduoduo is accused of abusing the related system for employee management purposes.
On the 2nd, the economic media outlet Caixin Weekly reported that almost all Pinduoduo employees must sign a 'Confidentiality and Intellectual Property Ownership Agreement' upon joining. Such practices are not uncommon in the internet industry. Major internet companies, including ByteDance, generally require employees to sign related clauses upon hiring. However, as disputes within Pinduoduo have recently increased, even the legal community has begun to pay attention.
The controversy centers on who should actually be subject to 'employment restrictions.' Article 24 of China's Labor Contract Law limits employment restrictions to senior managers, high-level technical personnel (lianggao·兩高), or other personnel with confidentiality obligations (yimi·一密).
Shen Zhenfeng, director of the Labor Law and Social Security Law Research Center at Central University of Finance and Economics, explained, "The employment restriction system is a preliminary measure to protect trade secrets, but current practices are increasingly diverging from the original intent." He added, "It is rather being used as a retirement restriction system against employees." Shen pointed out, "It prevents talent from moving to competitors and worsens labor market flexibility."
Sun Li, chief at Zhejiang Kending Law Firm, said, "Restrictions on job changes for 'lianggao' are consistent, but there is controversy over the definition of 'yimi.'" He emphasized, "Currently, courts prioritize contracts between workers and employers, but essentially, a comprehensive judgment should be made on whether the worker's job content involves confidential matters or includes trade secrets."
A former Pinduoduo employee who resigned in 2021 said, "The work I did at the company was all based on publicly available activities and information, but after leaving, I was asked to comply with employment restrictions and had to pay a penalty when joining another company." Another employee who joined Pinduoduo as an intern in 2021 said, "I was required to sign an employment restriction agreement upon conversion to full-time status," adding, "If I did not sign, conversion to full-time would not be possible."
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