The “Company Law of the People’s Republic of China” (effective July 1, 2024) (hereinafter “New Company Law” or “Company Law”) has absorbed成熟 experience and made significant revisions to the rules governing directors, supervisors, and senior management (hereinafter “senior management”) (collectively “officers”). This series of articles will systematically review the legal application issues concerning senior management under the New Company Law in conjunction with judicial practice, for practical reference. This article focuses on the potential legal risk prevention and control for senior management resignation.

I. Legal Provisions and Analysis on Senior Management Resignation

Article 67(2)(8) of the New Company Law provides that the board of directors exercises the power to decide on the appointment and dismissal of the company’s manager and their remuneration, and to decide on the appointment and dismissal of the company’s deputy manager and财务 officer based on the manager’s nomination. Article 74(1) of the New Company Law further clarifies that “a limited liability company may have a manager, to be appointed or dismissed by the board of directors.” Articles 120 and 126 of the New Company Law contain provisions for joint stock companies that are essentially consistent with those for limited liability companies.

Under the above rules of the Company Law, the board of directors can促使 senior management to resign by dismissal. However, the board’s dismissal does not necessarily result in the senior management’s departure. Because senior management has a dual status under both company law and labor law, the board’s dismissal of senior management falls within the scope of company autonomy. Once the dismissal resolution is made, it has the legal effect of removing the senior management from their position. From the perspective of labor law, the board’s dismissal of senior management constitutes a change in their job position. However, the senior management’s job position was determined at the time of signing the labor contract. According to Article 35 of the Labor Contract Law, “where the employer and the worker mutually agree through consultation, the content of the labor contract may be changed.” If no agreement on changing the labor contract is reached, the senior management can only be made to leave through termination of the labor contract. According to Articles 36 to 41 of the Labor Contract Law, senior management resignation includes: resignation by mutual agreement, voluntary resignation, constructive resignation, dismissals for cause, dismissals without cause, and economic layoffs. In situations where the employer is the active terminating party, dismissals without cause and economic layoffs both require specific facts to occur. Employer-initiated termination under Article 39 of the Labor Contract Law requires certain misconduct by the worker. The above provisions of the Company Law and labor law create a conflict between the no-cause nature of dismissing senior management at the Company Law level and the for-cause nature of terminating labor relations at the labor law level, as well as a conflict between the variability of senior management positions at the Company Law level and the fixity of labor contract positions at the labor law level.

The no-cause nature of dismissing senior management at the Company Law level is reflected in the fact that as long as the board’s resolution on dismissing senior management meets procedural requirements (e.g., meeting convening procedures, voting methods) and does not violate laws, regulations, or the company’s articles of association, it has the effect of dismissal. There is no need to review whether there is a reason for the dismissal or whether the reason is reasonable. However, from the labor law level, terminating the labor relationship with senior management requires reasons that comply with legal provisions. Otherwise, the company constitutes illegal termination and bears compensation liability for illegal termination. Article 39 of the Labor Contract Law specifies the reasons for lawful termination of the labor relationship with senior management. The problem is that the company’s dismissal of senior management may be based on commercial considerations such as strategic adjustments or operational conditions, or may result from the senior management’s violation of fiduciary duties under the Company Law. Whether the company’s dismissal of senior management based on strategic adjustments or operational conditions, or直接 abolition of the senior management position, can be recognized as a “significant change in the objective circumstances relied upon at the time of conclusion of the labor contract” under Article 40 of the Labor Contract Law is controversial—some precedents support this, while others oppose it. Furthermore, the rules of the Labor Contract Law are more designed to protect workers without considering that senior management are both workers and managers. The six situations under Article 39 of the Labor Contract Law apply to pure workers, based on obligations arising from worker status. However, for senior management, in addition to worker obligations, their obligations as managers are not included. Senior management, as managers, have fiduciary duties. The violation of fiduciary duties by senior management should also be included as a ground for lawful termination of the labor contract by the employer. Only then can the no-cause nature of dismissing senior management under the Company Law be coordinated with the for-cause nature of terminating the labor relationship under the labor law. The no-cause nature of dismissing senior management under the Company Law would decompose into three aspects at the labor law level: first, if malicious, it constitutes illegal termination under the labor law; second, if genuinely based on objective commercial adjustments, it constitutes termination due to “significant changes in objective circumstances”; third, if the senior management has statutory misconduct, it constitutes lawful termination. Currently, until the law is amended to include senior management’s breach of fiduciary duties as a lawful ground for termination, employers can only rely on transforming the fiduciary duties of senior management as managers under the Company Law into grounds for lawful termination under the labor law through company rules and regulations or agreements. The conflict between the variability of senior management positions under the Company Law and the fixity of labor contract positions under the labor law should also be addressed through design when first entering into the labor contract.

