A Beijing appellate court has expressed its view that a multinational employer’s equity plan for its employees constitutes an employment dispute, which would render it subject to Chinese law. This is the opposite position taken by the majority of courts and local labor arbitration commissions facing this issue. They have held that a multinational’s equity plan is not an employment dispute, which often resulted in the dismissal of the claim.
In China, where the currency is not freely convertible, the process for a publicly traded multinational corporation to grant equity or implementing stock purchase plans to its workforce in China is a cumbersome one. Once the plan is registered, most multinationals assume that the agreement that governs their equity plans, often under Delaware law for US-listed multinationals, will equally apply to the equity that is granted to or purchased by their employees in China.
However, the law and rules administering the offshore equity issued in China is not settled. Notably, the question of whether a multinational’s equity plan is a contractual dispute and not an employment-related dispute that would fall under the purview of the local labor arbitration commission (the mandatory first step dispute mechanism for the majority of labor and employment disputes in China) and whether the equity plan can be governed by foreign law have been largely open issues under Chinese law, seemingly until now.
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