[Member Recommendation] After the "nominal" legal representative was "restricted in height," they sued the company for the nominal fee. Can the court support this claim?

(Source: Shanghai Nonferrous Metals Industry Association)

In recent years, the phenomenon of “nominal” legal representatives has become quite common, not only disrupting the normal operation of enterprises but also hiding significant legal risks. Recently, the Suzhou Intermediate Court ruled on a labor remuneration dispute case, rejecting the claim by a “nominal” legal representative who was “restricted high consumption” to sue the company for the nominal fee. The court clarified that such agreements are invalid because they violate public order and good morals.

[Basic Case Facts]

From December 2019 to August 2024, Huang was introduced to serve as the nominal legal representative of a trade company in Suzhou. The parties agreed on an annual fee of 20,000 yuan, with Huang not participating in actual management. In March 2022, due to a dispute over sales contracts involving the company, Huang, as the registered legal representative, was subject to court-ordered restrictions on consumption. Subsequently, Huang filed a lawsuit against the company over the change of legal representative. In August 2024, after the court ruled that the company’s legal representative was changed to the actual controller, Zhou, Huang again sued the company for the previously agreed nominal fee of over 70,000 yuan.

The case was first heard by the Zhangjiagang City Court and then appealed to the Suzhou Intermediate Court, both of which dismissed the claim. The effective judgment held that, according to the Civil Code of the People’s Republic of China and relevant judicial interpretations, civil legal acts that violate public order and good morals are invalid. In China’s current legal system and judicial practice, a legal representative is a company officer who holds both external representation authority and internal decision-making power, bearing responsibilities closely linked to the company. Especially when the company is subject to enforcement and cannot settle debts, the legal representative may be subject to restrictions on high consumption and outbound travel.

In this case, Huang’s nominal role as the legal representative of Suzhou Trade Co., Ltd. prevented the enforcement measures from binding the actual controller of the company. This nominal behavior seriously disrupted corporate management order, affected the construction of a law-based business environment, harmed public interests, and impaired the social credit system. Therefore, the “nominal” agreement between Huang and the company violates public order and good morals and should be deemed invalid. When Suzhou Trade Co., Ltd. refused to pay, the court did not support Huang’s claim for the “nominal fee” based on the “nominal” agreement.

[Judges’ Remarks]

Public order and good morals are fundamental principles of civil activities and important standards for assessing the validity of civil legal acts. They provide guidance for everyday behavior norms. If one seeks to gain benefits from “nominal fees” or trusts “nominal exemption” promises and becomes a “nominal” legal representative, they not only lose legal protection but may also face the risk of losing both person and property. This case critically evaluates the behavior of agreeing to serve as a legal representative for a fee and emphasizes the importance of adhering to public order and morals. It promotes the core socialist values, warns that the status of legal representative is not a commodity that can be bought or lent at will, but a heavy legal responsibility. Honest and law-abiding operation is the true path for individuals and enterprises to achieve steady and long-term development.

Source: Jiangsu Legal Daily, Civil Judgment