On April 27, 2016, the Beijing No. 3 Intermediate People’s Court (“Court”) held a press conference regarding its annual review of labor disputes heard by the Court in 2015 and 2016, and addressed a wide range of labor issues.

The presiding judges commented that the number of labor disputes continues to grow over the years, and there has been a notable increase in the number of collective employee actions, claims brought by younger employees (between the ages of 25 to 35), and more high value disputes involving senior managers and senior technicians.

The Court clarified its position on a number of labor issues including the following:

  • Key terms required to constitute an employment contract:Offer letters that do not contain  key terms, such as labor remuneration, contract term, social insurance, labor protections and conditions, would not be treated as an employment contract, and the employee would be entitled to claim damages (such as double salary) for the company’s failure to sign a written employment contract.  Conversely, an offer letter or other signed covenants that contain the said key terms would be treated as an employment contract.  
  • Severance claims based on unpaid overtime: The Court would likely take different views on severance claims brought by employees who resign alleging unpaid overtime compensation, depending on the severity of the situation.  If the employer has not paid any overtime compensation for an extended period of time, the Court would likely support the employee’s severance claim in a resignation.  If, however, the company has paid reasonable overtime compensation, even though such amount is subsequently ruled to be inadequate by the Court, the employee cannot claim severance payment for his/her resignation.  
  • Treatment of annual leave during suspension of operations:Employees may not be able to claim annual leave compensation if they are required to take leave due to the company’s suspension of operations, provided that such suspension is legitimate, and the company pays salary or living allowances during the suspension.  Many cities’ local regulations require companies that suspend their operations and put the employees on leave to pay the employees full salary during the first month of suspension, and reduced wages afterwards.  
  • Incompetence criteria: Under the company’s performance ranking system, the employee who receives the lowest ranking among all employees does not necessarily satisfy the “incompetence” criterion under Article 40(2) of the Employment Contract Law, based on which the employer can unilaterally terminate the employee.  Therefore, the Court would likely ask the employer to prove additional factors to demonstrate how the employee is “incompetent” in support of its termination decision.   
  • Employment cessation certificate: An employee can claim damages against the employer for failure to issue the employee with an employment cessation certificate on a timely basis for government registration purposes.  The employee must prove that such a failure has resulted in a financial loss, such as preventing him/her from being able to enrol in new employment or to receive unemployment benefits.  
  • Non-competition payment for retirees: An employee whose employment contract expires due to his/her reaching the statutory retirement age can still claim non-competition compensation provided in the original employment contract, if he/she complies with such obligations. 

Key Take-Away Points:

Courts in China are becoming more sophisticated in handling labor cases and tend to review a number of factors when providing a ruling in each case. Companies should be aware that courts in different cities may hold different views on the same issues, and therefore they should be familiar with the courts’ views / attitudes on key employment matters in cities where they operate.