II. Potential Legal Risks and Prevention for Voluntary Resignation of Senior Management

Senior management typically possess management or technical skills. Their voluntary resignation is often due to job-hopping or starting their own business. For the company, voluntary resignation saves the hassle of economic compensation/compensation, etc. However, because senior management are privy to company business information or master trade secrets, they become key targets for the company. The potential legal risks arising from resignation require high attention and prevention, mainly reflected in the following aspects:

(1) Legal Risks and Prevention of Trade Secret Infringement

When a senior manager job-hops to another company or starts their own business, the key concern is avoiding using the former company’s trade secrets as a “letter of introduction” to the new company or as the “original driving force” for starting a business. In China, trade secret protection is provided in several different legal departments. The “Provisions of the Supreme People’s Court on Several Issues Concerning the Adjudication of Civil Cases Involving Infringement of Trade Secrets” and the understanding and application of this judicial interpretation provide relatively detailed provisions on the identification of trade secrets. Article 219 of the Criminal Law provides for the crime of infringing trade secrets. The “Decision of the Supreme People’s Procuratorate and the Ministry of Public Security on Amending the Standards for Filing and Prosecuting Criminal Cases of Trade Secret Infringement” further lowers the threshold for criminalization of trade secret infringement. Article 10(3) of the newly revised “Anti-Unfair Competition Law” (effective October 15, 2025) provides: “Where a third party knows or should know that an employee, former employee, or other person of the trade secret right holder has committed any of the illegal acts listed in paragraph 1 of this article, yet still acquires, discloses, uses, or allows others to use the trade secret, this shall be deemed as infringing the trade secret.” Under this provision, if a senior manager discloses trade secrets to the new company, it can easily implicate the new company in unfair competition. Additionally, Article 23(1) of the Labor Contract Law provides: “The employer and the worker may agree in the labor contract to keep confidential the employer’s trade secrets and intellectual property-related confidential matters.” Leaking secrets or unauthorized use of trade secrets when job-hopping or starting a business naturally constitutes a breach of confidentiality obligations. Although it is difficult to pursue liquidated damages based on confidentiality agreements (labor law limits liquidated damages recoverable from workers to two specific situations), the breach of confidentiality obligations provides a basis for pursuing the senior manager’s criminal liability and the new company’s liability for unfair competition. At the same time, while liquidated damages for breach of confidentiality are difficult to recover based on labor law protection, after the senior manager leaves and ceases to be a worker, the former company can claim damages for trade secret infringement based on the Civil Code.

(2) Legal Risks and Prevention of Violating Non-Compete Obligations

Article 148 of the 2018 Company Law (hereinafter “Old Company Law”) provides that directors and senior management shall not engage in the following acts: (5) without the consent of the shareholders’ meeting or shareholders’ general meeting, using their position to obtain business opportunities belonging to the company for themselves or others, or engaging in business of the same type as the company they serve for themselves or for others. Article 184 of the New Company Law changes the non-competition rules under the Old Company Law: regarding subjects, supervisors are newly added to the scope of non-competition; regarding exemption, the Old Company Law’s requirement of “consent from the shareholders’ meeting” is changed to a model of “report to the board of directors or shareholders’ meeting + resolution passed by the board or shareholders’ meeting (as determined by the company’s articles of association)”. On one hand, whether non-competition is prohibited is more a matter of company autonomy; on the other hand, once violated, the liability is加重ed. The Criminal Law Amendment (XII) effective March 1, 2024, added a second paragraph, extending the criminal subject of the crime of illegal operation of similar business under Article 165 of the Criminal Law to directors, supervisors, and senior management of non-state-owned enterprises. This means that directors, supervisors, and senior management of private enterprises who use their position to engage in the same type of business as their company for themselves or others may face not only civil liability but also criminal liability, which deserves high vigilance.

