Does Diverting Former Employer's Lost Customers Constitute Embezzlement? — Defense Practice in a Non-Prosecution Case

A course consultant started a competing business targeting customers who had already decided not to renew with the former employer. Does this constitute embezzlement? This article analyzes a non-prosecution case from Pengjiang District, Jiangmen, examining key issues including whether customer relationships qualify as 'company property', the monetary threshold, and layered defense strategies.

I. The Issue

In the education and training industry, it is not uncommon for course consultants to use client information obtained through their work to start competing businesses and solicit their former employer's customers. Whether such conduct constitutes the crime of embezzlement under Chinese criminal law is highly contested in judicial practice. The core issue is: can customer relationships be recognized as 'company property' under criminal law? If customers have already clearly indicated they will not renew, do they still constitute the company's 'vested or expected interests'? The author recently handled such a case: a course consultant at an education training institution established a competing business during employment and solicited customers who had clearly decided not to renew, and was subsequently investigated by the Pengjiang District Public Security Bureau of Jiangmen for suspected embezzlement. As defense counsel, the author submitted a legal opinion against arrest approval to the Pengjiang District People's Procuratorate. After review, the procuratorate adopted the defense opinion and ultimately issued a non-prosecution decision for Suspect A. This is a model case of achieving the most favorable final outcome—from criminal investigation to non-prosecution. The defense approach and legal analysis are presented below for practitioners' reference. (Note: Personal names and company names have been anonymized.)

II. Case Background (Anonymized)

Suspect A was a course consultant at an education technology company in Jiangmen ('Company A'). During employment, A discovered that certain customers considered Company A's fees too high and had clearly decided not to renew. To attract these lost customers, A established a tutoring center ('Center B') in August 2021, offering courses at lower prices. Customers who signed with Center B were served by Company A's teachers during their spare time, with A sharing 40-50% of collected fees with the teachers. In December 2021, Company A went bankrupt. Investigation revealed that Center B's clients included both new customers independently recruited by A and the customers who had decided not to renew. After sharing approximately 80,000 yuan with teachers, A's net profit was less than 60,000 yuan. After the case emerged, A fully compensated Company A's losses and obtained a written forgiveness letter from Company A's actual controller.

III. Core Defense Arguments and Legal Analysis

Article 271 of the PRC Criminal Law defines embezzlement as: 'Any employee of a company, enterprise or other unit who, taking advantage of their position, unlawfully appropriates the unit's property, if the amount is relatively large.' This case centered on two key issues: whether the customers at issue constituted 'company property' under criminal law, and whether the profit amount met the prosecution threshold.

A. Do the Customers Constitute 'Company Property'?

The defense argued that A's customers were those who had clearly decided not to renew, and therefore no longer constituted Company A's 'vested interests' or 'expected interests.' First, the service contracts had expired or were about to expire, and customers had clearly stated non-renewal—Company A held no contractual rights over them. Second, expected interests require reasonableness and certainty for criminal law protection; when customers clearly indicated non-renewal, that expectation lost its reasonable basis. Third, the teachers served Center B in their spare time without affecting duties, and Company A suffered no actual operational losses. In summary, A's conduct did not satisfy the elements of embezzlement.

B. Did the Profits Meet the Prosecution Threshold?

Even assuming A's conduct formally satisfied the elements, the profit fell below the prosecution threshold. Under Article 11(1) of the SPC and SPP Interpretation on Corruption and Bribery Cases (Fa Shi [2016] No. 9), embezzlement is 'relatively large' at 60,000 yuan or above. After sharing approximately 80,000 yuan with teachers, A's net profit was less than 60,000 yuan. Notably, whether necessary costs should be deducted when calculating the criminal amount is disputed in practice. Applying the principle favoring the accused, the defense argued A's actual net profit should be used. Even under a total-amount approach, the 80,000 yuan paid to teachers should be excluded—these funds were not 'unlawfully appropriated' by A.

C. Comprehensive Application of Mitigating Circumstances

Even if authorities insisted A's conduct constituted a crime, sufficient mitigating circumstances existed: First, A was a first-time offender with no prior record. Second, A truthfully confessed all facts, satisfying Article 67(3) of the Criminal Law on leniency for confession. Third, A fully compensated Company A and obtained a written forgiveness letter—the social conflict was resolved. Fourth, as an economic crime, this case posed significantly less social harm. The defense invoked the 'fewer arrests, more prudent prosecution and detention' criminal policy, arguing that non-prosecution was the correct practice for implementing the policy of combining leniency with severity, resolving social conflicts, and conserving judicial resources.

IV. Defense Strategy: A Three-Tier Approach

The defense strategy can be summarized as a three-tier approach. Tier One (fact-based): Challenging the elements of the crime by arguing the customers were 'already lost' and did not constitute company property—the strongest defense path. Tier Two (law-based): Alternatively arguing that profits were below the 60,000 yuan prosecution threshold. Tier Three (policy-based): Citing mitigating factors and criminal policy to seek non-prosecution. This layered defense is particularly effective at the prosecution review stage—when defense counsel builds a multi-dimensional argument spanning facts, law, and policy, the likelihood of a non-prosecution decision increases substantially. This case is the best illustration.

V. Practical Recommendations

For defense attorneys: First, intervene early—the seven-day arrest review period is the golden defense window. Second, carefully analyze customer categories and whether customers clearly indicated non-renewal. Third, precisely calculate amounts and strive to bring the figure below the prosecution threshold. Fourth, actively facilitate compensation and forgiveness—these serve not only as sentencing factors but also as key support for arguing 'no social danger' and 'no detention necessity.' For business operators: Establish robust non-compete and confidentiality systems with core employees; clearly define customer resource ownership in employment contracts; and establish formal client handover procedures for departing employees. For practitioners: the defendant's reflection—'I thought I caused no loss to any party and didn't realize my conduct might violate criminal law'—is a sobering reminder. Engaging in competitive business during employment using one's position carries enormous legal risk regardless of the ultimate outcome.

VI. Conclusion

Embezzlement is a high-frequency crime for entrepreneurs and practitioners, but its elements are not boundless. This case demonstrates that defense counsel has ample room to argue on core issues such as whether customer resources can be the object of misappropriation and how the amount is calculated. The Pengjiang District People's Procuratorate of Jiangmen ultimately adopted the defense opinion and issued a non-prosecution decision, sparing the defendant from the severe consequences of criminal prosecution. This outcome affirms the defense work and reflects the procuratorate's firm commitment to the 'fewer arrests, more prudent prosecution and detention' policy. This case proves that initiating active, effective defense at the arrest review stage and building a complete factual, legal, and policy argument framework can indeed achieve non-prosecution—the most ideal final outcome.

※ This article is general legal information, not legal advice on any specific matter. For your individual case, please consult a lawyer.