On 24 April, 2017, the Beijing Higher People’s Court and the Beijing Employment and Labour Arbitration Commission jointly issued a document entitled Answers to Questions of Law Application in the Handling of Employment Disputes (the “Answers”), referred to as “Meeting Minutes 3” when it was being drafted and discussed. Attacking controversial issues head on, the ambitious Answers aims to harmonize rules applicable to difficult disputes, and was given high expectations at the outset.

We have closely followed the drafting process and have provided many suggestions from the perspective of practitioners. Generally, we have expected the Answers to meet calls for greater flexibility in trial of labor management disputes by amending the existing Employment Contract Law. The final version only partially satisfies our expectations, yet in some aspects imposes more stringent requirements on employers.

Public reactions to the Answers are mixed. We would like to introduce the Answers and share our views in three installments.

The employer is entitled to unilaterally change an employee’s job in certain circumstances

Rule 1: So long as an agreement exists on job adjustment due to changes in business conditions, the agreement must be respected. According to the Answers, if both employer and employee agree that the employer may adjust the employee’s job in light of any changes in business conditions, the employer should be supported, provided the employer proves that such changes do have occurred.

Rule 2: If the employee’s job is not clearly defined, the employer may change it in a reasonable manner. If there is no clear stipulation regarding the employee’s job, the employer may reasonably adjust it based on its business needs. According to the Answers, a change is reasonable if it is necessary for the employer’s business needs, is justified in purpose, the employee is competent for the new job, and work conditions, such as wages and benefits, for the employee are not adversely affected.

Rule 3: Any unilateral adjustment constitutes breach of contract if the employment contract does not allow the employer to adjust the employee’s job. If the employment contract defines the employee’s job but does not stipulate how it can be adjusted, then any unilateral job adjustment made by the employer is a breach of contract except for the circumstances provided in Article 40 of the Employment Contract Law. For any loss caused to the employee, the employer shall pay compensation to the employee to close the gap in wages between the new job and the old one. If the employee requests reinstatement, which proves impractical after consideration, the court or the arbitration commission may advise the employee to claim his rights by filing another case. If the employee insists on reinstatement, his claim can be rejected.

Rule 4: Any change in wages as a result of the job change must be justified. If an employee’s job and wages are adjusted at the same time, and only the job adjustment is accepted by the employee, the employer must explain why his wages should be adjusted. Conclusions as to whether the employee’s legitimate rights are harmed should be drawn by considering factors such as the employer’s real conditions, the nature of the new job, and terms of the employment contract.

[Comments]

Can an employer unilaterally adjust its employee’s job? It seems a simple question, yet there is no definite answer. Contract terms allowing unilateral job adjustment involve application of laws and regulations governing employment contract variations. Whether the terms are valid and enforceable can only be determined case by case. The Answers deals with the issue in different scenarios and conditionally grants employers the right to unilaterally adjust an employee’s job.

Based on the Answers, KWM suggests that the employer, when drafting an employment contract, should stipulate its right to adjust the employee’s job according to its business needs, and to adjust his or her wages commensurate with the new position. Moreover, in changing an employee’s job, the employer must ensure that the adjustment is reasonable and preserve evidence of its reasonableness, in order to control risks effectively in case of any dispute.

Circumstances in which “an employment contract becomes unenforceable” are specified

According to the Answers, if an employer is held to have wrongfully terminated a contract with an employee and the employee requests reinstatement, the arbitration commission or court may rule that “the employment contract becomes unenforceable” and reject the employee’s claim, in the following seven circumstances.

  • The employer is declared bankrupt, revoked of its business license, ordered to close or stopoperations, or decides to dissolve prematurely;
  • The employee reaches the statutory age of retirement during the arbitration or litigation;
  • The employment contract expires during the arbitration or litigation, and there are no circumstances requiring execution of an open-ended employment contract as provided by Article 14 of the Employment Contract Law;
  • The previous position held by the employee is irreplaceable and unique to the business of the employer, such as general manager or CFO, and the position has been taken by another person with no agreement reached between the employee and the employer on a new position. However, the employer will not be supported if the employer merely claims that the position has been filled but without further proving that the position is irreplaceable and unique.
  • The employee has been employed by another employer.
  • During the arbitration and litigation, the employer sends a reinstatement notice to the employee requesting continued employment, but the employee declines.
  • Other circumstances in which the employment contract is unenforceable.

It is also provided in the Answers that, if an employer submits evidence that another employer is contributing social insurance for the employee, this evidence alone cannot be considered conclusive proof of the employment relationship between the new employer and the employee. The burden of proof, however, is shifted to the employee, who must prove that he or she has no employment relationship with the alleged new employer, or the employment contract will be held to be unenforceable.

[Comments]

Can a broken relationship be resumed in the case of a wrongful dismissal? The Employment Contract Lawmerely provides that there is no need to reinstate the employee if the employment relationship cannot continue. However, the law is silent as to in what circumstances “an employment contract is unenforceable”. The Answers makes two improvements on this issue. Firstly, it lists the circumstances in which an employment contract can no longer be performed. Secondly, it makes it clear that the burden of proof is shifted to the employee when he/she is proved to have another entity contribute social insurance for him/her. However, the Answers does not give guidance on the standard of wage losses during the arbitration and litigation if reinstatement of employment is granted.

Based on the Answers, KWM suggests that when a dispute surrounding the termination of an employment contract takes place, the employer should stay tuned regarding the employee’s work after the termination. In addition, it is advisable for the employer to collect relevant evidence, so that it can raise reasonable defenses against the employee’s claim for reinstatement and minimize the risk of being ordered to reinstate the employee.

The standard for a legitimate dismissal during the probationary period is lowered

The Answers requires that, when an employer terminates an employment contract on the grounds that the employee fails to meet the job requirements during the probationary period, it should prove that it, when recruiting the employee, informed him/her of the job requirements, and, when terminating his/her employment contract, explained the reasons and legal grounds. The Answers extends differential treatments to termination during the probationary period and that after the probationary period. That is to say, in determining whether an employee meets the job requirements, the standard may be lower for those during the probationary period than for those who have passed the probationary period.

The Answers further enumerates three circumstances of failing job requirements: (1) The employee, in violation of the principle of good faith, conceals or fabricates facts which will affect the performance of the employment contract; (2) The employee commits errors during the probationary period, and the errors shall be defined according to employment laws, the employer’s internal policies and employment contract terms; (3) other agreed terms and co nditions regarding the employee’s failure to meet the job requirements during the probationary period.

[Comments]

A probationary period is designed for employers and newly recruited employees to assess each other by a set of standards. If things prove satisfactory for both sides, the employment will continue. Otherwise, they may choose to part with each other. A termination during the probationary period should be less difficult than that after the probationary period. However, in practice, some arbitration commissions and courts wrongfully apply the standard of termination for incompetence to terminations during the probationary period. The Answers rectifies the practice and clearly states that the standard of reviewing the satisfaction of recruitment requirements within the probationary period can be lower than that of reviewing an employee’s performance after the probationary period.

It should be noted that an employer should inform an employee of the job requirements in writing during the recruitment process. In addition, the employer also should explain the reasons and grounds of termination in writing when dismissing the employee. Moreover, KWM suggests that the employer should, in accordance with the responsibilities and experience of an employee, clarify the standards of “work errors” during the probationary period in its internal policies or employment contracts.