A reasonable salary structure can, on the one hand, help to control the costs of human resources; and on the other hand, positively inspire employees to improve their working efficiency. Therefore quite a few enterprises will make a reasonable adjustment to the salary structure in accordance with changes of social economic and its operational situation, in order to decrease enterprise cost as well as increase output efficiency.

Moreover, the adjustment to the salary structure involves the interest of the employees. For the enterprise, even though the adjustment to the salary structure is part of its independent management rights; its implementation cannot depend merely on its own volition. Though some enterprises implemented adjustment to the salary structure, such adjustment has not been recognized by judges or arbitrators in the judicial practice. It indicates that if an enterprise has implemented a new salary structure, its effect might be denied by judges, and they would request the employer to make up the salary differences in accordance with the standard before the adjustment.

It has been specifically provided that in the Article 47 of Labor Law, an employer shall, in accordance with the characteristics of its production and business operations and its economic results, independently determine its own wage distribution measures and wage levels. An employer cannot, however, adjust its salary structure completely “depending on its own will”.

As the adjustment on salary structure may involve the change of labor contract, according to the article 35 of Labor Contract Law, an employer and an employee may modify the contents stipulated in the labor contract if they so agree upon negotiations, and the modification to the labor contract shall be made in writing; the employers can also change the salary structure by changing regulations, to which the Article 4 of Labor Contract Law shall apply, providing where an employer formulates rules or decides important events concerning the interests of the employees, such rules or important events shall be amended and decided through democratic procedure and publication procedure and the employer shall accept proposals and opinions from the employees.

This article sets out to present the contributing factors to determine the change of enterprise salary structure in judicial practice from the cases relating to salary structure.

1. Whether the employer and the employee have reached mutual agreement upon negotiations is the most vital contributing factor to the judgment and the arbitration awarding.

On the basis of an investigation into the relating cases from Beijing, Shanghai and Shenzhen, it can be found that the most important factor contributing to the determination to the adjustment to the salary structure in judicial practice is the employees’ willing.[1] According to the “Interpretation (IV) of the Supreme People's Court of Several Issues on the Application of Law in the Trial of Labor Dispute Cases” (hereinafter as “Judicial Interpretation (IV))”, Article 11 provides that where a labor contract is not modified in writing, but the orally modified labor contract has been actually performed for over a month, and the provisions of the modified labor contract do not violate any law, administrative regulation, national policy, public order or good custom, the people's court shall recognize it.

Thus, even if the employee requests for making up the differences of his salary during the subsequent dispute resolution procedure, the judge would tend to support the employer in the case of any evidence showing that the employee actually performs as having agreed on the new salary structure. The issue lies in, which factors will be considered to have contributed to the determination to the facts that both parties have actually performed as the changed labor contract.

(1) The signature of an employee for the payroll

According to the research on the cases, this factor can directly influence the court’s judgment. If the employer is able to prove the employee has signed for the payroll after the adjustment to the salary structure, the people’s court prefers to consider that the employee has agreed on and actually performed the labor contract after the modification[2].

(2) The employee doesn’t file a written objection.

In some cases where the employer could not prove the employee has signed for the payroll, the employer may argue that the employee has not file a written objection. The judge would combine some other factors (such as performance of employer’s notifying obligation, the duration of the implementation on the new salary structure, the steadiness of employee’s total salary) and consider whether to recognize the employer’s adjustment to the salary structure or not[3]. As the court wrote in the judgment of (2009)Pu Min Yi (Civil) Chu No.9543, “since……the fact that the defendant(the employee) didn’t file any written objection for nearly a whole year after he got his salaries paid, the court determines that the payroll provided by the plaintiff can be deemed as the written adjustment on the salary stipulated in the labor contract.”[4]

On the contrary, if the employee provides any evidence indicating that he has filed an objection immediately after he got his salaries paid, or immediately after he was informed about the adjustment to the salary structure, the judge will deem that the employer and the employee have not reached mutual agreement on the modification to the labor contract, so to determine the employer’s unilateral decision of modification on the labor contract invalid.

2. The steadiness of employee’s total salary is a contributing factor influencing judge’s recognition as well.

A few courts will consider a contributing factor as well besides the mutual agreement upon negotiation between an employer and employees, whether the adjustment to the salary structure has damaged employees’ actual interests[5]. Some judges believe that, if an employee’s actual salary did not make any difference after adjusting the salary structure, or even increase without any loss, the employee’s interests wasn’t infringed. Such adjustment to the salary structure implemented by the employer shall not be denied[6].

On the contrary, if an employee sets out any evidence showing that in a few months the employee’s actual salary decreased resulting from the adjustment to the salary structure, then such fact would affect the discretional evidence of the judge. The judge would tend to believe that, the adjustment to the salary structure without a consensus upon negotiation is, in fact, a trick of the employer to decrease the salary, so to make a judge to the disadvantage of the employer[7].

This situation, however, changes in some cases. In certain cases, the employer argued that “the total salary remained theoretically unchanged”. Even though the employee’s salary did decrease in a certain months; the court still supports the employer in the judgment and determines the adjustment to the salary structure reasonable and in compliance with law[8]. It is though an extreme case and its reference value is quite limited.

3. The adjustment to the salary structure implemented through rules and regulations is risky in the judicial practice.

Some employers adjust its salary structure through the modification on its internal rules and regulations. This measure is, to some extent, risky in the judicial practice and its risk lies mainly in the following aspects:

Firstly, the modification on rules and regulations shall be implemented through the democratic procedure and publication procedure. The employer shall, therefore, prove that it has completely performed its statutory obligation during the formulation and modification of rules and regulations.

Secondly, which is also the most significant, if the employer and the employee specifically stipulate the salary structure in the labor contract, even though the employer performed its statutory obligation, it is hard to deem that the employer has reached a consensus with individual employee regarding the modification on salary structure. As showed in the judgment of (2016) Hu 0118 Min Chu No.1367, “the plaintiff (the employer) adjusted the salary structure, which is effective to the employees who participated in the meeting and had no effect to the defendant (the employee)”.

In conclusion, as the judge confronts the adjustment to the salary structure implemented by the enterprises, it seems like a scale, on which holds the independent management rights of the employer on the one side, and holds the employee’s right to obtain labor remuneration in accordance with law on the other side. While the judge determines whether to recognize the adjustment to the salary structure implemented by the employer, the heavier the employer lays the weight, the more the scale will tip. As discussed in this article, since no specific regulations in the laws are applicable to the adjustment to the salary structure, the contributing factors in different areas cannot always coincide. It is advised that the enterprises shall prepare for relevant issues pursuant to the judicial practice while adjusting salary structure, to avoid the employee’s application for labor arbitration exposing the enterprise in the disadvantages.