27 September 2020

Typical Labor Disputes Cases: Rules and Interpretations

By:陆慧文、丁戊、刘士博

The Ministry of Human Resources and Social Security (“MOHRSS”) and the Supreme People’s Court jointly published the first batch of typical cases of labor and personnel disputes on July 10, 2020, mainly involving the performance of employment contract during the COVID-19 pandemic , the payment of double wages, the removal of the non-competition obligation, employer’s right to adjust employee’s job position and other controversial issues in practice. Combined with the Guiding Opinions of the Supreme People’s Court on Unifying the Application of Laws and Strengthening Similar Case Retrieval (for Trial Implementation), which has come into force on July 31, 2020, we hold the opinion that these typical cases will be important guidance for the judicial practice of labor disputes in near future. Therefore, we have extracted and summarized the rules of arbitration and litigation based on the abovementioned cases for further discussion.

// Arbitration and Litigation Rule I: The employer shall not suspend the employment contract on the ground that the COVID-19 pandemic is a force majeure.

Analysis and Interpretation: Although PRC Employment Contract Law doesn’t specifically stipulate the system of “employment contract’s suspension”, it is quite common in some local laws and regulations. For example, it is clearly stipulated in the Labor Contract Regulations of Jiangsu Province (implemented on May 1, 2013) that if the performance of the employment contract is temporarily impossible due to a force majeure event, the employment contract may be suspended; During the period in which the employment contract is suspended, where the employment relationship is retained and performance of the employment contract is temporarily suspended, the employer may opt not to pay labor remuneration and suspend social security contributions; The period in which the employment contract is suspended shall be excluded from the service period of the employee with his/her employer.

As a public-health emergency, we agree that this COVID-19 pandemic is some kind of force majeure event; however, if employer invoke the force majeure clause for employment contract’s suspension, the employee will lose main economic source on which to live. Combined with relevant opinions and judicial interpretations issued before, civil and commercial subjects that fails to perform a contract due to the COVID-19 pandemic may subject to the provisions on force majeure in accordance with the law, however, parties of the employment contract have no choice but to modify the employment contract through mutual negotiation, and shall not suspend the employment contract on the ground that the COVID-19 pandemic is a force majeure.

// Arbitration and Litigation Rule II: During the COVID-19 pandemic, for employees who are in the period of quarantine for treatment or medical observation period, or who are unable to normally provide labor due to the quarantine measures taken by the government, their employers shall pay them remuneration as normal; if the employees are not under the aforesaid circumstances (such as self-quarantine at home or home-based observation at the request of the estate management) but fail to work during such period, the employers may refer to the provisions on suspension of operation.

Analysis and Interpretation: It is suggested that the different connotations of the period of quarantine for treatment, medical observation and home-based observation shall be strictly distinguished. The payment of wages is contingent upon whether the employee is quarantined in accordance with laws or policies during the COVID-19 pandemic, which shall be comprehensively estimated by whether the employees are diagnosed patients, suspected patients or close contacts with someone receiving treatment in isolation or the medical observation by medical institutions, and whether such quarantine measures are taken by the government according to the pandemic prevention and control needs.  For those employees who are unable to provide labor as normal, where such situation continues for more than one wage payment period, the employer may pay such employees living expenses in accordance with relevant rules and regulations after implementing consultation procedure rather than reaching an agreement.

// Arbitration and Litigation Rule III: During the COVID-19 pandemic, employees who are stuck in the affected areas due to work (such as a business trip arranged by the employer) are entitled to normal wages and beneficial treatments.

Analysis and Interpretation: An employee’s work shall base on the arrangement of the employer. If the employer’s working arrangements or working contents cause the employee’s failure of providing work, the employee shall not be treated too harsh. The employer shall distinguish the circumstance where an employee fails to return to work and cannot provide labor as normal by any other means, from the situation where an employee is able to work as normal but he/she doesn’t.

// Arbitration and Litigation Rule IV: In the event that the employer suspends operation due to the pandemic, the first wage payment period shall be calculated from the day when the suspension of operation actually happens.

Analysis and Interpretation: Generally speaking, the employer’s wage payment period is one month. Since there is no clear definition on the first wage payment during the period of the suspension of operation in the Tentative Provisions on Payment of Wages and other local provisions on wage payments, there are different interpretations for the time range of “the first wage payment period” in practice, including the formulation mode which is based on the employer’s regular payroll schedule as well as the calendar month.

The fourth typical case issued this time reflects the judicial opinion that only when such period is understood as a length of time can the connotation of relevant provisions be met. In this case, the local government announced to delay the return to work until February 9, and the employer hadn’t issued any formal notice on suspension of operation, the employee also did not return to work on March 15. In such situation, the first wage payment period should be calculated form February 3 (the day after the extended Spring Festival holiday), that is the day when the enterprise actually suspends the operation; and till March 2 (namely after a calendar month payment period).

// Arbitration and Litigation Rule V: Affected by the COVID-19 pandemic, the eligible employer may suspend operation partially and pay wages and treatments according to the provisions on suspension of operation. 

