Ex-employee dispute looms over RedNote’s IPO prospects

(By Caixin journalists Bao Yunhong and Kelsey Cheng)

The public airing of a legal dispute between RedNote and a former employee over his dismissal and stock options has cast a shadow over any future Hong Kong listing by the Chinese social platform creator. 

Chen Hao, a former employee of Xiaohongshu Technology Co. Ltd., said in a 29 June social media post that he had filed complaints with Hong Kong’s stock exchange and securities regulator, arguing that RedNote’s position in their litigation could raise disclosure and compliance concerns in any future listing.

While both parties had settled the employment and stock option cases, Chen said in his post that RedNote had denied in court that its domestic operating entities were affiliated with Xingin International Holding Ltd., the offshore company that issued employee stock options.

That position conflicted with the common-control and consolidated reporting arrangements typically required under the variable-interest-entity structure used by Chinese technology companies seeking offshore listings, Chen said. 

He said on social media on 20 July that the Hong Kong exchange had confirmed receiving his complaint and would handle it according to its internal policies and terms of use. Caixin made repeated attempts to contact Chen prior to publication but did not receive a response. 

The complaints come amid persistent speculation over an imminent IPO by Xiaohongshu Technology Co. Ltd., the Shanghai-based company behind the platform also known as RedNote. A company representative told Caixin on 17 July that recent reports about its IPO plans were inaccurate.

The company has been preparing for a possible listing, but remains a ways off from actually submitting a filing in Hong Kong, Caixin has previously learned. RedNote must still address issues including whether to unwind its offshore “red-chip” corporate structure, secure approval from Chinese securities regulators and demonstrate sustained revenue growth, a Hong Kong brokerage executive told Caixin in late June.

A legal expert said the dispute alone would be unlikely to block an IPO. It could, however, trigger closer regulatory scrutiny, lengthen the listing process and expose weaknesses in the company’s compliance and corporate governance.

Unlawful termination

The controversy stems from a legal battle that began after RedNote fired Chen in December 2023.

Chen joined the Guangzhou branch of Shuyishuer Culture Media (Shanghai) Co., one of RedNote’s domestic operating entities, in June 2022. His compensation included a monthly salary of 37,000 RMB (US$5,500) and options to purchase 30,000 shares.

Xingin International signed a stock-option agreement with Chen on 30 June 2022, granting him the right to buy shares at US$0.80 each. Half of the options were scheduled to vest after two years, with an additional 25% vesting in each of the following two years.

RedNote terminated Chen’s employment on 26 December 2023, saying his performance had failed to meet required targets over three consecutive two-month assessment periods.

Chen challenged the dismissal, arguing that the company’s evidence was insufficient and that RedNote had failed to transfer or retrain him before terminating his contract, as required under Chinese labour law. A Guangzhou arbitration commission rejected his request for reinstatement.

Chen then sued in Guangzhou’s Tianhe District People’s Court, changing his claim from reinstatement to compensation for unlawful dismissal and losses tied to his stock options.

In February 2025, the court ruled that Chen had failed to meet RedNote’s performance targets but said that alone wasn’t enough to prove he was legally unqualified for the role.

RedNote had relied on only several months of Chen’s performance in a new role and hadn’t transferred or retrained him before firing him, the court found. It ruled that the dismissal was unlawful and ordered the company to pay Chen 152,300 RMB in compensation and a 37,000 RMB service bonus.

Affiliation denial 

In a separate lawsuit filed in January 2025, Chen sought 1.93 million RMB in compensation for stock options he said he lost because of the unlawful dismissal.

The Tianhe court rejected the argument. Although Xingin didn’t have a direct formal equity relationship with the domestic RedNote domestic entities, the court said Chen had presented evidence of an affiliation because RedNote co-founder Mao Wenchao had signed the option agreement on Xingin’s behalf.

RedNote’s explicit denial of any connection between its domestic entities and Xingin could amount to a false statement or concealment of material facts, depending on the underlying ownership and control arrangements, said Zhang Xue, a partner at Shanghai Fuchen Law Firm.

If the company were found to have made a dishonest statement during the proceedings, the court could impose judicial penalties, Zhang said. Such measures remain uncertain, however, because RedNote’s argument was rejected and didn’t have a substantive effect on the outcome of the case.

In an October 2025 first-instance ruling, the Tianhe court found that Chen had left the company because of RedNote’s unlawful unilateral dismissal rather than by mutual agreement.

The contractual condition that would have cancelled his options therefore hadn’t been met, the court said, and the financial benefits he could have expected under the agreement were entitled to legal protection.

The court declined to award the full amount Chen sought because he had worked for only about 18 months after the options were granted. It awarded him 730,500 RMB.

RedNote appealed, and the parties reached a court-mediated settlement in January 2026. Under the agreement, RedNote paid Chen 661,500 RMB, after which both sides agreed that all claims arising from their employment relationship had been settled.

The company representative told Caixin that it respected the court rulings and the mediated agreement and had fulfilled all of its legal obligations.

Future IPO implications

Chen began publishing accounts of his dispute on WeChat and other platforms in March 2025. He alleged that RedNote had fabricated claims that he was unable to perform his job in order to dismiss him near an option-vesting date.

He also claimed that nearly 50 other employees had been pushed out around vesting periods and had forfeited their options.

A RedNote manager denied the allegations, saying the company hadn’t engaged in systematic dismissals to avoid paying employee equity awards.

Chen said he also filed a supplemental complaint with China’s internet regulator, accusing RedNote of restricting the visibility of content critical of its potential IPO and presenting search results tilted toward positive coverage. He alleged that the platform used its algorithms to influence content distribution and public discussion.

The RedNote representative told Caixin that it had a responsibility to examine shortcomings in its employment policies. The company has begun an internal review of its management processes and invited independent outside experts and organisations to conduct a broader assessment of its human resources systems, it said.

Zhang said that even if RedNote were ultimately found to have made a false statement in the litigation and were sanctioned, that wouldn’t necessarily create a substantive obstacle to a Hong Kong listing.

It could nevertheless lead regulators to examine the company’s disclosures and corporate arrangements more closely, extending an already slow listing process, she said. Those concerns could undermine investor confidence and affect the company’s valuation, she added.

This article was first published by Caixin Global as “In Depth: Ex-Employee Dispute Looms Over Xiaohongshu’s IPO Prospects”. Caixin Global is one of the most respected sources for macroeconomic, financial and business news and information about China.

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