Case Introduction: Xiang was hired by Internet Company A on August 1, 2013, as a department manager. Both parties signed an open-ended labor contract. According to the "Employee Handbook" acknowledged by Xiang, employees are prohibited from taking on secondary employment without the company's written approval. Violation is considered a serious breach of company rules, granting the company the right to terminate the labor contract immediately. On August 31, 2018, Xiang signed a "Declaration Letter," pledging to report immediately to the company if engaging in any external activities that might cause a conflict of interest. In September 2020, Company A's integrity department discovered that from February 2017 to July 2020, Xiang had served as the executive director, legal representative, and shareholder of an external Company C, whose business scope overlapped with that of Company A. On November 23, 2020, Company A terminated Xiang's labor contract on the grounds of serious violation of company regulations. Xiang's average monthly salary for the 12 months prior to departure was 27,000 yuan. In February 2021, Xiang applied for labor arbitration, demanding that Company A pay compensation for unlawful termination of the labor contract. The arbitration commission rejected the claim. Xiang appealed the decision and filed a lawsuit.
Controversial Focus: Did Internet Company A have sufficient factual and regulatory grounds for terminating Xiang's labor contract? Xiang argued that he was merely holding shares on behalf of his classmate, Huang, and that the two had a shareholding agreement. He claimed that Company C did not conduct actual internet-related business and caused no harm to Company A, therefore the termination was unlawful. Huang testified in court, stating that he was the actual controller of Company C and had asked Xiang to serve as legal representative because a previous company where he had served as legal representative had its business license revoked. Company A disputed the credibility of the witness testimony, citing the clear interest relationship between Huang and Xiang. The company argued that Xiang, aware of the regulatory requirements, failed to truthfully report his external position, thereby violating the "Employee Handbook" and the commitments in the "Declaration Letter," constituting serious misconduct and making the termination lawful.
Court Ruling: According to Article 6 of the Labor Dispute Mediation and Arbitration Law, Xiang bore the burden of proof for his claim of "not violating company regulations." The court found a clear interest relationship between Huang and Xiang, and with no corroborating evidence, the testimony was not accepted. The court determined that Xiang, aware of the overlapping business scopes of the two companies, intentionally failed to report the situation as required by the "Code of Ethical Conduct," constituting deliberate concealment. While the act fell within the scope of company law, the potential harm to the employer was greater than that of ordinary secondary employment, constituting a serious violation of company rules and the duty of good faith. According to Article 39 of the "Labor Contract Law of the People's Republic of China," an employer may terminate a labor contract if the employee: (1) is proven during the probation period not to meet the recruitment conditions; (2) seriously violates the employer's rules and regulations; (3) commits serious dereliction of duty or practices graft, causing substantial harm to the employer; (4) establishes a labor relationship with another employer, which seriously affects the completion of their tasks, or refuses to rectify the situation after the employer's request; (5) causes the labor contract to be invalid due to circumstances stipulated in the first paragraph of Article 26; or (6) is investigated for criminal liability according to law.
Adjudication Result: The arbitration commission dismissed Xiang's claim. Both the first-instance and second-instance courts upheld this result.
Case Analysis: The core legal basis for the lawful termination of the labor contract is Article 39 of the "Labor Contract Law." Xiang's actions constituted a serious violation of company regulations and the "Code of Ethical Conduct," making Company A's termination a lawful act. A special reminder for job seekers: Senior personnel have a higher duty of loyalty. Any external positions that may cause a conflict of interest must be proactively and truthfully reported to the company. "Shareholding on behalf of others" or "no actual business operations" cannot serve as grounds for exemption from liability. The act of concealment itself constitutes serious misconduct.
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