According to the provisions of PRC Labor Contract Law, non-competition refers to the condition that an employer enters an agreement with his senior managers, senior technicians, and other employees, requiring them not to work in any other employer producing or engaging in similar products or engaging in similar business to this employer in a certain period of time after the termination of his/her labor contract. The legal system of non-competition is an important legal means to protect the business secrets of employers from the perspective of labor law.
Whether there is a competitive relationship between the former and current employers is one of the focuses of dispute between the two parties in many non-competition dispute cases. It is also an important prerequisite for labor arbitrators and judges to determine whether an employee's entry into a new employer violates the non-competition obligation. The current legislation does not make clear the determination of competitive relationship. In practice, labor arbitrators and judges do not have uniform standards for determination of competitive relationship between new and old employers. In the "White Paper on Trial of Non-competition Disputes Cases" issued by the Shanghai No. 1 Intermediate People's Court in 2018, the recognition of competitive relationship was listed as one of the difficulties in the trial of non-competition dispute cases, stating: "The identification of 'similar products' and 'similar businesses' involves the professional knowledge of different industries or the identification of specific industrial projects, which is highly specialized."
This article will briefly analyze the issues related to the determination of competitive relationships in practice.
1. The practice status of competitive relationship identification
The authors searched relevant cases of disputes over non-competition in Beijing, Shanghai, and Shenzhen in recent years, and conducted a preliminary analysis of the search results. According to the search results, the determination of competitive relationship in disputes over non-competition has the following characteristics:
1.1. From the perspective of the criteria for determining the competitive relationship, most judges consider the following aspects when determining the competitive relationship: whether the competitors are specified in the non-competition agreement，whether the business scopes shown in the business registration information of the new and old employers overlap, and whether the business content and service targets of the new and old employers are the same.
In cases where the parties have not disputed whether there is a competitive relationship between the old and the new employers, most judgments generally only briefly mention that the business scope of the two companies is overlapping and that there is a competitive relationship, before justifying whether the employee violates the non-competition obligation. If the competitive relationship between the two companies is one of the focus of disputes in the case, the judge will generally demonstrate the competitive relationship with the evidence submitted by the two parties. In such cases, the determination of the competitive relationship between the two employers is generally comprehensively considered, that is, starting from the business scope and comprehensively examining the actual operation of the company. Most considerations of actual business operations stop at high leveled industry divisions, but rarely focus on subdivided areas.
1.2. From the perspective of the results of the determination, in general, the former employer only needs to complete the preliminary proof that the two companies have overlapping business scopes, that the two companies operate similar businesses, and that the two companies belong to the same industry, and the court may determine that the two employers are in a competitive relationship.
In Beijing, for example, according to the authors' case search results, among the second-trial rulings of non-competition dispute cases in the year 2018 and 2019, a total of 31 cases were discussed in detail in the judgment regarding the competitive relationship between the former and current employers. Among them, in 27 cases, the court finally determined that there is a competitive relationship between the former and current employers, and in 4 cases, the court determined that the two companies did not have a competitive relationship.
2. Differences in understanding and identification of competitive relationship between the anti-unfair competition law and the labor law system under the Internet economy.
2.1. Under the background of the booming Internet economy, the understanding of competitive relationship in the competition law system tends to be broad.
The booming Internet economy has the characteristics of decentralization and unstructuralization, which raises new problems and challenges to the identification standards of market players' competitive relations under the traditional economic background. In terms of industry division, in the traditional economy, the boundaries of each industry are relatively clear, while in the Internet economy, no matter it is the leading enterprises or start-up companies, they often lay out in multiple business fields, and cross-border competition is very common. As for the competitive content, in the traditional economy, the competitive content is mainly the same kind of products or services, while in the Internet economy, no matter what the products or services are, users and data flow are the objects to attract.
Under the above said background, the understanding and identification of competitive relationship shows a trend of expanded interpretation. This trend is particularly prominent in the perspective of anti-unfair competition law. For example, in the case of "Iqiyi v. True Color Multimedia", the court of first instance held that: "Under the traditional economic model, the scope of the competitive relationship generally lies with competitors in the same goods or services. With the rapid development of the social economy, especially with the emergence and prosperity of the Internet industry, many business forms different from the traditional economic model have emerged. However, if the scope of the competitive relationship is limited to competitors in the same product or service field, it will be difficult to achieve the legislative purpose of the anti-unfair competition law. Therefore, under the circumstances that new business forms are constantly emerging, as long as there is a competitive relationship between the two parties in the final interest, they should be determined to have a competitive relationship. " The court of second instance also stated in the judgment that "The competitive relationship should be a broad one, not a narrow one. "
2.2. The determination of competitive relationship under the labor law system should consider the balance between protecting business secrets of enterprises and protecting workers' legal rights.