Connecting with the above provisions regulating senior management’s in-service conduct, Articles 23, 24, and 25 of the Labor Contract Law provide for non-compete obligations after senior management’s resignation. Compared with the relevant provisions of the Company Law and Criminal Law, the application subjects of non-compete under the Labor Contract Law extend beyond senior management to senior technical personnel and others with confidentiality obligations; the prohibited conduct includes “production” activities; the scope extends to “similar products.” Non-compete agreements may provide for liquidated damages. Their application is subject to the limitation of monthly economic compensation during the non-compete period and a maximum period of two years. If a senior manager has signed a non-compete agreement but fails to comply upon resignation, they face the legal risk of bearing liquidated damages.

(3) Legal Risks and Prevention of Patent Infringement

Article 6 of the Patent Law provides: “An invention-creation made in the execution of the tasks of the entity or mainly by using the material and technical conditions of the entity is a service invention-creation.” Article 13(1)(3) of the Implementing Regulations of the Patent Law provides that service invention-creations made in the execution of the tasks of the entity as referred to in Article 6 of the Patent Law include: “invention-creations made within one year after retirement, transfer from the original unit, or termination of labor or personnel relations, which relate to the work the inventor was engaged in or the tasks assigned by the original unit.” Technical senior management should particularly note that if invention-creations made within one year after resignation have a strong correlation with the original company’s work or assigned tasks, they may be deemed service inventions, with the patent rights belonging to the former company. Using them without authorization may constitute patent infringement.

(4) Legal Risks and Prevention of Terminating Original Positions and Labor Relations

For senior management who are job-hopping to a new company, severing legal ties with the former company is particularly important. To prevent legal risks, the new company typically conducts background checks on new hires and requires them to provide a resignation certificate from the former company. When resigning, senior management face a certain degree of negotiation with the former company. Peaceful communication and proper completion of work handover for mutual benefit would be ideal. However, in practice, disputes between senior management and the former company upon resignation are not uncommon. The former company may refuse to issue a resignation certificate or delay removing the senior management from their positions in the company. As long as the senior management position or legal representative status at the工商 registration level remains unchanged, the external public notice effect continues, and the senior management bears corresponding external legal liability. Therefore, upon resignation, senior management should ensure the removal of their original positions to avoid potential legal risks. If the former company delays issuing a resignation certificate, according to Articles 50 and 89 of the Labor Contract Law, the senior management may file a complaint with the labor inspection brigade or initiate labor arbitration to achieve their claim.

III. Potential Legal Risks and Prevention of Dismissing Senior Management

Apart from the voluntary resignation discussed above, mutual agreement resignation is relatively uncontroversial. Dismissals without cause and economic layoffs require specific facts to occur, and if such facts exist, they do not usually cause much controversy. The situation of constructive resignation by the worker under the Labor Contract Law is more difficult to occur with senior management. Conversely, when the company unilaterally dismisses senior management, it is highly likely to trigger strong confrontation between the parties, creating potential legal risks that need to be prevented and controlled in advance.

(1) Legal Risks and Prevention of Court Orders to Continue Performance of Labor Contracts

Regardless of the reason for dismissing senior management, the company’s core objective is to end the labor relationship with the senior manager. However, Article 48 of the Labor Contract Law provides: “Where the employer terminates or rescinds the labor contract in violation of this Law, and the worker requests continued performance of the labor contract, the employer shall continue to perform.” This means that if the company is ordered to continue performing the labor contract after deciding to dismiss the senior manager, this constitutes a significant legal risk for the company. On one hand, the company usually has made a series of arrangements after dismissing the senior manager; an order to continue performance would disrupt the company’s original plans. On the other hand, the relationship after reinstatement becomes delicate, with inevitable mutual suspicion and internal friction. Therefore, for the company, while the board’s dismissal of senior management under the Company Law does not require any reason, different reasons for dismissal produce different effects under the labor law. This serves as a warning that companies cannot dismiss senior management arbitrarily. Where the basis of mutual trust for continued performance of the labor contract has not been lost, dismissal should be approached with particular caution.

