Judgment of second instance by the Beijing Higher People’s Court

[(2013) Gao Min Zhong Zi No.3148]

Key Points of the Judgment:

  1. In case of a long-term mutually non-connection status, parties will no longer enjoy any rights or undertake any obligations under employment relationship;
  2. Criminal punishment is a cause for suspension of employment. The employment should resume upon the release of employee.

Key Facts:

Li Yue began to work on October 1979, and was transferred to work for the appellee, The Company (the “Company”). In 1997, Li Yue caused millions of non-performing loan to company due to his operation against relevant policies. Li Yue started to be regularly absent from duties since June 1998 and has not been on service since November 1998. The Company ceased paying him salaries since November 1998.

In 2001, the Company was declared into bankruptcy procedures. During the procedures, the auditing authority discovered Li Yue’s operation in violation of the law and reported it to the police. On 11 September, 2002, Li Yue was arrested and subsequently convicted of dereliction of duty and was imposed a 3-year sentence, from 1 September, 2002 to 10 September, 2005. After his release, Li Yue submitted written claims to the Company respectively in 20 September, 2005; 4 April, 2006; 20 July, 2006, claiming for social insurance, housing fund, reemployment and payment interval. The Company neither replied his claims, nor made any decision to terminate or end the employment contract with Li Yue.

Afterwards, the Company allocated all the listed employees and had severance paid to them respectively according to the Company’s internal provisions entitled as the Diversion and Allocation Scenario, the termination date of employment contracts of all employees is 31 December, 2009.

Li Yue applied for the labor dispute arbitration on November, 2012, claiming for the payment of insurances and housing fund from 1998 to 2002 and from 2005 to 2011, which is rejected by the arbitral committee. The 2nd intermediate court ruled that the Company should pay as follows: (1) Living expenses for Li Yue from 1 September, 1998 to 10 September, 2002; (2) Severance package of for the ending of employment relationship and others.

Li Yue challenged this judgment and appealed to Beijing Higher People’s Court.


  1. Confirming that the Company should pay Li Yue salaries from 11 September, 2005 to 11 December, 2009;
  2. Confirming that the Company should pay severance package for the ending of the labor relationship with Li Yue.


Li Yue started to work for the Company in October 1993, and established the employment relationship accordingly. During the employment, Li Yue was taken criminal action. After Li Yue was released, the Company had never made a decision to terminate or end the employment relationship with him. Besides, according to the Diversion and Allocation Program issued by the Company, the termination date of employment relationships between the Company and its employees was 31 December, 2009. Therefore, the employment relationship between Li Yue and the Company was ended on 31 December, 2009.

Moreover, although the employment relationship remained valid till 31 December, 2009, both parties, since September 1998, are in the mutually non-connection status, i.e. the employee did not provide services for the employer for a long term, while the employer did not pay any salaries and relevant benefits to the employee for the same period. So neither party would bear any rights and obligations provided by labor laws.

From 11 September, 2002 to 10 September, 2005, Li Yue was detained due to the dereliction of duty and the employment relationship between both parties was in suspension. But on 10 September, 2005, the suspension cause of the employment relationship disappeared after he was released, and he expressly claimed for his rights from the Company for three times. But the Company had not carried out any relevant actions to end the employment relationship, so the employment recovered.

Source: http://www.court.gov.cn/zgcpwsw/

KWM Comments: Employer and employee could be deemed as not enjoying rights and undertaking obligations under employment relationship, where employee has not provided service for his employer for a long term and the employer has not paid any remuneration and other benefits to the employee for a long term, i.e. the two parties are in a long-term non-contact status, as provided in Article 14 of the Meeting Minutes of the Seminar regarding Several Issues surrounding the Application of Laws on Labor Disputes promulgated by Beijing Higher People’s Court and Beijing Municipal Labor Dispute Arbitration Committee. In addition, a criminal conviction is a cause resulting in the suspension or termination of employment relationship. In the event that the employer fails to exercise its right to unilateral termination, the employment relationship between the parties would be deemed to be suspended. Upon elimination of such cause, the employment relation should be resumed.