As mentioned above, the non-competition legal system is the legal means to protect the employer's business secrets in the labor law system. The labor law regulates the legal relationship between employers and employees, while the anti-unfair competition law regulates the legal relationship between the commercial entities in the market. The labor law belongs to social law, and its legislative purpose emphasizes the protection of workers' legitimate rights and interests, and the lawful employment right is one of the most basic labor rights and interests of workers. The non-competition legal system is a "preventive" protection measure for the employer's trade secrets, that is, as long as the employee knows the trade secrets and works in a competitor or self-run competitive business, whether or not it involves infringing on the employer's trade secrets, the employer shall have the right to pursue their legal responsibilities.
In the Internet economy where industry boundaries tend to be blurred, if the standards for determining competitive relationship in non-competition disputes follow the field of competition law, further expanding the interpretation, there may be situations where enterprises in the whole industry are competing with each other, resulting in the obvious unreasonable restriction of workers' freedom of job selection.
In view of this, the author believes that the competitive relationship in the labor law system should not be confused with the competitive relationship in the competition law system. When determining whether there is a competitive relationship between the former and current employers in non-competition disputes, the original intent of labor law and non-competition legal system as well as public interest should be considered, in order to balance the protection of the employer's trade secrets and the labor rights of workers.
3. Issues of business scope and the determination of competitive relationship.
3.1. "Autonomy of will" principle in the enterprise business scope registration
According to Article 3 of the Administrative Provisions on the Registration of Business Scope of Enterprises (2015) issued by the SAIC, an enterprise can "file an application for the registration of its business scope by selecting one or several small, middle or big categories by reference to the Classification of Industries in National Economy. For emerging industries or specific business items which are not regulated in the Classification of Industries in National Economy, the applicant may file the application by reference to policy documents, trade practice or professional literature."
Based on the above clauses, enterprises enjoy relatively great flexibility and autonomy in the expression of their business scope in their business licenses. Out of respect for the autonomy of enterprises, the administration of industry and commerce tends not to conduct substantive reviews of the scope of business. Under the policy of "autonomy of will", for commercial purposes, enterprises tend to make broad and vague representations of their main business areas, or include business areas that have not yet been launched into the business scope when they are registered. It is not uncommon for an enterprise's business scope described in its license to cover dozens of industry sectors in practice.
3.2. It is not reasonable to take the overlapping of business scope as the basis for determining the competitive relationship.
According to the authors' case research results, in the legal practice of non-competition dispute cases, the standards for determining the competitive relationship between the former and current employers are relatively broad. In most cases, the court takes the overlapping of business scopes as the basis for determining the competitive relationship between the two employers. As mentioned above, the registration of the business scope of Chinese enterprises adopts the principle of "autonomy of will." The business scope contained in the business license of the enterprise does not exactly match the actual business content of the enterprise. If we determine that the two companies are in a competitive relationship based only on the intersection of business scope, it will greatly restrict the free movement of workers, thereby unreasonably restricting the workers' legitimate employment rights.
In this regard, some scholars have pointed out that "similar business" stipulated in the Labor Contract Law should be understood in a narrow sense, that is, "we should understand it from the perspective of the duties of the worker's position, rather than judge it from the overall business scopes of the employers." In combination with judicial practice, our suggestion is that, when considering whether there is a competitive relationship between two employers, we should not limit to reviewing the business scope specified in the business license of the enterprise. Substantial consideration shall be made on the actual and main business of two employers based on the business scope as a reference.
In addition to the issues discussed in this article, there are other issues regarding the determination of competitive relationship in practice, such as whether the determination of competitive relationship can be extended to affiliated companies, and whether the determination of competitive relationship should take into account whether there is substantial competition between the employee's positions in two employers. These issues are worthy of further discussion, both theoretically and practically.
In this paper, the authors focus on the discussion of the point that determination of competition should consider the protection of workers' legal rights. However, it is undeniable that in practice, it is not uncommon for competitors to take malicious "poaching" and take illegal measures to cover up employees' violation of non-competition obligations. How to better balance the legitimate rights and interests between the employer and the employee in non-competition disputes is far more complicated than the theoretical analysis, and it is worth our further exploration and discussion in practice.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.