Investigation, evidence collection on non-compete personnel

By Leo Yu, Jingtian & Gongcheng
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The amendments to Some Provisions of the Supreme People’s Court on Evidence in Civil Procedures (new evidence rules), implemented from 1 May 2020, provide “new methods” for companies to investigate and collect evidence on their employees’ violation of non-compete restriction, which is worthy of attention. Because the new evidence rules further clarified and refined some provisions, as well as the changing trend of the judiciary in the distribution of burden of proof, these methods can be more feasible in non-compete disputes.

Leo Yu Jingtian & Gongcheng labour
Leo Yu
Partner
Jingtian & Gongcheng

To require employees to sign a non-compete restriction agreement is an important measure for companies to protect their commercial secrets from fierce commercial competition, as well as prevent competitors from maliciously poaching their employees. However, to recruit employees from other companies of the same business is one of the most effective means for companies to obtain talent.

Therefore, in practice, some companies will assist those personnel with a non-compete obligation (non-compete personnel) through evasion and concealment, to hinder the former employer’s non-compete restriction investigation, evidence collection and legal action.

A common practice is that the new employers will arrange the non-compete personnel to sign a labour contract with a third-party company that is not in the same business, and pay him/her salaries and benefits though this third-party company, but the non-compete personnel actually works for the new employer. In this case, it is difficult to investigate and collect evidence on the existence of non-compliance conduct, and the cost and risk are also quite high.

The author believes that companies should focus on three methods.

Court investigation/order

There are two main ways to investigate and collect evidence through the court: (1) the former employer applies to the court for an investigation order, and then conducts the investigation directly with the investigation order; and (2) the former employer applies for a direct investigation by the court. Companies could conduct an investigation and collect evidence that is hard to obtain directly by themselves through the above-mentioned methods.

The common types of evidence that can be requested for investigation through the above-mentioned methods include but are not limited to: (1) social insurance payment records; (2) housing provident fund payment records; (3) personal income tax withholding and remitting records; and (4) co-operation agreement between a third-party company and the new employer.

Applications filed by the companies should contain specifics of basic information of the respondents such as their names, names of companies they served, their places of residence, the contents of evidence to be investigated and collected, the reasons for the courts to investigate and collect evidence, the facts to be proved, and the clear clues of the evidence.

Due to the fact that the two methods can only be applied effectively at the court hearing stage, companies need to use litigation tactics flexibly to move cases into the court hearing stage as soon as possible.

Documentary evidence

Generally speaking, some documentary evidence held by non-compete personnel could reflect, directly or indirectly, their violations of the non-compete obligation, such as the labour contracts of non-compete personnel. Non-compete personnel may have not signed labour contracts with third-party companies, or the labour contracts may be signed after the dispute happened. This would reflect the authenticity of their labour relationship with the third-party companies.

The labour contracts signed by non-compete personnel that record their job positions and departments could indirectly reflect whether the non-compete personnel actually engaged in the same or similar work as their former job, and in turn could show whether they committed competitive behaviour or not.

Apart from labour contracts, companies could also require non-compete personnel to provide offer letters, phone records, WeChat or text message communication records, etc., which may also reflect whether there is a violation or not.

Here again, companies should file applications to the courts. The applications should be specified with the following information: the names or contents of the documentary evidence to be submitted; the facts to be proved by such documentary evidence, and the importance of such facts; and the evidence that could prove that the non-compete personnel possess such documentary evidence, and the reasons why they should submit such documentary evidence.

In the event that the non-compete personnel denies possession of the documentary evidence, the court will make a comprehensive judgment regarding whether the documentary evidence is under the non-compete personnel’s control, or not based on the facts and evidence of the case, and according to laws, customs, etc.

Questioning in court

Under the new evidence rules, the parties are obligated to make true and complete statements on the facts of the cases. In many non-compete restriction cases, non-compete personnel may choose not to appear in court hearings, and have their agents take part in the court hearings in order to avoid making statements about the facts of the cases. The agents will then delay the hearing with excuses like they are not familiar with the situation, they need to verify with their clients, etc., so as to muddle through the statement of the cases and leave things unsettled.

In such cases, companies can apply to the courts to order that the non-compete personnel be present at the court hearings to make direct statements about the facts, and to answer questions regarding the relevant facts. Companies can also further question or query the non-compete personnel’s actual working situations and relevant details, based on the facts and evidence of the case, in order to spring a leak in their concealment behaviour.

Companies may even, based on non-compete personnel statements and answers, move further to apply the courts to impose penalties on the ground that the non-compete personnel and their agents have made false statements deliberately to hinder the court hearing.

The new evidence rules have provided new methods for investigation and handling of non-compete restriction. However, companies still need to investigate in advance to obtain certain preliminary evidence and clues, in order to fully explain their reasons for obtaining court orders.

Leo Yu is a partner at Jingtian & Gongcheng

Leo Yu Jingtian & Gongcheng labour

Jingtian & Gongcheng
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77 Jianguo Road, Beijing 100025, China
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