Recently, the Shanghai and Jiangsu province High People’s Courts respectively publicized their own list of 10 model case studies in relation to employment disputes that occurred from 2016 to 2018. Although China does not have a case-law system with binding precedent, the model cases posted by the high people’s courts, or the Supreme People’s Court (SPC), may provide guidance to lower courts on the handling of similar cases.
The model cases focused on various traditional topics such as labour dispatch, the protection of special employees who are taking maternity leave or long-term sick leave, etc. Below is a summary of a few of the case studies that focused on more recently trending issues.
In one Shanghai case, the employee agreed to perform a post-termination non-compete obligation. In consideration of that, the employer granted restricted stock units to the employee during his employment term. Both parties agreed that the employee should repay all economic gains made from the restricted stock units to the employer if the employee breached the non-compete obligation.
In other words, the non-compete compensation was paid during the employment term in the form of restricted stock units rather than in cash, and the liquidated damages for breach of non-compete was the repayment of the restricted stock gains. Under the law, the non-compete compensation generally should be paid in cash on a monthly basis following termination of employment. However, the court in this case validated the arrangement and supported the employer’s claim. The employee who breached the non-compete obligation eventually repaid the employer more than RMB1.9 million (US$271,000) of the restricted stock gains.
One Jiangsu case reiterated the principle that the employee should continue performing the non-compete obligation during the non-compete period, even though the employee has paid the liquidated damages to the employer for breaching the non-compete obligation. In other words, the employee’s non-compete obligation during the remaining non-compete period cannot be avoided by paying the liquidated damages. This position was also set out in an earlier guiding opinion issued by the SPC.
In these model cases, the courts referred to the employees’ fundamental duties of discipline, integrity, care and loyalty more than once, rather than written company rules. In one Shanghai case, the employer unilaterally terminated a senior manager because he attended inappropriate entertainment funded by the employer’s distributors, and took bribes. The court supported the employer’s termination and emphasized that discipline and integrity are the fundamental duties of each employee.
In one Jiangsu case, an employer unilaterally terminated an employee because he refused to perform his work assignments. The court found this termination to be legal. The court considered that it was reasonable for the employer to assign the employee to work temporarily in another department to support the business needs of that department. The employee should have abided by such reasonable work assignment in a loyal and diligent manner.
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 [email protected]