The Answers to Questions on the Application of Laws in the Trial of Labour Dispute Cases, issued in April 2017 by the Beijing Municipal Higher People’s Court and the Beijing Municipal Labour and Personnel Affairs Dispute Arbitration Commission, provide answers to numerous unclear issues in the current labour law regime.
In this column, in the previous issue, the author analyzed the above-mentioned answers from two aspects: (1) when an enterprise can unilaterally change the job position of an employee; and (2) how an enterprise can terminate an employment relationship on the grounds that a material change in the objective circumstances has occurred. In this issue, the author will continue to explore some of the key contents of the answers.
In what circumstances is an employee not required to be reinstated?
In labour dispute cases there is one important question: What circumstances do not support the continued performance of an employment contract? In employment termination cases, the issue that causes enterprises the greatest headache is not usually to pay double the severance pay, but rather a worker demanding continued performance of his or her employment contract. When enterprises carry out retrenchment, the pressure of this is particularly great. If an employee accuses his or her company of illegally terminating his or her employment contract and the final judgment requires continued performance of his or her employment, the retrenchment fails and the resulting precedent causes even more headaches for the enterprise.
What circumstances constitute the scenario of “continued performance of the employment contract is genuinely impossible”? The answers specify when: (1) the employer is lawfully declared bankrupt, has its business licence revoked, is ordered to be shut down or deregistered, or the employer decides to dissolve the entity early; (2) the worker attains the statutory retirement age during the arbitration procedure or legal action; (3) the employment contract expires and terminates during the arbitration or litigation, and there are no circumstances existing as specified in article 14 of the Employment Contract Law requiring the entering into of an open-ended employment contract; (4) the worker’s former position is relatively non-substitutable and unique for the operation of the normal business of the employer (e.g., a general manager or financial controller) and someone has replaced the worker in his or her former position and the parties are unable to reach a consensus on a new position; (5) the worker has taken a position in a new entity; (6) the employer serves a return-to-work notice on the worker during the arbitration or litigation requesting that the worker continue to work, and the worker refuses to do so; and (7) other circumstances under which the conditions for continued performance of the employment contract are clearly not fulfilled.
Items (4) and (5) are particularly noteworthy. In the Shanghai Jahwa v its former general manager, Wang Zhuo, an unlawful employment contract termination case that caused quite a stir, Wang Zhuo, as Shanghai Jahwa’s former general manager, received a judgment supporting continued performance of his employment contract. At the time, the case stirred a vigorous debate in labour law circles, and some human resources managers felt the same dilemma. Item (4) of the answers is precisely the solution for the dilemma, specifying that enterprises are not required to restore someone to non-substitutable and unique positions such as general manager. However, it needs to be noted that enterprises cannot apply this provision to all employees.
With respect to the circumstance in item (5) of a worker having taken a position with a new entity, the answers further explain that if the former entity submits proof that another entity has paid social insurance for the worker, this alone may not serve as the proof that an employment relationship has arisen between the worker and the new entity, but in such a case, the burden of proof switches and the worker is required to show that what exists between him or her and the new entity is not an employment relationship. If the worker is unable to produce counter evidence, a finding, to the effect that continued performance of the employment contract with the former employer is impossible, will be rendered.
Should the year-end bonus be included into the severance pay?
Another important question is, when calculating the severance pay, should the year-end bonus be counted as part of the base amount for the average wage for the 12 months prior to the termination of the contract? When calculating the severance pay, how is the worker’s average wage for the 12 months prior to the termination or expiration of his or her employment contract to be determined? To date, the national regulations that we can invoke are the Provisions on the Composition of the Total Wage Amount, issued by the National Bureau of Statistics in 1990. The provisions specify that an employee’s wage, bonuses, allowances and subsidies, overtime pay, and wages paid under special circumstances constitute a part of his or her wage.
In practice, an employee will generally be paid a year-end bonus or year-end double wage in a certain month each year, which is generally quite a large amount and would have a big impact on the calculation of the average wage. In this respect, the answers offer a relatively fair approach: the year-end bonus or year-end double wage payable to a worker is to be spread equally over the 12 months of the year when calculating the base wage amount. In this way, regardless of the month in which the time of the preceding 12 months falls, fairness of the calculation of the average wage is ensured for calculating the severance pay.
In addition to the above-mentioned content directly related to retrenchment and the termination of employment relationships in the answers, they also provide guidance on other issues relating to the performance of employment relationships in practice. For example, the answers relax requirements on the termination of an employment contract on the grounds of failing to meet the employment conditions during the probationary period, giving enterprises a certain degree of flexibility.
On the whole, the answers provide uniform adjudication benchmarks for difficult issues in labour law practice in the Beijing region, resolving the quandaries that numerous human resource and labour law practitioners have faced for a long time. The answers have a very important guiding significance, particularly in practice relating to such issues as restructuring-related retrenchment, lawful and reasonable termination of employment relationships, etc., and for enterprises, the majority of the opinions are positive and beneficial.
Author: Patrick Gu is a partner at DaHui Lawyers