Babbitt Column | Discussion on the Application of the Competition Restriction Clause in the Digital Money Industry

Recently, the media reported that Bitu mainland and coin founder Pan Mou and others appealed to the court due to competition restrictions. The industry has mixed opinions on this, explaining the competition between operators and employees from the perspective of morality, reason and jurisprudence. The application of the restrictions can lead to very different conclusions. However, in judicial practice, the protection of interests of all parties still needs to be weighed from the perspective of objective facts and business practices. The bias of any factor may disturb the market order and is not conducive to free market competition. Therefore, issues such as the application of non-competition clauses for different identity entities in digital currency companies and the legal liability for violating the restrictions on non-competition should be taken seriously.

Generally speaking, the competition restriction means that the employer agrees with the senior management of the unit, senior technical personnel and other laborers who know the trade secrets of the employer in order to protect their trade secrets and competitive advantages, and terminate or terminate the labor contract. Within a certain period of time, employees who do not have the same kind of products, operate similar businesses or have other competitive relationships with their own units shall not be employed, nor shall they produce similar products or operate similar businesses that have a competitive relationship with their own units. Including statutory and agreed non-competition restrictions, the statutory non-competition obligation is the non-competition behavior during the period of the incumbency of the board of directors according to the “Company Law”; the agreed non-competition obligation refers to the “Labor Contract Law” and A special type of laborer agrees through the terms of the competition restrictions. This article focuses on issues related to the application of agreed terms of engagement between companies and employees.

I. Senior core members of the company’s directors

1 subject range

According to Article 24 of the Labor Contract Law, “the personnel subject to non-competition are limited to the senior management personnel, senior technical personnel and other personnel with confidentiality obligations of the employer”. In other words, the non-competition obligation is mainly for the company's directors, senior management, and the subject of confidentiality.

The first two types of subjects are relatively easy to distinguish, and for entities with confidentiality obligations, they should first consider the technical information of the enterprise and whether the commercial information constitutes a trade secret, so as to attach the confidentiality obligation to the employee:

(1) Whether to sign a confidentiality agreement with the employee;

(2) Whether the information of the enterprise has practicality and value;

(3) The availability of trade secrets, that is, whether the information obtained by employees is the same or substantially the same as the business secrets of the enterprise;

(4) Whether it is known to the public, that is, whether the enterprise adopts reasonable confidentiality measures.

Generally speaking, the confidentiality clause is agreed between the enterprise and the employee. As long as the business secret of the enterprise survives effectively, the employee's confidentiality obligation always exists, that is, the confidentiality obligation is an inaction obligation that does not infringe on the trade secret of others. Even if the time limit agreed in the confidentiality agreement expires or the labor contract terminates, as long as the business secret of the enterprise has not been lost, it does not affect the continuation of the employee's confidentiality obligations.

Therefore, in the case of agreement, the subject of the competition restriction may include the company’s supervisory authority and the specific subject of the company’s trade secrets, while the scope, territory and duration of the competition restrictions are not in violation of the law by the enterprise and the laborer. Under the premise of the provisions of the regulations, they may also agree on their own.

2 Competitive business

The labor contract between the enterprise and the employee usually stipulates: “The employee shall not be self-employed during the period of his employment or operate the same industry as the company for others.”

The employee management system also states: “Employees should avoid any external economic interests that may affect the company’s decision-making or behavior. External business interests include, but are not limited to, individuals or family members who have a substantial economy in a company that does business with the company. Interest, the economic benefit is a major part of the employee's net assets or income, or the business of the company and the company is a major part of the business."

The main purpose of the above clauses is to stipulate the scope of non-competition restrictions for employees and family members. Since the directors and core members have mastered the important business information of the company, they will use the industry to compete with the enterprise to a large extent. The business information obtained by the unit provides services to the new company, thereby damaging the interests of the original enterprise. Therefore, companies should make explicit restrictions on the field of non-competition restrictions, from the perspective of the existence of competitive relations, but if the field restrictions or unreasonable non-competition agreements or terms may also be invalid.

For the founders such as Coin and Pan, the competition between the mining pool business and the bit mainland is subject to the validity of the competition agreement, the coincidence of the mining business, and the agreed The scope of competition restrictions, and the reasonableness of the parties to assume corresponding responsibilities from a fair and reasonable perspective.

3 Compensation Agreement

According to Article 23 of the Labor Contract Law, “the employer and the employee may agree to give the employee economic compensation on a monthly basis within the time limit for non-competition after the termination or termination of the labor contract.” Therefore, the enterprise can work with the laborer. It is stipulated that economic compensation will be paid to the workers on a monthly or one-time basis, and will be issued on the day the employees leave.

In addition, due to the absence of an upper limit for economic compensation, enterprises and employees may negotiate compensation limits for non-competition according to the degree of non-competition, but if the parties do not expressly agree, they shall be applied in accordance with the Supreme People's Court on trial of labor disputes. Interpretation of Several Issues in Law (IV) Article 6: “The parties have agreed on the competition restrictions in the labor contract or confidentiality agreement, but have not agreed to give the laborer economic compensation after the termination or termination of the labor contract, and the laborers have fulfilled the competition restrictions. Obligation to require the employer to pay economic compensation on a monthly basis in accordance with 30% of the average salary of the laborer before the termination or termination of the labor contract, the people's court shall provide support. That is, if the employee fulfills the non-competition obligation, he may The corresponding compensation amount shall be claimed in accordance with the provisions of the preceding paragraph.

