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Ten Typical Cases of Labor Disputes With Senior Executives Ⅰ

2021-03-01

On December 4, 2020, the Beijing Intermediate People’s Court No. 1 held a press conference to inform of labor disputes involving senior executives in recent years and issued the "Beijing’s Ten typical labor dispute cases." River Delta Law Firm conducted a comprehensive interpretation of the ten major cases and put forward corresponding management suggestions for employers.

Case 1: Shareholders Acting as Senior Executives, a Labor Relationship?
 
Shareholders shall concurrently serve as senior executives of the company on the basis of the agreement between the shareholders and participate in the operation and management of the employing unit, but there shall be no labor relationship between them and the employing unit
 
Introduction
Hu claimed that he joined a food company as CEO on March 1, 2018, and the two parties signed a labor contract on February 15, 2018. The Company did not recognize the labor relationship, claiming that Hu entered the company as a shareholder of the company and thus the two parties were not in a labor relationship. Later, Hu went to the court to request confirmation of the labor relationship between the two parties. After the trial, the court held that the labor contract that Hu advocated was signed by himself using his position. He took the position of CEO in a food company through an agreement between shareholders, and the two parties did not agree to establish a labor relationship, therefore there is no labor relationship with a food company.
 
Judge Interpretation
Shareholders of a company have the rights to benefit from assets and participate in major decision-making in accordance with the law. It is also a common form of internal organization management that the shareholders hold management positions in the company through inter-shareholder consultation. From the perspective of selection, the shareholder’s appointment as the company’s senior management is based on the agreement between shareholders, and there is no agreement between them and the company to establish a labor relationship. From the perspective of risk burden, since Hu holds shares in the food company and participates in management, he should bear business risks. Hu cannot simply convert the risk into labor remuneration by claiming that he should be protected by labor law when the company is unprofitable.
Therefore, a labor relationship between the shareholder and the company cannot be simply confirmed by the mere fact that the shareholder participates in the management and decision of daily administrative issues, or other similar facts.
 
 
Lawyer's suggestions
China’s current laws do not explicitly prohibit shareholders from establishing labor relations with employers. The relationship between shareholders and the company is regulated by the Company Law, that is, the shareholders of the company enjoy the rights of asset income, participation in major decision-making and selection of managers in accordance with the law. At the same time, shareholders, as "special" workers, have the right to obtain labor remuneration by providing normal labor to the company, which is regulated by the Labor Contract Law.
Regarding the identification of labor relations, according to the Notice of the Ministry of Labor and Social Security on Matters Concerning the Establishment of Labor Relations, it is stipulated that if the employing unit recruits workers, at the same time under the following circumstances, a labor relationship shall be established:
1. worker and employer meet the main qualifications stipulated in laws and regulations;
2. the labor rules and regulations formulated by the employing unit in accordance with the law are applicable to the workers, who accept the management of the employing unit and engage in the paid labor arranged by the employing unit; and
3. the labor provided by the workers is an integral part of the employer's business.
In view of the particularity of the shareholder's identity, determining whether it has established a labor relationship with the employer should be combined with the above regulations and comprehensively judged from multiple angles. For example, whether the shareholders and the company agree to establish a labor relationship, whether they have an affiliation relationship with the company, whether the shareholders accept the management and control of the employer, to provides labor under the command and order of the employer, the labor provided is derived from the investment behavior agreement or labor relationship agreement.
 
Employers should consider
1. When handling labor relations involving shareholders, evaluate in advance whether it is necessary to allow shareholders to provide actual and paid labor to the company as employees at the same time, and make clear written agreements in advance.
2. The signing of labor contracts and the management of official seals should be strengthened, and designated personnel should be responsible for the registration of the seals to prevent shareholders from using their management power to sign labor contracts without authorization.

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