Equity incentive schemes, a key tool in corporate management, have recently sparked a significant increase in legal disputes. The determination of such disputes carries substantial procedural consequences: labour disputes follow a one-arbitration, two-level appeal system, while non-labour disputes adhere to a two-tier trial system or contractual arbitration arrangements.
This determination also shapes judicial philosophy, forcing courts to balance worker protection against respect for contractual autonomy. As such, whether equity incentive disputes should be treated as labour disputes has become a contentious issue in judicial practice.
Amid significant controversy, article 1 of the Supreme People’s Court’s Draft Interpretation (II) on Several Issues Concerning the Application of Law in Labour Dispute Cases stipulates: “Disputes arising from employers granting equity incentives as labour remuneration under employment relationships – where employees claim the equity incentives or compensation for related losses – shall constitute labour disputes, excluding those arising solely from exercising share rights.”
However, this judicial interpretation remains in draft form, without legal effect so far. In judicial practice, the determination of equity incentive disputes as either labour or civil and commercial disputes remains unresolved. Drawing on practical experience, the authors analysed nearly 800 judgments from Beijing, Shanghai, Guangzhou and Shenzhen courts between 2022...
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