Therefore, restricting workers' freedom of choice or freedom of competition requires premise that there is a clearly defined non-competition obligation . If three employees, such as Bitland and Pan, do sign a non-competition agreement, and Bitcoin has If the agreement stipulates payment of compensation for competitive restrictions, then Pan and other senior executives shall be subject to non-competition restrictions; if Bitcoin does not pay compensation for non-competition restrictions, the non-competition restrictions of both parties may be invalid.

Second, ordinary employees

Due to the particularity of the position, the company’s directors and high-level technical personnel should be subject to the restrictions of non-competition obligations. For ordinary employees, if they do not directly obtain the business secrets of the company through their posts, can their non-competition obligations pass the contract? The agreement must be considered from the essence of the competition restriction system. The original intention of the non-competition obligation is to prevent the use of the secret by employees who are prohibited from mastering the business secrets of the enterprise in the same field, that is, if and only if the protection of the legitimate rights and interests of the enterprise can only be achieved through the aforementioned means, Industry restrictions are only necessary for implementation. Therefore, for the general employees, if the enterprise confirms that its position can be informed of the business secrets of the enterprise, it belongs to the scope of the non-competition agreement, and should be agreed in accordance with the standards of the senior members of the above-mentioned directors.

If the enterprise and the ordinary employees have not signed the non-competition restriction obligation, and the new company that has joined after leaving the company does not use the trade secrets it has acquired, it will gain market competitive advantage, and it cannot be generalized to infringe the original company’s trade secrets. From the perspective of reasonable market competition, since the achievement of the transaction does not depend entirely on the will of the parties and the desire of both parties to the transaction, anyone can freely participate in the competition to compete for trading opportunities. Competing for business opportunities between competitors is the norm of competition and is encouraged and promoted by market competition. For the same trading opportunity, the other party to the competitor has lost the other party, and the injured party must obtain civil remedies. It must also prove that the competitor's behavior is unjustified.

Therefore, companies can only prove that the competitors are not following the principle of honesty and credit when they compete for business opportunities, violate the recognized business ethics, and obtain business opportunities that they can reasonably expect through improper means. Forbidden; for employees, if they plan to set up a new company during their employment and compete with the original company after leaving the company, whether it violates the principle of good faith and recognized business ethics, it should consider voluntary, equal, fair, honest and trustworthy. From the principle point of view, consider whether it is in conformity with the provisions of the Anti-Unfair Competition Law to engage in acts that harm the legitimate rights and interests of enterprises by improper means.

Third, legal responsibility

According to the "Labor Contract Law", if a worker violates the obligation of non-competition, the employer has the right to require the laborer to pay liquidated damages as a means of undertaking the liability for breach of contract; if the employer causes losses, it shall be liable for compensation. In different situations, the legal liability of the party that violates the competition restriction and the burden of proof of the parties are different.

1 liquidated damages standard

The commitment to breach of contract and liability for breach of contract depends mainly on the agreement between the company and the employee. Under normal circumstances, the non-competition agreement will stipulate: “Employees who violate this agreement will cause economic losses to the company, shall bear full liability for compensation, and pay [*] million yuan (RMB) to the company as liquidated damages.” The liability for breach of contract shall be borne by the enterprise to prove that the employee’s breach of contract has caused actual losses to the company.

In addition, in judicial practice, the court usually considers the amount of compensation paid by the enterprise for the competition limit, the working life of the employer in the employer, the position of the laborer, the degree of subjective fault of the laborer, and the damage caused to the employer. Whether the non-compliance liquidated damages agreed by the employer and the laborer are too high or too low, and adjusted.

2 Damages

In practice, the damages must be proved by the enterprise to prove its infringement loss, and the causal relationship between the loss and the infringer. In addition, for the enterprise, it should be obliged to review the non-competition restrictions of the new employee, otherwise there will be competition due to business. In the case of market conflicts of interest, it is very likely that the judicial authorities will pursue the corresponding tort liability. Whether or not its infringement liability is established is mainly considered from the following points:

(1) Loss of existing property and available benefits

The violation of the non-competition obligations of the infringer leads to the loss of the competitive advantage of the enterprise and the damage to the economic benefits brought about by this advantage. For the available benefits, due to uncertainties in future values, elimination cycles and other factors, there are certain difficulties in their evidence.

(2) Profits of the infringer

The profit of the infringer refers to the total profit (excluding its various costs and reasonable expenses) obtained by the infringement during the infringement.

(3) Subjective fault of the infringer

The infringer knows that the enterprise has some important and competitive information or resources, and still maliciously quits or newly established enterprises to engage in business that competes with the original enterprise.

(4) The position of the infringer

Different employees have different business information due to different job responsibilities. Therefore, for the senior executives of the supervisory board to violate the non-competition obligations, the damages are much more serious than the ordinary employees.

Taking this case as an example, Bitian mainland advocates the income of 26,925 bitcoins (corresponding to the value of the legal currency) mined in the currency as the amount of damages. According to China’s rules of proof, Bitland must impose a non-compete agreement and default on all parties. The facts, losses, etc. bear the burden of proof, while senior executives such as coin printing and Pan Mou have to bear the burden of proof for non-infringement.

In short, for digital currency companies, in the event of a dispute, in addition to considering the restricted entities and competing enterprises, it is necessary to prove the amount of breach of contract, loss, etc. , but different courts may have different perceptions of digital currency. Different judgment results.

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