Ms. Yu, a store clerk, reached an agreement with her employer (the “Company”) when she joined the Company. According to the agreement, the Company should pay Ms. Yu a cash allowance of RMB 300 per month instead of making Social Insurance contributions for her while Ms. Yu should pay contributions for herself. After termination of employment, Ms. Yu filed an arbitration case with Labor Dispute Arbitration Commission, requesting the Company to make up the unpaid contributions of Social Insurance for her. This request was supported by the arbitration commission

After making up the unpaid contributions of Social Insurance for Ms. Yu, the Company filed a suit, requesting her to pay back the cash allowance and pay double indemnity as stipulated in their agreement.

The court ruled: as Ms. Yu has requested for the unpaid contributions of Social Insurance in the arbitration, she should pay back the allowance to the Company. However, since agreement is null and void for violating the law, and Ms. Yu has committed no fault, the Company’s request for double indemnity cannot be supported.

(Case Resource: the official website of Shanghai Court)

KWM Comments:

It is a statutory obligation that the employer should make contributions of Social Insurance for its employees, which cannot be waived by mutual agreement. Any agreement that waives such obligation shall be deemed null and void. The employer must make up the unpaid contributions of Social Insurance should the employee requests so, and is not entitled to claim for indemnity for the employee’s “breach of contract”. Kindly note that, pursuant to the Labor Contract Law, the employee may terminate the employment contract and ask for severance pay in the circumstance that the employer has not contributed Social Insurance for him/her in accordance with the laws. Thus, the employer should promptly pay social security contributions in full to avoid legal risk.