Liu was originally a management personnel of Kaiyuan Tourism and joined Zhuji Tongfang Real Estate Co., Ltd. (hereinafter referred to as Tongfang Company) in June 2012. On June 20, 2012, with Tongfang Company as the first party and Liu as the second party, a "Equity Incentive Agreement" was signed. The content is as follows: Given that the second party has a stock option of RMB 3 million in the original unit of Kaiyuan Tourism Group, and it is expected to be listed at the end of 2015, both parties, on an equal and voluntary basis, have fully negotiated and provided equal value incentives to compensate them. Now, the following agreement is reached regarding the relevant situation: The second party must have worked and served for the 5th anniversary at the branch of Haosheng Hotel in Zhuji, Tongfang of the first party; 2、 The incentive provided by Party A to Party B shall be granted in an average of five installments, and a written confirmation shall be issued.

On August 12, 2014, Tongfang Company issued a notice of termination of labor relations to Liu, who requested payment of wages and the redemption of equity incentives. Tongfang Company claimed that equity incentives were not within the scope of labor disputes. This case was brought to the first instance court, which held that, given that Liu was originally a management personnel of Kaiyuan Tourism, the same company had made multiple efforts to invite Liu to serve and promised Liu the same equity treatment as the original unit on the premise of achieving business goals. On the day after signing the labor contract, an equity incentive agreement was signed. It can be seen that the starting point is to obtain the opportunity for Liu to provide labor for the same company. Equity incentive is essentially a management behavior and compensation distribution behavior of employers, which is attached to labor relations and arises. Therefore, equity incentive disputes belong to labor disputes and can be resolved in this case.

The same company was dissatisfied with the determination of the first instance court and appealed to the second instance court. The second instance court held that the "Equity Incentive Agreement" in this case is an agreement between the appellant and the appellant to seek the opportunity for the appellant Liu to work at the appellant's office. Based on the relevant matters of the "Labor Contract", and through equal and voluntary negotiations, the appellant is willing to provide compensation equal to the value of the appellant's original unit, Kaiyuan Tourism Group. This agreement is based on the labor relationship between the appellant and the appellant, There is an inseparable connection between the labor relationship between the two parties, which is the incentive and compensation voluntarily provided by the appellant to introduce senior management talents. It should be considered as an additional remuneration in addition to the basic salary for the appellant Liu to work at the appellant's office, and therefore should also fall within the scope of labor dispute review.

During his work in Fuanna Company, Peng subscribed shares from Fuanna Company. During the exercise period, Fuanna Company converted employees' Restricted stock into ordinary shares due to the change of development strategy, and signed a corresponding agreement and a Letter of Commitment with Peng, in which liquidated damages were stipulated. Peng has two legal relationships with FuAnna Company. One is based on his identity as a laborer and forms a labor contract relationship with FuAnna Company. The other is based on his subscription of FuAnna Company's shares to become a shareholder of FuAnna Company, forming a shareholder company relationship with FuAnna Company. In this case, FuAnna Company claims that Peng violated the provisions of the "Commitment Letter" issued by him on March 20, 2008, Request Peng to pay liquidated damages and related interest.

The court believes that from the statement in the "Commitment Letter" that "I, Peng, am a shareholder of FuAnna Company. As of the signing date of this commitment letter, I hold 27700 shares of the company. Considering that I am serving in the company and obtained the aforementioned shares on favorable conditions," Peng made the commitment based on FuAnna Company granting him the qualification to purchase shares as a shareholder, Granting Peng the qualification to purchase shares is not the obligation of FuAnna Company as an employer. Although the statement in the "Commitment Letter" regarding "not resigning in writing to the company and not being absent for 7 consecutive days" refers to the labor discipline that workers should abide by, this is not a commitment made by workers to obtain job opportunities. The commitment content is not a supplement to the labor contract between FuAnna Company and Peng, but a commitment made after Peng obtained the qualification to purchase FuAnna Company's stock at a discounted price, That is, on the one hand, Fuanna Company will give Peng the qualification to purchase shares at a preferential price, on the other hand, it will also impose certain restrictions on Peng's behavior. Peng made certain commitments while confirming the conversion of his Restricted stock into ordinary shares. It is a commitment made by shareholders to the company based on the purchase of shares. Peng will exchange his commitment for stock returns, so Fuanna Company and Peng are ordinary contract disputes between the company and shareholders, For non labor contract disputes, to determine whether the content of the "Commitment Letter" complies with legal provisions, the "Contract Law" and "Company Law" should apply, rather than the "Labor Contract Law". Finally, the court ruled that the above-mentioned "Commitment Letter" was legal and valid based on relevant provisions of Contract Law and Company Law.

