This article was written by Xu Xiaodan (Partner) and Qi Yiduo (Associate)
In a case in Guangdong Province, the Employee and the Company concluded a written employment contract on July 1, 2012, and agreed that the work location of the Employee is Guangdong Province. The first part of the contract reads “the domicile of the Company is: Second Floor, Building B, Chengnaner Road No.12, South District, Zhongshan”. On May 13, 2013, the Company posted a notice and notified the employees that it decided to change its registered place to “Third Floor, East Road No.2, East Town, Huoju Development Zone, Zhongshan” and the employees should work at the new address. On September 25, 2013, the Company officially changed its registered address upon the approval of the industrial and commercial administration department. However, the new address was far away from the residence of the Employee and that caused significant inconvenience to the Employee. The Employee considered relocation of the Company a change of his employment contract thus the Company should have obtained his consent. If the Company did not obtain his consent after consultation, the circumstance constituted “a significant change of the objective circumstances relied upon at the time of conclusion of the employment contract so that the employment contract could no longer be performed and the parties cannot reach an agreement on amending the employment contract”, so the Company should make severance payment to him.
Is it compulsory for an employer to consult with an employee and amend the employment contract when it comes to change of the employer’s registered address together with change of the workplace address? Whether an employee has the right to ask for the termination of the employment contract and severance pay from the company? In this article, we will try to analyze these questions.
1. Does a change of the registered address constitute a change of the mandatory clause of an employment contract?
Article 17 of Employment Contract Law provides that “An employment contract must include the following clauses: (1) the employer's name, domicile, legal representative, or major person-in-charge; … (4) The job descriptions and work locations…”
Given the above, the change of a company’s domicile and an employee’s location of work constitute a change of a mandatory clause of an employment contract. Generally speaking, to alter a mandatory clause of an employment contract, a company should obtain a prior written consent of an employee. However, a company's name, domicile and legal representative are matters governed by the Corporate Law and the company should have discretion in these matters. Does change to these matters still need to be agreed by the employees? In our view, if the matters concerned are not closely related to the performance of the employee’s job duties, such as the alteration of a company’s name and legal representative, an employer does not have to obtain a prior written consent of the employee. The company could fully exercise its rights of discretion in this regard. It is disputable whether an alteration of a company’s registered address still requires a written consent of an employee or not and we will discuss this according to different local regulations.
2. Is the company obliged to obtain consent of its employees when it changes its registered address?
(1) In Guangdong Province, if the relocation is within the same city and will not cause any significant impact on the employees, the employment contract could continue to be performed.
Firstly, Guangdong explicitly provides that if a company is relocated within the same city and the relocation does not cause significant influence on the employees, their employment contracts can remain unchanged, as provided by Article 2 of Opinions of Guangdong Human Resources and Social Security Ministry on Prevention and Management of the Labor Disputes during the Process of Enterprise Restructuring and Upgrading (Yuerenshegui (2013) No.3, implemented on the 19th of June, 2013). For example, if the employees are able to commute by public transport or the company provides conveniences, such as transportation allowance or free shuttle bus, to the employees, it may be considered the relocation of the company does not cause significant impact on employees.
Secondly, in the case above, the court considered that the Company’s relocation from “Second Floor, Building B, Chengnaner Road No.12, South District, Zhongshan” to “Third Floor, East Road No.2, East Town, Huoju Development Zone, Zhongshan” was a change of the registered address within the same city and the distance between the two locations was not far. The Employee was able to commute by public transport and the change of the Company’s location did not impact the Employee’s life significantly. Therefore, the court ruled that the employment contract between the Employee and the Company should continue to be performed and the Employee did not have the right to request termination of employment and severance pay.
Given the above, it can be seen that Guangdong provides explicit guidance regarding this question. If the relocation of a company does not affect an employee’s life (e.g. he/she could commute by the public transport or is provided with conveniences such as transportation allowance or shuttle bus by the company), the employment contract could remain unchanged. Under this circumstance, the company is not obliged to obtain consent of its employees when it changes its registered address. The employees will have no rights to request termination of employment or severance pay, either.
(2) In Beijing and Shanghai, if a company is relocated within the same city, an employee’s claim that “the alteration of the domicile needs to be consented in written by the employee or otherwise, the company must make the severance payment” might be supported by an arbitration commission or court.
In Beijing, the local laws and regulations do not provide a specific guidance on this issue. According to the judgment of (2014) Sanzhongminzhongzi No.05032, the company claimed that its employment relationship with the employee was not terminated. The contract stipulated that the employee’s work location was in Beijing and remained the same after the company was relocated. Therefore, the relocation did not cause the employment contract being unable to be performed.
However, the court did not support the company’s claim. The court of appeal, the Third Intermediate People's Court of Beijing, ruled that this relocation caused that the employee could not continue to perform the employment contract. According to the Article 40 (3) of Employment Contract Law, the company should pay one month’s salary in lieu of notice and the severance pay for termination of the employment contract.
Shanghai does not provide further provisions on this issue, either. According to the judgment of (2012) Jiaminsi(min)chuzi No. 214, the company moved from Jiangqiao Town to Huating Town in Jiading District. The company claimed that after relocation the employee’s location of work is still in Jiading District, Shanghai thus the change did not cause the employment contract being unable to be performed. However, the People’s Court of Jiading District held that:
- firstly, the relocation of the company led to the employee’s long commute to work. As a result, it will impact the life and work of the employee and his family. This situation can be deemed as the original employment contract could no longer be performed;
- secondly, the company did not effectively consult with the employee regarding remedies to reduce the damage to the employee caused by the relocation of the company, such as transportation allowance, shuttle bus or accommodation provided by the company;
- thirdly, the company committed to pay moving allowance to the employee who would not like to move with the company but did not actually make the payment.
To sum up, the People’s Court of Jiading District held that the company’s relocation led to the employment contract being unable to be performed. The employee should not be the one to blame and the company should make the severance payment for termination of the employment contract and one month salary in lieu of notice according to the law. The employee’s claim was supported.
Given the above, it can be seen that under the judicial background that arbitration commission and court tend to provide favorable protection to employees, employees’ allegation that “change of the employer’s domicile is a change of a mandatory clause of the employment contract, and therefore needs to be consented in written by an employee” is likely to be supported by arbitration commission and court. As a matter of fact, a company’s relocation within the same city will possibly increase the distance between the residence place of an employee and the new company location, and therefore an employee’s quality of life and work could possibly be affected. According to article 40(3) of the Employment Contract Law, the arbitration commission and court will likely hold there is a significant change of the objective circumstances relied upon at the time of conclusion of the employment contract and the employment contract could no longer be performed.
Thus, under this circumstance, if a company moves within Beijing or Shanghai, it is advisable for the company to consult with employees and reach an agreement beforehand. If after consulting with an employee, the company and the employee are unable to reach an agreement on amending the employment contract, the employment contract could then be terminated and the company should make severance payment to the employee.
Editor’s note: This article was simultaneoulsy published on Chinalawinsight.com