PDD’s Temu app, which offers cut-price goods from Chinese manufacturers, has become wildly popular in the West. Photo / 123rf
After graduating from a Shanghai university in 2022, self-described introvert Yao joined the grocery operations of the city’s fastest-rising tech giant, Pinduoduo.
A year later, he found himself losing his hair, one sign of the stress of his entry-level job, and decided to find work elsewhere. Soon after leaving, he was put under surveillance by Pinduoduo. A subsequent labour arbitration case means he now owes the Chinese tech giant around double the amount he earned during his year of working there.
Yao is one of at least a dozen former Pinduoduo employees who have found themselves trapped by non-compete agreements they claim they were required to sign. Chinese labour lawyers say some domestic tech companies have turned to abusing such contracts to discourage even the lowest-level employees from leaving for rivals.
Through interviews and court records, the Financial Times has reviewed 10 ex-employees’ cases. They suggest Pinduoduo has repeatedly used surveillance on former workers who leave for rivals and then lawsuits to enforce non-competes and stifle competition. Many of the cases involve low-level employees. Some like Yao were just recent university graduates.
The practice highlights the fiercely competitive tech environment in China and the underhand tactics management teams can use at times to lower costs and reduce turnover.
The use of non-compete clauses has been under growing scrutiny by Governments around the world for their role in stifling wage growth and productivity and reducing new business creation. Britain is pushing towards adding restrictions to employers’ ability to use them. The United States is considering banning them altogether, and some experts cite California’s refusal to enforce non-competes as helping to foster the rise of Silicon Valley’s tech industry.
But in China, there has been little pushback to companies’ increasing use of them, with courts generally siding with employers due to the existing laws.
Pinduoduo’s practices call into question the ethics of a company that is expanding globally by selling cut-rate Chinese goods through its Temu app. In recent months, its owner PDD Holdings, which is listed in New York, briefly traded places with Alibaba as China’s most valuable ecommerce company.
Pinduoduo told the FT that only a small proportion of departing employees, who are close to the company’s core commercial secrets, enter into non-compete agreements, which are “signed willingly by both parties following amicable discussions”.
Pinduoduo added it took legal action as a last resort and that the number of non-compete cases that the company has initiated is very small compared with the number of employees who have left, and fewer than other companies.
In China, the company is known for its high pay but gruelling hours. Yao, 24, said he often worked seven days a week, 14 hours a day, pricing vegetables and planning events with suppliers to market their hot deals on products such as potatoes and tomatoes on Pinduoduo. After a year, he could take it no longer and left.
“At the time, people were leaving every week. They use non-competes as a deterrent. But in fact, there are no trade secrets that we in this position know of at all,” he said.
Pinduoduo’s agreements typically provide for months or years of gardening leave at 30 per cent of base pay. Chen Yi, a labour lawyer at SGLA law firm, said it was the legal minimum and that the threshold was originally intended to compensate high-earning executives “so even with just 30 per cent, their incomes remain relatively high”.
“But now non-compete agreements are being abused,” she said.
Yao’s agreement prohibited him from working for rivals for nine months, during which time he would receive Rmb3,700 ($833) a month. It was too little to live on, Yao said.
A few months after starting a new job, in November 2023, he received a summons for a Shanghai labour arbitration case. Pinduoduo had submitted video evidence of Yao walking in and out of a rival’s office for a week.
Last month, the arbitrator ruled in Pinduoduo’s favour, ordering Yao to pay his former company damages, lawyers’ fees, and return the Rmb11,000 he had earned in gardening leave pay. Altogether he owes Pinduoduo Rmb438,000 ($98,664).
“It’s a fatal blow, I make just more than 100k [$22,000] a year, so even with being thrifty it’s going to take more than four years to pay off,” he said. “My parents are farmers; they don’t have any money. I don’t dare tell them about it.”
Yao is contesting the judgment in court and so has asked for his full name not to be used.
Chinese law stipulates that non-compete agreements can only be applied to personnel in senior management or senior technical roles, but also includes a clause covering “those with confidentiality obligations”, which lawyers say internet companies have exploited. Many companies ask all their employees to sign non-compete agreements when they start working.
“Employees are in a weak position. If the company demands certain procedures to be signed, the employee has no choice but to comply,” said Ke Weiwen, Shanghai-based labour lawyer at Joint-Win Partners.
Court records and interviews show Pinduoduo has regularly had former employees tailed and filmed to prove in court that they have joined a competitor. Luo Xiaohui, a 38-year-old logistics expert, was required to sign a detailed two-year non-compete when he left the company, despite spending less than a year at Pinduoduo.
At trial, the company presented videos showing Luo entering and leaving delivery service Meituan’s Beijing offices over a two-week period. In another example, 33-year-old Yang Yang was caught by video showing him riding his electric bike to rival Kuaishou’s office, then parking and entering the building “for seven consecutive work days”. Guo Fang, 27, faced videos and pictures showing her entering a competitor’s office.
Aaron, a former mid-level corporate communications staffer, said Pinduoduo hired a team of private investigators to stalk him after he left. “They’d follow me from my home, from when I went out in the morning... all the way to where I work, and take videos of me entering the building,” he said.
Yao said he had not realised he was under surveillance until he saw the videos submitted into evidence. “That Pinduoduo would actually secretly film a low-level employee - I honestly couldn’t believe it,” he said.
Pinduoduo said the company had not “engaged in illegal surveillance” of former employees and that evidence it had presented in courts was obtained legally.
Last month, a group of 10 former Pinduoduo employees began posting on social media about their situation. Many of their posts have been deleted by censors. One former employee was brought into a police station in the Changning district of Shanghai, where Pinduoduo’s offices are based, and questioned about his activities.
He subsequently deleted some of his social media posts and wrote on Weibo: “Us labourers love the party, love the nation and love the people.”
The group’s social media posts have also highlighted the inconsistency of Pinduoduo’s practices, which have included hiring Chinese regulators despite rules that say officials cannot join firms under their regulatory purview for at least two years after leaving government.
In one example, Wen Xue, an official at China’s antitrust agency until late 2019, became a vice-president at Pinduoduo in mid-2020. In another, Xu Mintao moved to head Pinduoduo’s government relations team within roughly a year of working at Shanghai’s municipal market regulator.
Pinduoduo said Wen and Xu strictly followed the approval procedures for resigning officials and their government units had approved their departure and future employment with Pinduoduo.
One recent graduate said her life had been turned completely upside down by the large debt owed to Pinduoduo for violating a non-compete. “There’s no hope for my life,” she said on the Weibo social media service last month. “If I’m gone, will Pinduoduo give up, or will my parents need to pay off my debt?”
Written by: Nian Liu and Ryan McMorrow
© Financial Times
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