Non-Competition? Unfair Competition?

Company A and Mr. Yu had made a non-disclosure agreement, in which stipulated a non-competition clause. After resigned, Yu joined Company B, a competitor of A. A deemed that Yu had violated the non-competition clause, and disclosed its trade secret to B, which helped B to enhance its competitive advantage. Thus, A brought a lawsuit against Yu on unfair competition, due to Yu’s breach of non-competition clause. However, the court dismissed A’s claim.

Why did the court dismiss A’s claim?

In this case, Yu’s two actions belong to two different legal relations. Yu has breached the non-competition clause by joined A’s competitor B, which shall be a labor contract legal relation. Yu has used A’s trade secret to help B to enhance its competitive advantage, which shall be an unfair competition legal relation.

“Provisions on the Cause of Action of Civil Cases” (Revised 2008) has stipulated, “(3) disputes on the infringement of trade secret and non-competition” under “Article 16 Unfair competition, monopoly disputes”, and has not mentioned non-competition disputes under “Article 17 labor disputes”. However, “Provisions on the Cause of Action of Civil Cases” (Revised 2011) has stipulated, “160. Disputes on the infringement of trade secret, which include 2 categories, (1) the infringement of technical secret, and (2) the infringement of business secret.”, under “Article 15. Unfair competition disputes”. Meanwhile, “169. Labor contract disputes … (7) Non-competition disputes” under “Article 17. Labor disputes”.
It is obviously that the latest one has stipulated that “non-competition disputes” shall belong to “labor contract disputes”. It was apparently a wrong choice of cause of action that A claimed for unfair competition against Yu by his violation of the non-competition clause, which shall be deemed as a labor dispute, and requires labor arbitration in advance. So the court dismissed A’s claim.

Then for companies as A, where the former employee has not only breached the non-competition clause by being the employee of the competitors, but also disclosed trade secret of the former employer to the later one, whether the labor arbitration is the only choice for these former employers?
We do not think so. Because trade secret is not the precondition for a non-competition obligation, the former employer can either choose a labor arbitration against the former employee on claiming the liabilities for violating non-competition clause, or a lawsuit against the former employee and the later employer on claiming the infringement liabilities for unfair competition.