China: Beijing Labour Arbitration Commission Supported Employer’s Termination of Senior Executive Hiding Conflict of Interest
Authors: Carol Zhu and Leon Li
On 1 December 2009, Mr. Yu joined an aviation information consulting company (the “Consulting Company”) as a financial manager. In June 2017, Mr. Yu began serving as the director and general manager of the company, becoming the company’s principal responsible person.
On 18 April 2016, Mr. Jia established a company in Shanghai (the “Shanghai Company”) and served as its legal representative. On July 10, 2018, Mr. Yu established a company in Beijing with the same name as the Shanghai company (the “Beijing Company”), and Mr. Yu was the legal representative and a shareholder holding 50%, as well as the executive director. Starting September 2018, the Shanghai company began to provide salary and human resource management services for the Consulting Company. It was found that in an email reply to an outsider on 1 July 2020, Mr. Yu recommended Mr. Jia and referred to Mr. Jia as his partner in Shanghai. The three parties communicated several times about the details of the cooperation.
In July 2019 and August 2020, the Consulting Company inquired about any conflict of interest through a Compliance Statement Questionnaire, but Mr. Yu did not disclose the aforementioned situation. On 30 April 2021, the Consulting Company terminated the labour contract with Mr. Yu.
Mr. Yu believed that he had not established a labour relationship with the Beijing company, and the Consulting Company’s termination was wrongful. Therefore, he filed an arbitration application, requesting the Consulting Company to pay the compensation of RMB 908,160 for the wrongful termination.
The focus of this case is whether the termination of the employment contract is legal.
The Employee Handbook and Code of Business Conduct and Ethics of the Consulting Company both explicitly require employees not to use company information for personal gain and stipulate the corresponding duty to inform. The arbitration commission believes that as a senior executive of the Consulting Company, Mr. Yu has significant influence over the company’s business management and operational decisions and should more strictly comply with the company’s rules and regulations. In his email to third party, he referred to the legal representative of the Shanghai Company as his partner in Shanghai, and the two companies use the same name. Although the current evidence is not sufficient to prove a legal connection between the Shanghai and Beijing companies, considering that Mr. Yu represented the Consulting Company in establishing a cooperative relationship with the Shanghai Company, Mr. Yu’s concealment of his position in the Beijing company is clearly inappropriate and has a high probability of violating regulations for personal gain. Therefore, Mr. Yu’s claim was dismissed.
Key Action Points
Compared to ordinary employee, senior management, in addition to having his or her qualification strictly defined, due to his or her position, have a crucial impact on the business decisions, operational development, and the future destiny of the employer.
This case indicates that senior management, in addition to his or her duty of loyalty and diligence to the employer, should also take the lead in exemplary compliance with the employer’s rules and regulations, and hold himself or herself to higher standards of discipline and professional ethics. Actions taken for personal gain at the expense of the employer’s interests will certainly be punished in arbitration. Besides bearing the legal consequences of having employment contracts terminated by the employer in accordance with the law, any income senior management obtains through breach of his or her duty of loyalty should be returned to the employer. If such actions constitute a crime, he or she will also be held criminally responsible.