The adjustment of labor law is related to labor relations and other social relations closely related to labor relations. It is the unity of labor protection and labor supervision, reflecting the mixed nature of public law and private law. The restrictive provisions in the Labor Law on employers' unilateral exercise of the right to terminate labor contracts reflect the active intervention of the state in labor relations. The adjustment object of the Company Law is mainly the social relationships that occur during the establishment, organization, operation, or dissolution of a company. It reflects the organizational and management relationships within the enterprise, stipulating the corresponding rights and obligations enjoyed by the company and senior management personnel based on the Company Law, and highly reflecting the principle of autonomy of the civil law. In cases mainly involving labor disputes, regarding the handling of the equity incentive part, first of all, it is necessary to determine whether the equity incentive part belongs to the scope of the labor dispute review in the case, which determines whether the company law or labor law is applicable to the handling of this part of the dispute.

From Case 1, it can be seen that both the first and second instance courts have considered the starting point for signing the Equity Incentive Agreement, and have identified the purpose and background of signing the agreement as the key to determining the nature of the dispute.

For Case 2, the different determination of whether Peng is a worker or a shareholder will directly lead to the opposite judgment result, and ultimately the legal relationship in this case will be determined as a civil legal relationship rather than a labor contract relationship. It is worth noting that when the incentive stock was converted from restricted stock to ordinary stock, Peng had already confirmed his shareholder status. Therefore, we believe that if the equity incentive is given to real shares, a penalty can be agreed upon as a shareholder. But if it is a restricted stock or stock option that has not yet been unsealed, given the unclear identity of the shareholder, the exercise can only be prohibited, and there is no way to agree on a penalty for breach of contract.

There is no unified judicial view in China on whether to include equity incentive disputes in the scope of labor disputes. Similarly, in labor disputes involving equity incentive disputes, the courts in the two cases have made different determinations. In practice, the courts will comprehensively consider factors such as the background and purpose of signing equity incentive agreements.

After the equity incentive dispute between the company and employees occurs, the definition of the nature of the equity incentive dispute is of great significance to both the company and the employees. From the above two cases, it can be seen that the background and purpose of signing the Equity Incentive Agreement are particularly important.

For companies, when designing equity incentive plans, the purpose and background of equity grants should be considered, and appropriate timing and background should be selected to provide equity incentives to employees. Enterprises should use equity incentives as a means of retaining and motivating talent, rather than as the main means of attracting talent. Therefore, if there are other ways to attract talent, equity incentives should be avoided as a means of attraction as much as possible. In addition, if the Company cancels the ban on Restricted stock in advance during the exercise period, it shall make an agreement on this and sign a Letter of Commitment with the incentive objects.

For employees, pay attention to whether there is an equity incentive in the talent introduction conditions offered by the employer. If they join the company out of their desire for equity incentives, they should clarify the nature and significance of the Equity Incentive Agreement with the employer. In case of disputes, one can maximize the protection of their own rights and interests.

Equity incentives, which combine incentives and constraints, are a powerful tool for enterprises and employees to grow together, and are increasingly valued by enterprises. Guoling Law Firm will fully leverage its professional advantages to effectively help enterprises prevent relevant legal risks; We will also provide more forms and diverse legal service projects for enterprises based on industry development and actual conditions, guiding scientific decision-making and standardizing development.