Court invalidates contract due to fabricated work experience

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The Shanghai Pudong District People’s Court recently issued a report on 10 typical labour dispute cases decided in 2017. Those cases cover employment contract disputes, non-compete provisions, work injury entitlements, etc.

In one case, the court ruled that an employment contract was invalid because the employee provided false statements about prior work experience during the hiring process.

The employee joined the company in November 2014. On the company’s employment application and on the employee’s CV, the employee listed prior work experience with two companies supposedly operating in the same industry as the hiring company. However, when the hiring company later researched the two companies, it found no government registration information for them, and therefore realized the companies did not exist.

The company terminated the employment contract in January 2015 on the grounds that the employment contract was invalid. The company believed the employment contract was invalid because the company had intended to hire an employee with appropriate industry-related work experience, but was tricked into hiring an employee without that experience based on the employee’s fraudulent work experience claims. In addition to terminating the contract, the company also demanded the employee return all salary and bonuses paid. The employee disputed the termination and the reimbursement demand.

In February 2017, the Shanghai First Intermediate Court ruled in favour of the company on the contract invalidation claim. The court held that the employment contract was invalid because the false information provided by the employee had induced the company to sign an employment contract contrary to the company’s true intent. However, the court rejected the company’s claim for reimbursement of salary and bonuses. The court held that the employee should be paid for services rendered to the company even if those services were rendered under an invalid employment contract.

TAKE-AWAY POINTS

Employers should conduct basic due diligence when hiring employees to avoid future disputes. For executive-level roles, employers should conduct thorough background checks to verify key employment information provided by the candidate before making an official offer.

Although employers may terminate employees who provide false information during the hiring process, if the misleading information was material to the hiring decision, they probably cannot reclaim salary and other compensation already paid.

Business Law Digest is compiled with the assistance of Baker McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact Baker McKenzie by e-mailing Danian Zhang (Shanghai) at danian.zhang@bakermckenzie.com