The Interpretation (IV) of the Supreme People’s Court of Several Issues on the Application of Law in Trial of the Labor Dispute Cases (the “Interpretation (IV)”) was issued recently. The Interpretation (IV) lays down rules on several issues regarding the application of law for labor dispute cases, mainly including:

  1. Judicial confirmation of the mediation agreement: where a mediation agreement is reached merely on payment obligations upon mediation by a people’s mediation committee, both parties may jointly apply to the primary people’s court for the judicial confirmation of the said mediation agreement.
  2. Consolidation of the service length with the former employer: where the employee is transferred from the original employer to a new employer for reasons not attributable to the employee, the original employer fails to pay any severance, and the employee terminates his/her employment contract with the new employer based on Article 38 of the Employment Contract Law, or the new employer initiates the employment termination with the employee, the employee’s service length with the original employee shall be consolidated into his/her service length with the new employer when calculating the severance payable.
  3. Specific standard for non-compete compensation: (1) where the parties entered into a Non-compete Agreement without agreeing on payment of non-compete compensation, and the employee abide by the non-compete obligations after the termination or ending of employment, the employee may claim a monthly payment of the non-compete compensation from the employer in an amount of 30% of the employee’s average monthly salary of the 12 months prior to the termination; (2) where the parties entered into a Non-compete Agreement and agreed on the payment of non-compete compensation, and the employer fails to pay the compensation for three months, the employee can request the court to remove his/her non-compete obligations; (3) the employer may terminate the Non-compete Agreement during the non-competition period, but the employee is entitled to claim an additional three-month compensations from the employer.

KWM Comments:

It is worth noting that the requirement of 30% of monthly average salary prescribed in the Interpretation (IV) is not applicable to certain regions, such as Shenzhen, where the local protection to employees is higher than the standard set out in the Interpretation (IV), which in minimum is 50% of the employee’s average monthly salary of 12 months prior to the employee’s leaving.