Judges say firms should be clear on equity incentive conditions

Judges in Beijing have urged employers to more clearly specify rules on equity incentives after witnessing a spike in disputes involving such employment perks over the past few years.

Data released on Friday by the Beijing No 1 Intermediate People's Court showed that it adjudicated 334 civil cases concerning equity incentives from January 2019 to March of this year. The number in 2020 increased by 135 percent compared with that in 2019.

Of the total, more than 90 percent involved enterprises in the field of science and technology as well in the internet and education sectors, said Li Jun, chief judge of the court's No 6 Civil Adjudication Tribunal.

People receiving incentive-related work packages were mostly technical talent and executives born between 1970 and 1985, many of whom worked for core departments of their enterprises, with higher salaries than other employees, Li said.

The average amount of money spent by both plaintiffs and defendants in common labor disputes is about 300,000 yuan ($43,000), "but the figure in equity incentive cases can reach 4 million yuan", he added.

"Therefore, it is important to better resolve such disputes to maintain the normal operations of companies involved, and it will also contribute to promoting healthy development of related industries and building a sound business environment in Beijing," he said.

On Friday, the court also publicized the details of eight high-profile cases involving equity incentives in order to help people enhance their awareness in dealing with such disputes.

In one such case, for example, an employer terminated an employee surnamed Kang in June 2020 after finding he accepted banquet invitations from suppliers and frequently sat for paid interviews on behalf of other companies.

Kang later filed a lawsuit, asking the employer to provide him with the equity rights worth 600,000 yuan that it had promised in a previous agreement. But the employer said such rights would be withdrawn if employees are terminated due to breach of contract or company rules of conduct.

"After the trial, the employer was victorious, and termination of Kang's labor contract was also identified as a lawful act," said Wu Bowen, a judge from the court.

Wu said Kang was let go due to serious violations of company policy, so he should abide by the agreement initially agreed to by both sides, in which equity rights will be invalidated if employees resign or are terminated due to various violations.

Both judges said that they have upheld the principle of providing equal protection to litigants while dealing with such disputes, "which is good to establish a harmonious relationship between employees and employers, as well as keeping economic and social development in order", Li said.

The court has also invited experts on labor-related laws to exchange ideas, with more research and seminars on the issue, he said, adding the move will be carried on.

"Enterprises should specify under what circumstances employees can be provided equity incentives and how to use or withdraw the equities while formulating and issuing relevant rules," Li added.

He also called for employees, especially those working for micro and small-sized science and technology enterprises, to raise their awareness of risk prevention.

"The best plan is to sign an agreement on equities or relevant rights with employers in written form."