Analysis and Interpretation: Although the Tentative Provisions on Payment of Wages and other local provisions on wage payments have distinguished the wage payment for “the employees providing labor” and “the employees not providing labor”, the scope of suspension isn’t limited to complete suspension of operation. The application scope of the wage payment standard on suspension of operation also isn’t limited to complete suspension of operation. We hold the opinion that the following factors should be taken into account when the employer suspends operation partially:

• Whether the department or production line to be suspended is relatively independent, and whether clear division is made between such department and the department that resumes work in terms of resumption conditions, business scope, etc.;

• Whether the employees’ job duties and working contents clearly belong to the department or production line to be suspended;

• Whether such suspension arrangement is objectively well-targeted and indiscriminately applicable to all employees of the department or production line.

// Arbitration and Litigation Rule VI: During the delay in the resumption of work due to the pandemic, the employer is entitled to arrange the employee take paid annual leave after going through negotiation procedures rather than reaching unanimity with them.

Analysis and Interpretation: Both the Regulations on Paid Annual Leave of Employees and the Implementation Measures on Paid Annual Leave for Employees of Enterprises grant employers the right to plan the annual leave of its employees as a whole; Also, “consideration of the employees’ preference” stipulated in the above two regulations are just procedural regulations, and don’t mandatorily require the employers to reach unanimity with the employees.

// Arbitration and Litigation Rule VII: If the employment between the shared employee and dispatching enterprise is terminated or ended, the accepting enterprise may establish a factual employment relationship with such shared employee.

Analysis and Interpretation: The performance of the “Shared Employment Agreement” shall be on the premise of the existence of the employment relationship between the employee and the dispatching enterprise. If the employment relationship between shared employee and dispatching enterprise is terminated or ended, and the accepting enterprise continues to accept such employee’s labor, it is likely to be deemed as the establishment of factual employment judging from the factors for the identification of employment relationship. Under such circumstance, the accepting enterprise has to bear the liability of employer for such employee, and it may also lead to legal risks such as double wages for not signing a written employment contract which should have been signed.

Therefore, we suggest that the accepting enterprises under the shared employment mode should, on the one hand, specify the warranty and responsibility bearing clauses for the existence of employment relationship in the employment agreement; on the other hand, the acepting enterprises should also pay timely attention to the shared employees’ employment relationship to avoid relevant legal risks arising from factual employment.

// Arbitration and Litigation Rule VIII: The participation in off-the-job professional technical training shall be deemed as employees’ performance of their obligations for the company, and the wages during the training period shall be excluded from professional technical training expenses. 

Analysis and Interpretation: According to Article 16 of the Regulations on the Implementation of the Employment Contract Law of the People’s Republic of China, the training expenses as referred to in Paragraph 2, Article 22 of the Employment Contract Law include training expenses incurred by an employer in providing professional technical training to an employee as evidenced by a receipt, travel expenses incurred during such training, and any other direct expenses incurred in the course of training the employee. From the aspects of nature, base of generation, and payment’s object, the “other direct expenses incurred in the course of training the employee” as mentioned above is clear different from the wages during the off-the-job. Therefore, if an employer pays wages during the off-the-job training, such wages cannot be included in the professional technical training expenses, and the employer isn’t entitled to claim refund when the employee breaches the contract as well.

In practice, when employers arrange employees to participate in off-the-job professional technical training, there are numerous expenses directly related to the training, including training expenses, travel expenses, house rental fees, meal subsidies, visa fees, etc. In general, such expenses can be recognized as “training expenses for professional technical training”. In view of the fact that wages cannot be included in the above-mentioned training expenses, the employer may also consider suspending the employment contract after negotiating with the employees in the case of off-the-job training.

// Arbitration and Litigation Rule IX: If there is any concealment, fraud or providing false information about the basic information, such as knowledge and skills, education background, degree, professional qualification, work experience and so on, which is directly related to the employment contract and necessary for the performance of employment contract, the employment contract shall be deemed as invalid.

Analysis and Interpretation: Employment contract is an agreement reached by employer and employee through consultation and the relevant information has important influences on concluding employment contract and the expression of true intention to establish employment relationships. Article 8 of the Employment Contract Law stipulates employee’s obligations to inform. If employee violates the principle of good faith, conceals or fabricates basic information closely related to the job duties and the completion of work and directly related to the employment contract, such as knowledge and skills, educational background, degrees, professional qualifications, work experience and so on, which causes the employer to conclude employment contract with such employee violating its expression of true intention, then such employment contract shall be determined as invalid, and the employer shall be entitled to unilaterally terminate the employment contract accordingly.

In judicial practice, whether the employee falls under any of the categories stipulated in Article 21 of the Employment Contract Law shall be determined comprehensively by the employee’s service years, the degree of concealment or exaggeration, whether any subjective malice, when the employer get noted, and the employee’s work performance, etc. Employers should also fully investigate and actively communicate with employees when such cases occur, and take prudent action when terminating the employment contract.

// Arbitration and Litigation Rule X: Where an employer still fails to sign a written employment contract with an employee after being deemed to have concluded a non-fixed-term employment contract with the employee, the employer is not required to pay double wages to the employee for not signing a non-fixed-term employment contract.