In judicial practice, confrontation between the parties in court is not necessarily recognized by the court as a ground for loss of mutual trust. Where the facts and reasons for dismissing senior management are not accepted by the court, the company’s claim that the parties have lost their basis for mutual trust based on those facts and reasons is unlikely to receive court support. When assessing whether the basis for trust for continued performance has been lost, the following factors may be considered: First, the length of the senior manager’s tenure, to determine whether a trust relationship has been established. Second, the duration, scope, and intensity of the conflict between the senior manager and the company, serving as reference for whether the trust relationship has broken down: if the conflict has lasted for a long period, involves multiple disputes beyond the labor dispute, or is particularly尖锐 (such that reinstatement would likely lead to another dismissal), the court is more likely to find the trust basis has been lost. Third, the degree of the senior manager’s willingness to continue performing the labor contract. If the senior manager’s claim for continued performance is merely a bargaining chip to obtain greater benefits rather than a genuine desire to contribute to the company’s operation and development, the court will consider the impact of continued performance on the company’s overall operation and development in determining whether trust has been lost. The senior manager’s willingness can be assessed comprehensively based on whether they have expressed resignation intentions or submitted resignation documents, or refused the company’s request for continued performance. In summary, before dismissing senior management, the company should, in light of the above analysis, collect evidence in a targeted manner to reduce the risk of being ordered to reinstate the labor relationship.

(2) Legal Risks and Prevention of High Compensation/Damages

The company’s dismissal of senior management is not usually a whim but often reflects the company’s dissatisfaction with the senior manager, especially when the senior manager has engaged in disciplinary or illegal conduct. In such cases, dismissing the senior manager becomes an urgent need for the company. However, if the company, after obtaining clues about disciplinary or illegal conduct, takes hasty dismissal action without conducting a professional investigation to lock down the facts and preserve evidence, it not only fails to hold the senior manager accountable but may instead face the被动 situation of being ordered to pay high compensation/damages. Dismissing senior management may simultaneously trigger disputes over damage to company interests, labor disputes, and equity disputes. These types of disputes are interrelated,交叉, and mutually影响, with significant complexity. Handling them requires comprehensive consideration and precise planning. Where the company claims the senior manager bears liability for damage to company interests, the senior manager often simultaneously initiates labor arbitration, claiming the company’s dismissal was illegal and demanding high amounts in compensation, equity incentives, bonuses, etc. One misstep could lead to total failure, posing significant legal risk. Therefore, even if the senior manager has engaged in disciplinary or illegal conduct, the company should not act rashly or impulsively when dismissing them. Before dismissal, the company may engage professional lawyers to assist in guiding evidence collection, fixing evidence, and following procedures to prepare for potential disputes later.

(3) Legal Risks and Prevention of Refusal to Surrender Company Assets

Senior management, as company managers, often have control over important company assets such as the company seal, contract seal, finance seal, financial books, bank chops, business license, special operating permits, and key business contracts. Where the company dismisses senior management, there is a legal risk that the senior manager may refuse to return company assets, thereby hindering the company’s business operations.

Therefore, companies should establish routine internal control systems, including the segregated management of important company assets by multiple persons, regular更换 of management personnel, and strict application and usage systems for the company seal and related stamps. Additionally, before dismissal, the company should use lawful means and reasonable grounds under company law to obtain control of important company assets without alerting the senior manager, retaining necessary leverage as needed to constrain the senior manager’s conduct and mitigate such legal risks.

This article starts from the legal provisions on senior management resignation and, based on the types of resignation, sorts out common legal risks under different types and proposes corresponding prevention requirements for practical reference. Senior management resignation involves many aspects, and the potential legal risks are diverse. Due to space limitations, this article does not展开 further and awaits continued exchange and discussion in the future.