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Ten Typical Cases of Labor Disputes With Senior Executives (Ⅷ)


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 8: Senior Executives Causing Losses by Committing Fraud Can Be Dismissed
In 2015 Huai joined a company as Sales Director and on November 6, 2017, the two parties terminated the labor relationship. The company issued a notice of termination of the labor contract to Huai, which stated that the legal representative of one of the company’s clients in Shenyang was Huai’s wife. The price of the goods in the sales contract handled by Huai was lower than the market price, which violated the Statement of No Conflict of Interest signed with the company. Huai sued on the grounds that the company illegally terminated the labor contract. The court determined that the sales between Huai and the company in Shenyang violated professional ethics and is therefore proper for the company to dismiss him.
Judge Interpretation
During business management, Senior Executives have decision-making powers on business execution and transactions of the employer. This can easily lead to Senior Executives using their positions to seek improper benefits from trading opportunities and commercial interests. If Senior Executives commit fraud for personal gains which causes damage to the company, the labor contract can be terminated without paying compensation. Where relevant actions cause losses to the company, the Senior Executive shall also be liable for compensation.
Lawyer's suggestions
In the practice of human resource management, there can be a conflict of interest between the employees, or their close relatives, and the company's interests. The most common examples are: creating a company or doing part-time work; providing paid or free support or services to other companies; illegal benefits through close relatives, etc. Because the interests of the two parties are confronted in some form, it may cause actual damage or losses to the company's interests. Based on the particularity of their role, Senior Executives are more likely to have conflicts of interest with the company and use their powers for personal gain.
It is recommended that the company considers the following aspects to prevent conflicts of interest and fraud.
1. Clearly define what constitutes a behavior of conflict of interest in the labor contract or company’s rules, including the scope of shareholders and definition of behavior of conflict of interest, etc.;
2. Establish a disclosure system for important matters of conflict of interest in the labor contract or company’s rules, and clarify the consequences of not fulfilling the disclosure obligation;
3. Clarify the powers and restrictions of Senior Executives to avoid a single Senior Executive deciding all matters, such as important matters, decision involving matters above a certain amount of value, and approval authority, etc.;
4. Implement the company’s rule on avoiding conflict of interest, supervision of Senior Executive authority and accountability in accordance with democratic procedures. Strengthen the compliance training of related matters
5. Once employees are found to have conflicts of interest or fraudulent practices, timely establish the evidence;
6. Be careful to investigate and exercise the right to terminate the labor contract within a reasonable time limit.

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