As senior management shoulder multiple layers of duty that include making and implementing corporate decisions, its members are simultaneously considered administrators and employees. In view of their special status, courts in labour disputes involving senior management often give judgments more favourable to the employers. Hence, the identification of senior management members in such cases often becomes the focus of dispute.
Taking into account court practice in Beijing and Shanghai, this article looks at the key to identifying senior management members 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 operations and development. Whether the party is identified as a senior management member could result in utterly different rulings:
- 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 non-competition to be applied.
- As most senior management members adopt flexible working hours, unlike average employees, they generally have no claim for overtime pay in working days or otherwise. On the other hand, depending on the specific region, courts may or may not support their claim for public holiday overtime pay. Such claims are usually denied in Beijing but supported in Shanghai.
- Senior management members submitting questionably sealed documentary evidence will be liable to a heavier burden of proof. In some cases, senior management such as the general manager, in an attempt to claim overtime pay, would submit overtime records 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 supporting 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 their contract illegally terminated, any claim for reinstatement is generally denied. There is specific regulation for this issue in Beijing.
PROVING SENIOR STATUS
The first step is to prove that the employee is a senior management member as defined under the Company Law or the company’s articles of association. The Company Law stipulates that senior management shall include the company’s general manager, vice general manager and financial controller, board secretary of a 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, which also take into consideration appointment and dismissal procedures.
Documents providing evidence of 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 as a member 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 this is to prove that the employee in fact performs the functions of senior management. Based on cases in Beijing and Shanghai, we advise employers to approach this task from the following angles:
- Prove that the employee performs internal functions of senior management. If the tasks performed by the employee involve 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 will focus on whether the employee’s performance of such functions affects the overall interests of the company.
- Prove 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 licences 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 improve the chance of such evidence being accepted.
- Prove 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 arrangements endure for some time, senior management status might be established. This is often proved with documents such as internal emails, annual appraisal records or a CV.
- Prove 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, the authors advise employers to specify the scope of senior management in the articles of association, improve appointment procedures 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 best vantage point in labour disputes involving senior management members.
Tracy Liu is a partner and Larry Lian is a counsel at Jingtian & Gongcheng
45/F, K. Wah Centre
1010 Huai Hai M. Road
Shanghai 200031, China
Tel: +86 21 2613 6125