(By Luo Yanjie) Abstract: The experience an employee gains throughout the course of his employment is regarded as a personal right under the law, and even though an employer may spend a great deal of time and money cultivating the employee and improving their skill set, if there was no noncompete agreement entered into prior to this, the employer will usually not be able to impede or stop a resigned employee from starting another business to compete with his or her previous employer.

For most companies, talent is considered its most valuable asset. With the development of the economy, market competition grows ever more fierce, and many employers find themselves troubled at the prospect of a number of employees “job hopping” to competitors, bringing the benefit of the employers’ training, experience and expertise with them. The case introduced herein is a typical case in which the employee was not bound by a noncompete, nondisclosure, or similar agreement. Facing stiff competition, many employers file suit on the basis of unfair competition, and yet, due to lacking substantial evidence, many employers end up failing in bringing a successful case.

Case Introduction:

The defendant Ma Daqing began his employment with the Shandong-based Food Company (“Company S”) in 1986, and in 1988 began work in seaweed-based foodstuffs production and export for the company. Subsequent to August 1, 2000, Ma began work in the Shandong-based Shanfude Trading Co., Ltd. (“Company F”), and subsequently signed two labor contract agreements with it. In 2006, this employment agreement came to an end. On September 22, 2006, the Shengkedacheng Company was founded (“Company D”), a personally-invested company, with registered capital of RMB 500,000 Yuan. Ma then began working in Company D. Based on his experience and contacts accumulated through previous work, Ma utilized business contacts and opportunities gained while in employment with Company F, who then believed Ma had engaged in unfair competition, and accordingly filed a lawsuit with the court.

The case was heard by Qingdao Intermediate People’s Court, the Shandong High People’s Court and the Supreme People’s Court, all of whom denied Company F’s claim. Among the courts, the Supreme Court held that although commercial opportunities could be protected under the Unfair Competition Law, it is not a statutory right, and any transactions are based on the bilateral willingness of the parties rather than a unilateral one. For this reason, anyone could choose to participate in such of their own free will. In this case, the court found no evidence showing that the defendant had a statutory or mutually agreed upon obligation to not engage in competition with a former employer, and therefore a previous employee shall have the right to compete with his or her original employer after his employment agreement has concluded.

A client’s confidence is mainly based on faith in personal ability known by them, and despite personal ability being mostly based on the plaintiff’s services, that ability is still not considered the plaintiff’s property or interest; ergo, the plaintiff has no rights in the individual abilities and skills perfected upon and unique to that employee. In conclusion, the court refused the plaintiff’s claims against defendant Ma Daqing.

Lawyer Comment

In this case, when an employee takes advantage of what he learned during his service with an original employer and later makes use of that skill in operating another business, that employee is in more ways than one competing with his original employer. This is not necessarily seen as being an example of unfair competition, and for this reason, the court decided it had not infringed for the following reasons:

I. Personal abilities of an employee remain the property of the employee; no employer shall have the right to interfere with the employee’s lawful practice of his or her abilities and skills.

In regard to laborers with an ability to learn and improve, employees will naturally learn and have command of the knowledge, experience and technology related to his or her job. That ability is actually the personal right of the employee, and is cultivated based on the employee’s personal development, and cannot be transferred, unless in some special situations in which the employee would have an option to use their knowledge, experience and technology in work. Once such working is not violating the law or infringing another’s right, the company shall have no right to interfere. In other words, if an employee uses his/her learned skills and abilities in a business competing with the original employer, such acts cannot be taken as unfair competition simply by referring to Article 2 of the Anti Unfair Competition Law.

II. Competition restrictions, nondisclosure agreements, and varieties of service agreements can help an employer maintain an advantage in trade secret protection and competition

Although in principle an employer has no right to prevent its employees in using gained knowledge, in this case, if the plaintiff had previously undertaken other measures, they would likely look something like the following:

1. Concluding a non disclosure agreement

Although most employers demand a high degree of protection over its trade secrets, trade secret protection within its statutory scope requires high demands on behalf of them, but such measures shall be practical. In this case, the plaintiff never claimed the defendant had infringed its trade secrets, and that may be explained by the aforesaid reasons. However, if and when the plaintiff entered into an NDA with the defendant, the scope of confidential information may be widened, which may cover contact information, contact lists, pricing lists, etc. If an employee were to leave the company of his employment with such information, it would be considered a breach of such an agreement, and the employee could possibly be charged by the employer.

2. Entering into a non competition agreement

The so-called non competition agreement refers to an agreement that the employee will not take up any posts or undertake any work competing with the original employer. For the same reason, in this case, because the plaintiff and defendant never entered into such an agreement, the plaintiff failed in bringing a successful suit against the defendant. For sure, a non compete agreement on its own is not adequate to bring a successful suit; in addition, the employer shall prove it has paid compensation to the employee for his agreement to not compete, a necessity for a Chinese court to find a non compete agreement valid. According to China’s Labor Contract Law, the longest term shall not be more than 2 years.

3. Agreeing to a term of service

The case did not show that the plaintiff organized the defendant in any kind of training. In general, in a scenario where the employer pays the costs of an employee’s training, the employer could come to an agreement with the employee regarding a guaranteed service term. In essence, once an employee signs such an agreement he or she would not be able to leave the company providing the training, or compensation would be demanded from the employee in breach. This is one method that can help an employer be assured that its employees will remain in the employ of the company for a specific period of time.

Lawyer Contacts

You Yunting：86-21-52134918  youyunting@debund.com/yytbest@gmail.com

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