Deal with the Employment Conflict of Interest

Wang is the customer service manager of Company A. Her husband registered Company B, and Wang was one of the shareholder. Company B sold wallpaper to Company A. Later, Company A dissolved the labor contract with Wang with the reason of conflict of interest, which says that Wang failed to declare that Company B had business with the company, and this behavior had violated the “Employee Handbook” regarding an employee shall not cheat the company, such as, to encroach the company’s property, accept bribes, or fraud. Wang insisted Company A had illegally dissolved the labor contract.

In this case, the court held that Company A failed to stipulate that an employee shall declare that he or his family member has transacted with the company in the “Employee Handbook” or the labor contract, so it is difficult to determine Wang had cheated the company. In addition, the “Company Law” has stipulated that only the directors and senior management staffs should not transact with the company. Wang is the customer service manager, which shall not be deemed as the senior management staffs. Finally, the court judged that Company A had dissolved the labor contract illegally.

Wang’s behavior shall be defined as an employment conflict of interest behavior, but whether such behavior shall be punished? The employment conflict of interest refers to employee’s personal interest has conflict with his employee’s responsibilities or his employee’s status. The normal situations include: (1) to be hired by other employers, e.g. a part-time job, or horizontal competition and so on; (2) interested parties are hired by other employers, e.g. close relatives (spouse, children, parents, brothers and sisters); (3) the abuse of confidential information, such as to disclose the enterprise’s trade secret to other enterprises; (4) the illegal relationship with vendors, e.g. bribery. The “Labor Contract Law”, “Company Law” and other laws and regulations have regulated partial of the above situations. However, enterprises shall establish a reasonable conflict of interest management system, and a clear implementation system based on its actual conditions.

In general, enterprises could take actions from the following aspects.

Firstly, to clearly stipulate the behaviors and punishments for the employment conflicts of interests in the internal rules and regulations. The main content include: (a) to clearly define the relevant behaviors. It is recommended to list some specific behaviors and a fallback provision. (b) to designate the responsible department or personnel in handling such behaviors. (c) to set the consequences of such behaviors. For example, the company could give warning to the employee, downgrade the employee’s position, or dissolve the labor contract with the employee, and so on. If Company A has stipulated the above contents in its internal rules and regulations, then it is very possible for the court to support the company. In addition, in case Company A did not have such regulations, if it dissolved the labor contract with the reason that the employee should obey the labor discipline and professional ethics obligations in accordance with the “Labor Contract Law”, it might be supported by the court as well.

It is shall be highlighted that enterprises shall pay special attention to the democratic procedures of those internal rules and regulations. The democratic procedures include a democratic consultation, and publicity/notification. It would be better to require employees to sign after acknowledging the relevant rules and regulations.The democratic procedures could prove that the enterprises have notified employees.

Secondly, to establish the conflict of interest declaring system. In order to prevent risks, it is recommended to require employees to declare existing or potential conflict of interest related to himself or his interested parties timely, truthfully and comprehensively. It is also recommended to punish those employees who failed to declare as required case by case.

Thirdly, to encourage the internal tip-off. It is very difficult for enterprises to collect evidence on the behaviors related to bribery, rebate, because such behaviors are conducted by the employees and third parties under the desk. It is recommended to establish a comprehensive internal tip-off system. If an employee found his colleagues have violated the regulations on the conflict of interest, the employee could report to the designated department by telephone or email and etc..