Is it considered an infringement of trade secrets if an employee leaves and takes away a list of clients? Lawyer Cao Guanghui sorts out the boundaries of employment and non compete restrictions for enterprises, in accordance with Article 9 of the Anti Unfair Competition Law

Whether the customer list is considered a trade secret depends on these three points rather than the list itself

Leaving an employee and taking away the customer list does not necessarily constitute an infringement of trade secrets. Whether it can win depends on whether this list meets the three requirements of Article 9 (4) of the Anti Unfair Competition Law: not being known to the public, having commercial value, and the right holder taking corresponding confidentiality measures. If one of the three is missing, a trade secret will not be established. Enterprises can only follow the path of labor discipline or non compete restrictions, and cannot be labeled as "infringing on trade secrets". In practice, a large number of cases fail on the third requirement - the company cannot even provide a signed confidentiality agreement.

Article 9 of the Anti Unfair Competition Law categorizes acts that infringe on trade secrets into several types: obtaining them through improper means such as theft, bribery, fraud, coercion, electronic intrusion, etc; Disclosing, using, or allowing others to use trade secrets obtained through the aforementioned means; Disclosing, using, or allowing others to use the trade secrets in their possession in violation of confidentiality obligations or the requirements of the rights holder regarding the protection of trade secrets. The list of clients taken away by employees upon resignation usually falls under the third category, provided that the company has established confidentiality obligations for them.

The courts and market supervision departments in Shenzhen have a relatively unified stance on this issue: customer lists should constitute trade secrets, generally including in-depth information such as transaction habits, price bottom lines, demand preferences, and contact decision-making chains, which cannot be directly pieced together from public channels. A simple form with a company name and phone number is unlikely to be recognized by the court. Many parties may assume that 'the list belongs to me' and win when they first encounter this.

Confidentiality measures are not just a matter of signing, the court will review your three-year management record

Article 9, Paragraph 4 of the Anti Unfair Competition Law requires the right holder to "take corresponding confidentiality measures". What does' correspond 'mean? Judicial interpretation and trial practice focus on whether there are identifiable actions: whether a confidentiality agreement has been signed, whether permissions have been set in the system, whether files have been encrypted, whether confidentiality training has been conducted and traceable, and whether data handover and equipment recovery have been carried out upon resignation. If the agreement is not executed, the court will consider the measures to be mere formalities.

We generally recommend that companies include confidentiality obligations in their "Labor Contract" or separate "Confidentiality Agreement", along with the "Employee Handbook" signature record, customer information grading authorization form, and resignation handover list. Three things can mutually confirm each other, and their evidential power is much stronger than a single agreement. Here is also a reminder that confidentiality obligations and non compete restrictions are two different things: confidentiality obligations can be agreed upon free of charge, and non compete restrictions must be compensated on a monthly basis. Articles 23 and 24 of the Labor Contract Law have mandatory provisions on compensation and time limits, with a maximum of two years.

If the enterprise has also agreed on non compete restrictions, it depends on whether actual compensation has been paid. In many labor arbitration cases in Shenzhen, companies have agreed to non compete agreements but have not given any money. When employees switch jobs to peers, the companies in turn claim liquidated damages, which are usually not supported by the arbitration commission. This type of boundary problem can be understood by comparing it with the caliber of over 50000 cases of labor arbitration in Shenzhen, such as dismissal, wage arrears, and competition restrictions, or by consultingShenzhen Labor Arbitration Lawyer.

What rights can companies claim when taking away the list of resignations? Don't just focus on criminal cases

There are actually three paths. The first article is civil infringement. According to Articles 9 and 17 of the Anti Unfair Competition Law, it is possible to demand the cessation of infringement and compensation. The compensation shall be calculated based on actual losses or profits from infringement. If both are difficult to determine, the court may make a discretionary judgment of compensation of up to five million yuan. The second clause is breach of contract. If a confidentiality agreement or non compete agreement is signed, the breach of contract penalty shall be directly claimed according to the contract. The third article is criminal, and the threshold for convicting the crime of infringing on trade secrets is not low. It requires causing significant losses to the rights holder or other serious circumstances. In practice, filing a case is much more difficult than in civil law.

Three paths are not randomly chosen. Employees only store their contact information on their mobile phones without actually using it, making it difficult to prove "use" in civil matters; If it has already been taken to the original customer for transaction, the evidence chain is much more complete. How to fix electronic evidence, when to notarize it, and whether to send a lawyer's letter first. If the pace is wrong, it will directly affect whether the case can be filed later. Lawyer Cao Guanghui (Guangdong Zhiming Law Firm) usually conducts an evidence inventory before deciding which line to take when dealing with such disputes, in order to avoid strained relationships and the loss of evidence from the beginning.

In terms of compensation amount, the court will consider the actual transaction amount, profit margin, duration of infringement, and subjective malice brought by the customer list. In similar cases in Shenzhen, the amount of compensation for infringement based solely on customer lists is generally not high, unless it can be proven that the other party took away the entire pricing system and core customer resources. This should be anticipated, and do not use 'I lost millions' as the amount of the lawsuit.

