Cases concerning conflicts of interest have taken up a great proportion in the labor disputes which we handled in recent years, occurred in employers of various industries and scale. Based on my pervious experiences and analysis to the practical cases, I would like to share some points of view with you regarding conflict of interest in employment relations.

Definition of Conflict of Interest

Conflict of Interest, can be literally understood that there is a conflict between different interests. As to conflict of interest in labor relations, conflict of interest often refers to the conflicts between employees personal interests and his/her job responsibilities or employee identification. In another word, dedication is a basic requirement for employees, but employees may be driven by personal interests to make decisions or actions that are contrary to this basic requirement.

There are usually three key factors for conflict of interest in labor relations: First is the existence of "personal interest". It is reflected in the labor relations as the personal interests of employee, which could be economic benefits, such as cash gains, investment returns, etc., and could also be to seek a special treatment or opportunity Second is "responsibility", in labor relations, employee shall provide labor, perform job duties, abide by labor disciplines and be loyal to the employer, which is employee's obligations and responsibilities to the employer. Third is "conflict", that is the conflict between employee's personal interests and the responsibilities to bear has caused that the employee's normal performance or professional judgment interfered, and the existence of such conflict has caused, directly or indirectly, loss or harm to the interests of the employer. Conflict of interest can be divided into conflict in narrow sense and those in broad sense. Narrow conflicts of interest typically include several types:

(1) external employment or holding an external interest. Common case is that employee establishes labor relationship with other employer, holding an external position, or the employee's interested person works for the business partner or competitor of the employer, or employee or his/her interested person invests in or establish competitive business

(2) Self-dealing, where an employee takes advantage of the information or power gained in his/her position, inducing the employer to trade or cooperate with the company controlled by himself/herself or his/her interested person

(3) plundering trade opportunities, usually refers that employee takes advantage of his/her position to transfer the trade opportunities of the employer to a third party and make personal profit therein, most commonly by "flying orders"

(4) internal employment conflict, in which a marriage or kinship exists between two internal employees, which results in one party using or likely to use his/her power for the benefit of another. Conflict of interest in broad sense also include job grabbing and commercial bribery.

This article only discusses and shares viewpoints on narrow conflict of interest. II. Restriction scope of conflict of interest Standing in the breach, employee him/herself shall be the first-order restricted person regulated by the policies of conflict of interest specifying to-dos or not-to-dos when conflicts between employees personal interest and his/her job duties/employers interest occurred. However, in many cases regarding conflict of interest, employee often uses the identity of his/her relative, friend, or other interested person to engage in issues with conflict of interest, in order to avoid direct conflicts. In this case, are the labor disciplines of the employer entitled to restrain the close or other relatives, or even friend of the employee? Based on previous case experiences and current judicial practice, a brief analysis is shared as follows:

1. Close relatives

Close relatives according to its statutory definition, include spouses, parents, children, siblings, grandparents and grandchildren. Since the close relatives are in more intimate relationship with the employee, and thus it is easier for the employee to use their identity, or such relationship may influence employees judgment and make the employee partial to the interests of his/her close relatives when conflicts occurred. Therefore, considering not only the necessity to control conflict of interest, but also the rationality to expand the scope of restriction, the employee's close relatives shall also be included in the restriction scope of conflict of interest.

2. Other relatives

Other than statutory close relatives, there are some relatives also in intimate relationship with the employee and they are also very likely to be involved in employees conflict of interest. Thus, many labor disciplines of employers also include other relatives into the restriction scope of conflict of interest. And as to the definition and scope of other relatives shall subject to the internal stipulations by the employer, which can be in the form of summary or detailed listing, such as uncle, brothers, cousins, other relatives in law, succession or adoption and etc.

3. Other interested person In practice,

there are many cases of conflict of interest, the involved persons are employees interested persons, such as clansman, friend, dates, alumni and etc. These interested persons are also in high possibility that may be implicated in conflict of interest. However, it is difficult to handle such cases of conflict of interest, since on the one hand, the employer can hardly have concrete and definite evidence of these kinds of relationship, and on the other hand, compared with relatives, the scope and definition of interested person are broader and hard to describe, there are risks that the judicial authorities may consider the employer rightless to request employee to disclose the employment and/or commercial activities of other person, and thus determine the labor disciplines of the employer vague and lack of rationality.

Therefore, from the perspective of risk control, it is recommended that the employer includes "other interested person" by enumeration into the restriction scope in labor disciplines as a bottom clause. However, above risks still need to be brought to the attention of employers. In summary, it is necessary to specify the restriction scope of conflict of interest clearly in the labor disciplines. It can serve as one of the legal basis for management of conflict of interest, preventing employee from "drilling loopholes". Shanghai Company A sells products in two modes, direct sales and indirect sales by distribution. Employee Li joined Company A in April 2007 as sales manager, in charge of both direct and indirect sales. In March 2016, after receiving an anonymous whistleblowing and a thorough investigation, Company A found that Li established Company B as one of the stockholders with a registered business scope partially coincident with that of Company A.

Also, according to the registration information of Company B, Zhang is its operating director and her husband is one of the stockholders of Company B. After verification, Zhang is the legal representative of a distributor of Company A, named Company C. By on-site investigation, Company A found that the actual office address of Company B and C is in a same place. Company A also found that Li referred the clients from whom he got inquiries and sales opportunities to Company C, and Company C made the deal with the clients eventually. In view of this circumstance, Company A terminated the employment contract in May 2016 on the grounds that Li 1) failed to declare that he was engaged in competitive business and caused conflict of interest (establishing Company B),

and 2) flew orders, causing conflict of interest and substantial economic loss to the employer. Li thought the termination is illegal and initiated the labor arbitration. According to Lis viewpoints: 1) Company A only requested for conflict-of-interest declaration during on-board process in year 2007 while Company B was established in year 2013. The declaration made in year 2007 are all authentic information and after that Company A did not require further declaration 2) Although the registered business scope of Company A and B partially coincide, Company B is a small company with a registered capital of RMB500,000 and has no capacity to compete with Company A, a world-renowned company.

3) Due to customer requirements for multi-party price comparison, Li exchanged the information of clients and their requests to the distributors. The ultimate goal is to win more orders for Company A. Also, Company A did not ban him from helping distributors selling products. 4) Company A did not get any harm or loss in this whole case. According to viewpoints of Company A: 1) The declaration from has requested for in-time further declaration of any changed information, but Li did not inform the employer of such information 2) According to the agreement signed between Company A and Company C, Company A needs to pay rebates to Company C based on its sales revenue. In another word, direct sales mode gains more profits for Company A than distribution sales mode in same sales revenue. Judging from sales practices or thinking of maximizing profits, it was wrongful conduct for Li to refer the sales opportunity to distributor 3) Also based on the agreement, the aim for Company A to set up distribution sales mode, is to expand more sales channels, promote sales revenue by sacrificing a portion of the profits (rebates). It is clearly contrary to the fundamental purpose of Company A as market expansion if potential clients of direct sales mode in Company A are referred to the distributors 4) Li and Zhang co-founded Company B and Zhang is an interested person and have a special relationship with Li. Due to such special relationship, Li ignored the interest of Company A and referred the potential direct sales business to Company C, which clearly constituted a violation of labor disciplines and royalty obligations.

Question 3 (25 Marks)

There are methods that you can undertake to remedy the conflict that may exist between Company A and Company B. Evaluate which of the methods would be most useful to assist with the conflict of interest faced by the 2 companies.