Pursuant to PRC Employment Contract Law, if an employer unlawfully terminates an employee’s contract and the employee requests to reinstate the employment relationship, unless the employer can demonstrate that continued performance of the employment contract has become impossible, the employee’s such request shall be supported. In most cases, employers merely want to pay the dismissed employees statutory damages, instead of reinstating them. Then what circumstances can justify that continued performance of an employment contract has become impossible?

Based on our experience, in determining whether the employment contract can be continuously performed, the arbitrators/judges in Beijing generally follows “objectivity criterion”. When employers argue that the employment contract cannot be continuously performed on the “objective” grounds, such as the first employment contract expires, the employee has found another job, and the employee’s original position has been revoked, such claims, to different degrees, would be supported by the arbitrators/judges. However, seldom will the “subjectivity criterion” like a breakdown of trust be accepted. We found recently, though, a court held that the breakdown of trust led to that the employment contract could not be continuously performed. The case brief and analysis are as follows:

Part I Case Brief and Analysis

(1) Facts and Issues

Wang signed an employment contract with Hotel A in Beijing as a cook on May 30, 2011. After investigation, Hotel A found Wang violated company rules repeatedly, such as sleeping and playing during working hours, taking and eating customers’ food, and even harassing female employees. On February 12, 2015, Hotel A dismissed the employment contract with Wang because of his material breach of company rules.

On February 13, 2015, the day Wang received the termination notice, he had got into a physical altercation with Hotel A, and both of Wang and Hotel A called the police. Subsequently, Wang made troubles in Hotel A repeatedly and several disputes arose between them. Later, Wang filed arbitration against Hotel A in local labor dispute arbitration committee, requesting to reinstate the employment relationship.

(2) Holdings and Rationale

  • The arbitration committee ordered Hotel A to reinstate the employment relationship, and the employment contract be continuously performed. Hotel A was not satisfied with such ruling and filed the suit before the court.
  • In the first instance stage, the court ruled that there was no legal basis for Hotel A to dismiss the contract with Wang. But the employment contract cannot be fulfilled since the trust broke down. Hotel A shall pay statutory damages to Wang. Wang, not satisfied with the ruling, appealed against Hotel A, requesting reinstatement of employment.
  • In the second instance stage, the court of appeal upheld the original judgment.

In this case, Hotel A was ruled to unlawfully terminate the employment contract, and Wang requested the employment contract continuously be performed. Hotel A presented the audio and video tapes, as well as witness testimony, in order to counter-argue Wang’s claim. The evidence demonstrates that upon receiving the termination notice, Wang caused troubles in Hotel A repeatedly and several physical altercations occurred, which seriously disturbed Hotel A’s business. Hotel A claimed that the trust between itself and Wang had broken down, which led to that the employment contract could not be continuously performed, and only agreed to pay statutory damages to Wang. Based on Hotel A’s presented evidence and claims and considering the extent of the dispute between the parties, the court held that the basis to continuously fulfill the employment contract had been weakened and the trust between the parties had broken down. Employment relationship is naturally based on trust between the employer and the employee. Should this employment contract continuously be performed, subsequent disputes are easily caused, which is harmful to the establishment of harmonious employment relationship. Therefore, in this case, the court ruled that the continued performance of the employment contract had become impossible.

(3) Analysis

The unique feature of this case was the finding of the intense and frequent conflict between the employer and the employee, and that both parties called the police. The employer presented sufficient evidence, such as the audio and video tapes, proving such conflict. In this case, these facts play an essential role in convincing the court to rule that the employment contract could not be continuously performed.

As mentioned at the beginning, however, seldom will the arbitrators/judges in Beijing support the employer when it claims that the breakdown of trust itself leads to the impossibility of the continued performance of the employment contract. The claim of breakdown of trust has its subjectivity and the criterion for determining it is naturally various. Furthermore, the facts in different cases are never the same. Thus, there is still great uncertainty whether an employer’s claim of breakdown of trust could be supported.

Part II Conclusions and Recommendations

To a certain extent, this case has released a positive signal to employers. When the employer presented sufficient evidence, proving that no trust existed between itself and the employee any longer, it is possible for the court to rule that the employment contract cannot be continuously performed. It is advised for employers to take the photos, and record the audios and videos regarding certain employees’ violent actions and words, occurred because of the termination, as evidence. Once a dispute arises later, employers can present such evidence before the arbitration committee/court, claiming that there is no basis to fulfill the employment contract, the trust has broken down, and thus the continued performance of the employment contract has become impossible.

However, seldom will the arbitrators/judges in Beijing accept the employer’s claim of breakdown of trust, and there is great uncertainty whether such claim could be supported. It is advised for employers not only counting on the claim of breakdown of trust; instead, they are suggested to gather more evidence to prove the other “objective” facts, such as the first employment contract expires, the employee has found another job, and the employee’s original position has been revoked, and so forth, in order to be on the safe side.