In 2022, after graduating from a university in Shanghai, Yao, a self-described introvert, joined the grocery business of Pinduoduo, the city’s fastest-growing tech giant.
A year later, he noticed he was losing his hair, a sign of the stress of his entry-level job, so he decided to look for work elsewhere. Shortly after leaving, he was monitored by Pinduoduo. A subsequent labor arbitration case means he now owes the Chinese tech giant roughly double what he earned in a year working there.
Yao Ming is one of at least a dozen former Pinduoduo employees who have found themselves trapped in non-compete agreements they claimed they had to sign. Chinese labor lawyers say some domestic technology companies have begun abusing such contracts to prevent the lowest-level employees from jumping to competitors.
The Financial Times examined 10 cases involving former employees through interviews and court records. They say Pinduoduo repeatedly spied on former employees who left for competitors and then filed lawsuits to enforce non-competes and stifle competition. Many cases involve lower-level employees. Some like Yao are just recent college graduates.
The approach highlights China's highly competitive tech environment and the sometimes underhanded tactics management teams can use to cut costs and reduce turnover.
Governments around the world are increasingly scrutinizing the use of non-compete clauses because they can suppress wage growth, productivity and reduce new business creation. The UK is pushing to impose restrictions on employers' ability to use them. The U.S. is considering banning them entirely, and some experts believe California's refusal to enforce non-competes could help fuel the rise of Silicon Valley's tech industry.
But there has been little impediment to companies' increasing use of them in China, where courts have generally sided with employers due to existing laws.
Pinduoduo’s actions raise questions about the ethics of a company that has expanded globally by selling reduced-price Chinese goods through its Temu app. In recent months, its parent company Pinduoduo (listed in New York) briefly swapped its spot with Alibaba as China's most valuable e-commerce company.
Pinduoduo told the Financial Times that only a small number of departing employees close to the company's core trade secrets have signed non-compete agreements, and these agreements were “voluntarily signed by both parties after friendly discussions.”
Pinduoduo added that the company takes legal action as a last resort and that the number of non-compete cases initiated by the company is very small compared with the number of employees who have resigned and is also smaller than other companies.
In China, the company is known for high pay but long working hours. Yao, 24, said he often worked 14 hours a day, seven days a week, pricing vegetables and planning events with suppliers to promote hot-selling products such as potatoes and tomatoes on Pinduoduo. After a year, he couldn't take it anymore and left.
“At the time, people were leaving every week. They were using the non-compete as a deterrent. But the reality was that our position didn't know any trade secrets at all,” he said.
Pinduoduo's agreements typically provide for months or years of gardening leave at 30% of base salary. Chen Yi, a labor lawyer at Guoguang Law Firm, said that this is the legal minimum, and this threshold was originally intended to compensate high-income executives, “so even if it is only 30%, their income is still relatively high.”
“But now non-compete agreements are being abused,” she said.
Yao's agreement prohibits him from working for a competitor for nine months, during which time he will earn 3,700 yuan ($513) per month. Yao said the living expenses were too little.
A few months after starting his new job, in November 2023, he received a subpoena in a Shanghai labor arbitration case. Pinduoduo submitted video evidence of Yao Ming entering and exiting the rival's office within a week.
Last month, an arbitrator ruled in Pinduoduo's favor, ordering Yao to pay his former company damages, legal fees and return 11,000 yuan he earned while on gardening leave. In total, he owes Pinduoduo 438,000 yuan ($61,000).
“This was a fatal blow, I only earned more than 100,000 [$14,000] a year, so even if you are very frugal, it takes more than four years to get a return,” he said. “My parents are farmers; they have no money. I was afraid to tell them this. ”
Yao Ming is challenging the verdict in court and asked that his full name not be used.
Chinese law stipulates that non-compete agreements can only apply to senior managers or senior technical personnel, but it also includes a clause covering “persons under obligations of confidentiality” that lawyers say internet companies exploit. Many companies require all employees to sign a non-compete agreement when they start working.
“Employees are in a vulnerable position. If the company requires them to sign certain procedures, employees have no choice but to comply.” Ke Weiwen, a labor lawyer at Shanghai Gwin Law Firm, said.
Court records and interviews show that Pinduoduo often stalked and filmed former employees to prove in court that they had joined competitors. Logistics expert Luo Xiaohui, 38, was required to sign a detailed two-year non-compete agreement when he left the company, even though he had been with Pinduoduo for less than a year.
During the trial, the company showed videos of Luo entering and exiting Meituan’s Beijing offices over a two-week period. In another example, 33-year-old Yang Yang was caught on video riding an e-bike to the office of rival Kuaishou, then parking his car and entering the building “for seven consecutive working days.” Guo Fang, 27, was shown videos and photos of herself entering a rival's office.
Aaron, a former mid-level corporate public relations employee, said Pinduoduo hired a team of private investigators to follow him after he left. “From the time I leave home in the morning, they will follow me from my home . . . all the way to where I work and film me entering the building,” he said.
Yao said he didn't realize he was being watched until he saw the videos as evidence. “Pinduoduo would secretly film a low-level employee — I honestly can’t believe it,” he said.
Pinduoduo said it did not conduct “illegal surveillance” of former employees and that the evidence it provided to the court was obtained legally.
Last month, 10 former Pinduoduo employees began posting about their situations on social media. Many of their posts have been deleted by censors. A former employee was taken to a police station in Changning District, Shanghai, where Pinduoduo has its offices, and questioned about his activities.
He later deleted some social media posts and wrote on Weibo: “We workers love the party, the country, and the people.”
The group's social media posts also highlighted inconsistencies in Pinduoduo's approach, which include hiring Chinese regulators despite rules that prohibit officials from joining companies under their regulatory purview for at least two years after leaving the government.
For example, Wen Xue served as an official at China's antitrust agency until the end of 2019 and became Pinduoduo's vice president in mid-2020. In another case, Xu Mintao was promoted to head of Pinduoduo’s government relations team after about a year at the Shanghai Municipal Administration for Market Regulation.
Pinduoduo stated that Wen and Xu strictly implemented the resignation approval procedures, and their units have approved their resignation and employment in Pinduoduo.
A recent graduate said her life was completely upended because she owed a huge debt to Pinduoduo due to a violation of her non-compete agreement. “My life is hopeless,” she said on social media Weibo last month. “If I leave, will Pinduoduo give up? Or will my parents need to help me pay off my debt?”
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