Analysis and Interpretation: If an employer fails to conclude a written employment contract with an employee within the period of more than one month but less than one year from the date of commencement of work, or a non-fixed-term employment contract shall be concluded but the employer fails to do so, the employer shall pay double wages to such employee, which is a punitive compensation in legal nature. Article 14 Paragraph e stipulates that where an employer fails to conclude a written contract with an employee after one year has lapsed since the date of commencement of work, the employer and the employee shall be deemed to have concluded a non-fixed-term employment contract, which is not the case that an non-fixed-term employment contract shall be concluded, but a fictitious regulation for the legal consequence of not signing a written employment contract after one year from the commencement of work. Therefore, if an employer fails to conclude a written employment contract with an employee after one year and be deemed to have concluded a non-fixed-term employment contract, the employer is not required to pay double wages to the employee for not signing a non-fixed-term employment contract.

// Arbitration and Litigation Rule XI: Where the employer fails to pay compensation for three months during the non-competition period for any reason on the part of employer, and the employee implements competitive activities after that, it shall be deemed that the employee proposes to remove the non-competition agreement by his/her behaviors and shall not bear the liability for breach of non-competition obligations.

Analysis and Interpretation: The local regulations on the removal of non-competition obligations on the case that the employer fails to pay compensation as agreed during the non-competition period are widely divergent. For example, according to the judicial practice in Shanghai, even if the employer fails to pay non-competition compensation for three months, the employee still needs to remove the non-competition agreement by notice or litigation, after that, the non-competition obligations can be released; in Beijing’s judicial practice, if the employer states clearly that no compensation will be paid, the employee may claim that he/she won’t be bind by the non-competition clause. However, according to the Labor Contract Regulations of Jiangsu Province, if the employer failed to pay the compensation, the employee may choose not to perform the non-competition obligations, or to perform the non-competition obligations and claim for compensation from the employer.

The twelfth typical case combines the Article 8 of the Interpretations on Several Issues Relating to Laws Applicable for Trial of Labour Dispute Cases (IV) and the principle of fairness, holding that the non-competition obligations of employees and the compensation obligations of the employer constitute equal consideration. The employer’s failure to pay the compensation as agreed constitutes a violation of main obligation which promised in the non-competition agreement. Therefore, if the non-payment status lasts for three months and the employee implements competitive activities afterwards, the non-competition agreement shall be deemed to be terminated, and the employee cannot be required to bear the liability for breach of contract. Of course, if the employee chooses to perform the non-competition agreement, he/she shall still have the right to claim compensation from the employer.

// Arbitration and Litigation Rule XII: Without the approval from the Ministry of Human Resources and Social Security, the agreement to implement the flexible working hour system between the employer and the employee is invalid.

Analysis and Interpretation: There’s strict applicable subjects and implementation procedure requirements of the employer’s implement of flexible working hour system. Only the specific posts that comply with the national rules and being approved by The Ministry of Human Resources and Social Security can the employers implement flexible working hour system, otherwise it shall be determined to standard working hour system; If the employee works overtime and beyond the standard working hours, the employer shall pay overtime wages.

However, it is worth noting that the application of the above rules should also be considered case by case according to the different regions and job positons. For example, in accordance with the provisions of Article 16 of the Measures for Enterprises in Beijing to Implement the Consolidated Working Hours Calculation System and Flexible Working Hours System, no approval formalities are required for an enterprise to make flexible working hours arrangement for its senior executives, that is, according to the local regulations, the employer is entitled to make flexible working hours arrangement for such personnel without the approval from the Ministry of Human Resources and Social Security. Under such circumstance, the agreement between the employer and the employee on flexible working hour system shall be deemed as valid.

// Arbitration and Litigation Rule XIII: The employer may legally exercise its labor autonomy right to adjust the employee’s job position and location, but it must be reasonable.

Analysis and Interpretation: In general, according to Article 35 of the Employment Contract Law, except for the conditions of job position adjustment stipulated in Article 40, the adjustment of job position and location shall be adoption by consensus between the employer and the employee. However, it does not mean that the law denies the employer’s labor autonomy right within a reasonable scope. For the employer, if any adjustment of operation or management, it shall fully negotiate with the employee first and try to fulfill such adjustment by modifying or supplementing the employment contract; if no agreement can be reached, the rights and interests guarantee for the employees should also be fully taken into account when adjusting the job position and location based on the labor autonomy right. Specifically, the rationality shall be judged by the following factors:

• Whether it is based on the production and operation needs of the employer, such as adjustments of department structure, reporting line;

• Whether it is a major change to the employment contract, especially considering the job duties and the adjusted distance from the workplace ; 

• Whether there is discrimination or stigmatization against the employee;

• Whether there is major impact on remuneration and other working conditions;

• Whether the employee is qualified for the new post according to the factors such as the employee’s professional experience, working ability and educational background;

• Whether the employer provides necessary assistance or compensation measures (e.g. providing shuttle buses, adjusting commuting hours, providing transportation allowance, etc.) after making inconvenient adjustments to the job location.


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