Court Rules Xiaohongshu Overseas Options as Labor Compensation, Awards 850,000 RMB

On July 22, 2026, Xiaohongshu publicly responded to market rumors that it had secretly filed an IPO application and that the listing process had been hindered by a former employee's report, stating that 'the currently circulating IPO-related information is not true.' The statement failed to quell external doubts about its listing progress and internal governance. Previously, at the end of 2025, Xiaohongshu was valued at 50 billion USD in a secondary share transfer. Its full-year 2025 revenue was approximately 42 billion RMB, up 40% year-on-year, with profit of about 3 billion USD. Advertising revenue reached 32 billion RMB, accounting for 76% of total revenue, up 11 percentage points from two years earlier. E-commerce business GMV was about 850 billion RMB, but the in-platform order conversion rate was only 0.7% to 1.2%, ranking low among major platforms.

The incident originated from a labor dispute. In June 2022, Chen Hao joined a Xiaohongshu subsidiary as head of commercial direct sales for South China, with an annual salary of about 1.6 million RMB, nearly one-third of which consisted of options granted by overseas entity Xingin International Holding Limited. In December 2023, five months before the first batch of his options were due to vest, Xiaohongshu unilaterally terminated the labor relationship on grounds of 'incompetence' and marked the departure as 'elimination' on the severance certificate. In February 2025, the Guangzhou Tianhe District People's Court ruled that Xiaohongshu had unlawfully terminated the labor contract, ordering payment of 152,324 RMB in compensation and 37,000 RMB in service bonus. Xiaohongshu appealed, arguing that Chen Hao had poor sales performance for six consecutive months, with pricing advertising business revenue of only 20,700 RMB from July to December 2023, and that it had provided job adjustments and training. The Guangzhou Intermediate People's Court upheld the original verdict in the final instance.

The case is regarded as the first domestic precedent to pierce the VIE structure and recognize overseas options as labor compensation. The court determined that although the options were granted by an overseas entity, the domestic company was responsible for recruitment and included the options in salary calculations, establishing a close connection and giving the options the nature of labor remuneration. Xiaohongshu paid a total of approximately 850,000 RMB, including over 190,000 RMB in compensation for the final judgment of unlawful termination and over 660,000 RMB in option loss compensation confirmed through second-instance mediation. Chen Hao subsequently submitted complaint materials to the Hong Kong Stock Exchange and the China Securities Regulatory Commission, with the core allegation that Xiaohongshu's VIE structure information disclosure was contradictory: in the labor lawsuit, it claimed that the domestic operating entity and the overseas option-granting entity had 'no control or affiliated relationship,' while in planning its Hong Kong stock listing, it needed to prove that the overseas listing entity controlled 100% of the domestic operating entity through agreements.

On July 23, Chen Hao disclosed on social media that Xiaohongshu had invited him for offline communication through a former HRBP, but he refused, stating clearly that he would not seek additional material compensation. Chen Hao said that since he began defending his rights, nearly 50 former Xiaohongshu employees had reported similar experiences. On July 27, an article was published on a social media account, with the author, Moses, describing himself as the former head of Xiaohongshu's media intelligence team. He stated that his labor contract was terminated on August 25, 2020, just eight days short of his two-year anniversary and the vesting of his first batch of options, and that he held approximately 860,000 options. Moses initiated labor arbitration and litigation. The Beijing Chaoyang District People's Court ruled that Shuxing Technology (Beijing) Co. , Ltd.' s termination of the labor contract was lawful and did not constitute unlawful termination. In the article, Moses raised four inquiries, asking Xiaohongshu to clarify the controlling relationship between the domestic operating entity and the overseas option entity, the legal validity of documents signed by the founder, the criteria for terminating labor contracts near option vesting dates, and the validity of documents sent from official corporate email addresses.

As of July 31, 2026, Xiaohongshu had not made any public statement.

The Trial Administrative Measures for Overseas Securities Offering and Listing by Domestic Enterprises, which took effect in 2023, implemented a 'substance over form' regulatory principle for red-chip and VIE structure listings. Data show that as of March 2026, among the 186 companies that had submitted listing applications to the Hong Kong Stock Exchange, only 14.5% used the red-chip model, while H-share direct listings accounted for as high as 82.8%. This shift in application structure indicates that regulatory scrutiny of indirect 'circumvention listings' continues to tighten, with market sentiment leaning toward direct listing models. If Xiaohongshu continues to pursue an overseas listing via the traditional red-chip VIE path, it faces increased difficulty in external compliance inquiries. On the core issues raised by former employees regarding VIE structure control and the legal validity of options, Xiaohongshu has yet to provide an official explanation.