The Beijing Dongcheng District People’s Court reportedly ordered a company to reinstate a former employee who had been transferred to the company without any transfer documentation.
In this case, the employee previously worked for a group company under a three-year employment contract. When the business unit where the employee worked was separated into a newly-formed company, the employee was transferred to the new company. The employee’s employment contract was not amended to reflect the transfer. Instead, the new company simply assumed the employer’s role under the original employment contract by paying salary, benefits and social insurance according to the terms of the original employment contract.
Approximately 11 months after the transfer, the new company terminated the employee when it failed to reach an agreement with the employee to amend the terms in the original employment contract (including the identity of the employer). The company cited a “major change in the objective circumstances rendering the contract unperformable” as the grounds for the termination.
When the employee sued, the court ordered the company to continue to perform the employment contract because there had been no “major change in objective circumstances” to render the employment contract unperformable. The court found that after the companies separated and the employee transferred, both the new company and the employee performed under the employment contract for 11 months and neither party objected to continuous performance during that time. These facts showed that the separation of the animation company from the group company did not have any significant impact on the performance of the original employment contract. Therefore, the court held that the existing employment contract remained unchanged after the employer entity underwent a division and the successor entity assumed employer liability for the employee.
Key Take-Away Points: This case reveals that if a company waits too long after a restructuring to terminate an employee on the ground of a major change in objective circumstances, the courts may reject the termination.