Case Study: Closing Down a WOFE in China/Employee Termination

Handling an employee lawsuit Misuse of authority by employee Cancelling the Corporate Chop Producing a new corporate chop

Employee termination is a process that is rarely straightforward and fraught with risks. Companies face an assortment of regulations as the “at will” employment concept in the U.S. clashes with “just cause” legislation and other rulings elsewhere in the world. Companies also need to watch out for the impact of anti-discrimination laws, national treaties, collective bargaining agreements, and privacy laws, among others. This case highlights the unpredictable dangers that a company can get sucked into and the importance of having the right partner to extricate out of a messy situation related to employment laws and employee rights.

This case highlights the unpredictable dangers that a company can get sucked into and the importance of having the right partner to get out of a messy situation related to employment laws and employee rights.

The client wanted to downsize its operations in China of about 10 -12 people and also terminate the manager of the WOFE. In the process, due to the soured relations, the manager who controlled the corporate chop* cancelled the banking chop, which was held by Nair & Co. and transferred a very substantial sum to his personal account from the local China account, claiming that the money was owed to him as termination payment.

Any document stamped by the corporate/company chop is deemed as approved by the company or an executive authority and is legally binding. In this case, the local manager was given the control of the corporate chop against our advise and, as the biggest hitch was that the corporate chop overrides the banking chop that we hold in safe custody for client, whoever holds the corporate chop can literally commit the company to any deal/transaction. To make a difficult situation worse, the bank which held the corporate account refused to honor any instructions from the head office (as they only recognize the new mandate created by the local manager) and to reveal to us as the client’s agents, the balance in the bank account. The remaining balance in the account was also in danger of being moved to another account.

The Solution

While Nair & Co. always recommends that the US parent control the corporate chop, in this case, client was persuaded by the manager who held the corporate chop. Nair & Co.’s team successfully mediated talks between the Chinese law firm dealing with the manager’s claims and was successful in settling the case and recovering the sum taken. Otherwise, the next step involved cancelling the original chop and producing a new corporate chop is a very lengthy and bureaucratic process in China.

*Corporate Chop: The company chop contains the registered name of the company and needs to be approved by the Public Security Bureau. An important incorporation procedure, a foreign-invested enterprise must produce this chop once the company has been registered with the Administration of Industry and Commerce. This chop is required when any important document is signed and the chop can provide legal authority when opening a bank account or altering the name or business scope of the company.