In a recent Beijing case, the Beijing Third Intermediate People’s Court held that a company’s written promise to increase its employee’s salary was enforceable and that the employee could receive RMB160,000 as back payment and statutory severance upon terminating the employment contract.
In March 2014, the company informed the employee in writing that his monthly salary would be increased from RMB11,000 to RMB16,000 effective that month. The employee did not respond to the written notice, and the company did not pay the salary increase. One year later, the employee terminated the employment contract claiming unpaid salary. The employee brought his claim to arbitration and to court seeking back payment for the promised salary and payment of statutory severance.
The company argued that the salary increase was conditional upon a share transfer deal between the company and a third party. When the share transfer deal fell through, the company’s financial situation did not improve as expected; thus, the company decided not to increase the employee’s salary.
The arbitration committee and the court of first instance both ruled for the company. They concluded that the company had discretion to rescind the promise up until it began performance of the promise. As long as performance had not begun, the employment contract remained unchanged.
The court of second instance reversed the judgment for the company. The Beijing Third Intermediate Court held that the salary increase promise was valid and enforceable from the date the written notice was issued to the employee. The court reasoned that the promise in the notice conferred a benefit to the employee and was not refused by the employee; thus, the written notice should be deemed as a mutual consent to change the salary provision of the employment contract.
Key Take-Away Points:
This case puts companies in Beijing on notice that a unilateral written promise to an employee can immediately modify the employee’s contract even if the employee takes no action to accept the promise. Failure to perform the promise can result in court awards granting back payment and statutory severance to the employee.