Authors: Tracy Liu / Lian Yuxiong
(This article was first published on China Business Law Journal column "Labor Law", authorised reprint)
As senior management shoulders multiple layers of duty including making and implementing corporate decisions, its members are simultaneously considered administrators and employees. In view of their special status, in labour disputes involving senior management members, the court often gives judgments more favourable to the employers. Hence, the identification of senior management members in such cases often become the focus of dispute.
Taking into account the court practice in Beijing and Shanghai, this article analyses the key to identifying senior management members in labour disputes and provides practical advice to employers.
WHY THE SPECIAL TREATMENT?
Given the dual identity of senior management members, courts in relevant labour disputes tend to seek a balance between protecting employee rights and safeguarding corporate operation and development. Generally, in the following types of cases, whether the party is identified as a senior management member could result in utterly different rulings:
In cases of non-competition, as senior management members are inherently subject to non-competition obligations, employers having proven the status of senior management need no longer provide evidence for the applicability of non-competition.
As most senior management members adopt flexible working hours, unlike average employees, they generally have no claim for overtime pay in working days or rest days. On the other hand, depending on the specific region, court may or may not support their claim for public holiday overtime pay. Such claim is usually denied in Beijing but supported in Shanghai.
Senior management members submitting questionably sealed documentary evidence will be liable to heavier burden of proof. In some cases, senior management such as the general manager, in an attempt to claim for overtime pay, would submit overtime record bearing the official company seal. However, this may incur heavier scrutiny from the court. Judging from the judicial practice in Beijing and Shanghai, in the absence of other supportive evidence, courts tend to deny the claim of the senior management member based on sealed documents alone.
It is improbable for a senior management member to successfully reinstate his/her employment. A senior management position, such as general manager or financial administrator, is unique and irreplaceable. With the senior management’s office occupied, even if the court finds his/her contract illegally terminated, any claim for reinstating his/her employment is generally denied. There is specific regulation for this issue in Beijing.
PROVING THE STATUS OF SENIOR MANAGEMENT
In labour disputes, proving an employee is in fact a senior management member could be accomplished mainly with the following approaches:
The first step is to prove that the employee is a senior management member as defined under the PRC Company Law or the company’s articles of association. Currently, the PRC Company Law stipulates that senior management shall include the company’s general manager, vice general manager and financial controller, board secretary of listed company and other personnel listed under the articles of association. The provisions under the Company Law and articles of association often serve as the primary basis of judgment for the courts, who also take into consideration the appointment and dismissal procedures.
Documents evidencing the senior management status often include relevant provisions under the articles of association, shareholder resolutions or board resolutions, letters of appointment, organisation charts, and employment or engagement contracts reflecting the employment/engagement of senior management. Employers should submit as many such documents as possible to prove and corroborate the employee’s status of senior management.
However, in many cases, the employer is unable to point to any provision under the articles of association or provide appointment or dismissal documents to prove that the employee is a senior management member as defined under the Company Law and the articles of association, which makes proving the status of senior management all the more challenging.
The key to resolving the dilemma is to prove that the employee in fact performs the functions of senior management. Based on cases in Beijing and Shanghai, we advise the employers to approach from the following angles:
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Proving that the employee performs internal functions of senior management. If the tasks performed by the employee involves decision-making and management on an administrative level, such as integrated management of financial and HR affairs in the company’s primary business or major projects, the court, when reviewing the status of senior management, will concentrate on whether the employee’s performance of such functions affects the overall interests of the company.
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Proving that the employee performs external functions of senior management. Employers may submit essential documents signed with external parties, such as contracts with clients, or application for relevant licenses or certifications bearing the signature of the employee, acting as the person in charge or authorised representative. Such documents will indirectly prove the status of senior management and improves the chance of such evidence being accepted.
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Proving that the employer and employee have reached an understanding on the senior management status. If the employer assigns senior management tasks to the employee, who then carries them out in the capacity of senior management, and such arrangement endures for some time, the senior management status could be established. This is often proven with documents such as internal email correspondence, resume of management and annual appraisal.
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Proving that the remuneration of the employee is at the level of senior management. If the employer manages to prove that the employee is compensated at the level of senior management in spite of the lack of a corresponding title, without any evidence to the contrary, the court may determine the employee to be a senior management member.
To sum up, we advise employers to specify the scope of senior management in the articles of association, improve the appointment procedure and, to the best of their abilities, obtain written confirmation from personnel performing senior management functions. Attention should also be given to the proper preservation of daily working documents in order to gain the vantage point in labour disputes involving senior management members.