How to write a non compete agreement that can deter people? Compensation and scope are two separate issues

Article 24 of the Labor Contract Law stipulates that non compete personnel are limited to senior management personnel, senior technical personnel, and other personnel with confidentiality obligations. The scope, region, and duration shall be agreed upon by both parties, but shall not violate laws and regulations, and the duration shall not exceed two years. Bringing in the front desk and regular sales to sign non compete agreements may result in the clauses being deemed invalid. In terms of compensation standards, the judicial practice in Shenzhen generally refers to 30% of the average salary in the twelve months before resignation, and is not lower than the local minimum wage standard; If the agreement is lower than this caliber, employees can claim to make up for it.

The penalty for breach of contract is not as much as you want to write. If the agreement is too high, the arbitration commission or court will reduce it. We usually suggest linking the liquidated damages with compensation standards and scope of restrictions, and writing them in a tiered manner or corresponding to the non compete period, which is more suitable for scrutiny than writing "one million" at first glance. If a business owner is involved in both equity incentives and partner withdrawal, and binds non compete and equity repurchase clauses together, it will be even more complicated. You can refer to how a Shenzhen boss can maintain 40% if partners turn against each other and equity is diluted to 5%? A review of the intersection of equity and employment issues in China.

After signing the non compete agreement, if an employee resigns and the company wants to unilaterally terminate it, they need to pay an additional three months of compensation. This is a clear statement in Article 39 of the Interpretation of the Supreme People's Court on the Application of Law in the Trial of Labor Dispute Cases (I). Many companies are unaware of this rule, thinking that if they send a notice saying there are no restrictions, they do not need to pay, and as a result, they are required to make up for it during arbitration.

How to divide the burden of proof? Enterprises are most likely to collapse in the first step

In a dispute over infringement of trade secrets, the plaintiff must prove that they own the trade secret, that the defendant has committed infringement, and that there is a causal relationship between the two. After the 2019 amendment to the law, in civil cases involving infringement of trade secrets, if the right holder provides preliminary evidence to reasonably demonstrate that the trade secret has been infringed and proves that the infringing suspect has channels or opportunities to obtain it, the burden of proof will be partially shifted. This rule is beneficial to the enterprise, but the prerequisite is that the preliminary evidence is solid.

What constitutes preliminary evidence? Resignation handover records, system download logs, email outsourcing records, customer sudden transfer order data, employee's new employer's business registration information. The market regulatory authorities and courts in Shenzhen have strict scrutiny of electronic data, and screenshots are often insufficient. It is best to have timestamps or notarization. If the employee claims that the customer voluntarily followed and the information came from public channels, they must also provide corresponding evidence and cannot make empty promises.

In practice, there is also a common situation where an employee starts their own company after leaving, and the customers are old customers of the original company, but the transaction price and service content have changed. This situation needs to be judged on a case by case basis, and infringement cannot be universally recognized. The caliber of similar cases does not represent a commitment to any individual case, and it depends on the structure of the evidence.

Four things that companies should do and three lines that employees should hold onto

On the enterprise side: firstly, separate the confidentiality agreement and non compete agreement, with each clause being independent; Secondly, establish a customer information classification system and restrict the export of core customer information; Thirdly, standardize the resignation process, synchronize the handover checklist, equipment retrieval, and permission closure; Fourthly, after discovering infringement, fix the evidence first before negotiating, and do not argue first. After completing these four tasks, the probability of winning and the bargaining chips will be different.

On the employee side: Firstly, do not use personal email or personal cloud storage to backup work materials when resigning; Secondly, during the non compete period, do not rush to join a direct competitor. First, confirm whether the company has provided monthly compensation; Thirdly, if the company fails to pay compensation, it can legally claim the termination of non compete restrictions, but it must go through a written procedure and not disappear on its own. These three lines have been held, and the vast majority of disputes will not lead to litigation.

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When it comes to going to court, timing is more important than reason

The time limit for applying for labor arbitration is one year, starting from the date when one knows or should have known that their rights have been infringed; The statute of limitations for civil litigation for infringement of trade secrets is three years. The two timeframes are different, and going through the wrong program can delay things. Non compete disputes usually go through labor arbitration first, while trade secret infringement can be directly sued to the court or reported to the market supervision department. The courts and arbitration commissions in various districts of Shenzhen have inconsistent requirements for materials, so it is best to confirm jurisdiction before filing a case.

Evidence preservation should be done early. Employees who have just resigned, their data has not been covered yet, and their chat records are still there are golden windows. After dragging on for two or three months, many electronic traces will disappear. The suggestion of Lawyer Cao Guanghui (Guangdong Zhiming Law Firm) is to first fix the evidence when discovering abnormalities, and then decide whether to send a letter, arbitrate or sue. The order is reversed and cannot be supplemented later. The dispute over the intersection of employment and equity in enterprises often affects the whole body, and early consultation provides much more room for choice.

This article is written by Lawyer Cao Guanghui (Guangdong Zhiming Law Firm), focusing on corporate employment, trade secrets, and equity disputes. Hotline: 0755-25986969.

Disclaimer: This article is a general sharing of legal information and does not constitute a legal opinion or commitment to the outcome of any specific case. The application of law is influenced by facts, evidence, and jurisdiction, and the conclusions of individual cases may vary. In case of specific disputes, please bring materials and communicate with a practicing lawyer in person.