In the workplace, employees have a duty to act in the best interests of their employer. Unfortunately, some employees fail to fulfill this obligation and engage in behavior that harms their employer. This article will examine the case of an employee who secretly started their own business and conducted transactions with their employer, resulting in financial gain at the employer’s expense. The legal implications of such misconduct and the employer’s options for recourse will be explored.

Case brief:

During his employment as sales manager at Company A, Mr. Yu established Company B, where he served as legal representative. He facilitated multiple transactions between Company A and B (which were ultimately approved by Company A’s general manager). In addition to profits earned by Company B, Mr. Yu also received business expenses and commission rewards from Company A.

Subsequently, Company A discovered that Company B was owned by Mr. Yu and terminated his employment contract, demanding that he return the business expenses and commission rewards. Mr. Yu then filed for arbitration, seeking compensation for illegal termination, but his claim was not supported by the ruling.

• Issue: Should Mr. Yu be required to return the business expenses and commission rewards obtained through the transactions between Company A and B?
• Legal analysis
• Was Mr. Yu’s behavior illegal?

During his employment, employees owe their employers a duty of loyalty and diligence. Mr. Yu’s establishment of Company B and transactions with Company A went against his duty of loyalty. From Company B’s perspective, Mr. Yu’s actions as both legal representative of Company B and employee of Company A were illegal.

• Did Company A have any fault?

Considering the following points:

• Since Mr. Yu was the legal representative of Company B, its business license must have been a clear public record.
• Company A had multiple transactions with Company B and should have been familiar with it.
• The final approval of transactions did not rest solely with Mr. Yu but with Company A’s general manager.

Therefore, it can be argued that Company A should have known that Mr. Yu was the legal representative of Company B, and the company was at fault for failing to carefully review client information.

• Responsibility Analysis
• Conclusion: Mr. Yu should return the business expenses and commission rewards obtained by Company A through the transaction with Company B.
• Reasoning:
• Business expenses are the actual expenses incurred for conducting business, usually including visiting clients, communicating with clients, transportation expenses, communication expenses, and dining expenses generated by the transaction.

As Mr. Yu is the legal representative of Company B, it is impossible for Company A to pay business expenses for him to visit himself or to treat himself to meals in order to facilitate the transaction. Therefore, the business expenses should be returned to Company A.

• Commission rewards are compensation based on performance, usually paid to employees or sales representatives for generating sales. It’s typically calculated as a percentage of total revenue and serves as an incentive to encourage increased business.

In this case, Company A and B are equal civil subjects conducting transactions. Mr. Yu, as the legal representative of Company B, was promoting the transaction for the benefit of Company B, not as an employee of Company A fulfilling a labor contract. Therefore, Mr. Yu should not be entitled to commission rewards.

• Although Company A has some fault in lax auditing, it is not aware that Mr. Yu is the legal representative of Company B during the transaction. Mr. Yu deliberately concealed the important transaction facts, while working for Company A and establishing Company B, and conducting transactions with Company A. This transaction is illegitimate, and the law cannot tolerate Mr. Yu’s malicious illegitimate transactions and profiting from such behavior.
• If Mr. Yu caused losses to Company A in the transaction with Company B, such as trading at a higher price than the market price, Company A can sue Mr. Yu and recover the relevant losses.

• Suggestions:
• It is necessary to carefully review the client’s background information during the transaction to avoid future problems.
• Employers should sign confidentiality and non-compete agreements with salespeople who have access to the company’s customer information and transaction resources to prevent them from betraying the company’s loyalty.