China: Employee Terminated for being Registered with Former Employer Ruled Unlawful

Authors: Carol Zhu and Yinbing Chen

Mr. Chen (“employee”) separated from his previous company and joined an environmental technology company (“company”) in June 2017. In November 2018, the company discovered that the employee was still registered as the responsible person of one branch office of the employee’s former employer and then terminated the employee with immediate effect. The employee believed that the registration records about him failed to be updated promptly and he had not involved with any business of his former employer since he joined the company. On this basis, the employee filed labour arbitration and litigation against the company and claimed compensation for wrongful termination. This case went through labour arbitration, first and second trial and a retrial by the Shanghai High People’s Court. Eventually, the Shanghai High People’s Court ruled in favor of the employee and found that the company’s termination was wrongful. The Court came to this decision based on the fact that (i) it was easy for the company to check company registration records, but the company failed to fulfill its duty of examination before the employee joined the company; and (ii) the company failed to prove that the employee had intentionally concealed his past work experience.

Key Action Points for Human Resources and In-house Counsel

An employer’s regulation of an employee’s existing or potential conflict of interest is an important part of employment management. However, in practice, determining an employee’s conflict of interest and then achieving a lawful employment termination are not easy tasks for employers. Thus, it is advisable for employers to consult legal professionals in cases relating to an employee’s potential conflict of interest and in order to receive the necessary support regarding compliance investigations, evidence consolidation and risk control.