Amending China Employee Contracts is Risky

It is difficult to back out of or even change a China employment contract once it has been signed, especially its most important terms like wages and position. China employers that try to change employment contracts often find themselves in arbitration or in court.

A case in Zhejiang province illustrates the difficulties employers face when they try to change an employee contract. In this case, the employer and an employee entered into a fixed-term employment contract that was to run from April 2012 until April 2015. The contract stated the employee’s position as assistant to the general manager, with pre-tax monthly wages set at 11,000 RMB. The contract also provided that if the employee met certain evaluation criteria at the end of the calendar year, he would get an additional 30% in monthly wages, which would make his annual wage 190,000 RMB. In July 2013, the employer unilaterally demoted the employee to HR administrative staff and reduced his monthly wage to about 3800 RMB. The employee handed over his unfinished tasks to his colleague immediately after he learned of this decision and filed for labor arbitration the very next day. The following month, the employer issued a written decision terminating this employee’s contract on the basis that he had failed to show up at work for six consecutive days.

The employer’s policy stated that employees would receive periodic evaluations (with A being the highest score, and E the lowest) and if an employee received 2 Ds or 3 Cs or 1 E during a 6-month period, the employer would consider the employee incompetent at his/her current position, and would then have the right to demote or adjust the employee’s position and reduce or adjust the employee’s pay.

The employer argued that the demotion of this employee was because of poor evaluation results: the employee had received three Ds three months in a row, from April 2013 to June 2013. However, the court said that because the evaluations conducted concerned the employee’s fundamental rights, including labor remuneration and work position, the employer must come forward with definitive and strong evidence to justify the demotion and salary reduction. The court ruled that it was inappropriate for the employer to make such significant changes based solely on three poor evaluation sheets and the evidence supporting the employer’s unilateral decision was not sufficient.

The employer also argued that even though it unilaterally amended the employment contract, it did not give the employee the right to unilaterally terminate the contract without prior notice and if the employee had wanted to terminate the contract, he should have given 30 days’ written notice, his failure to provide such notice constituted absenteeism justifying his terminating for failing to show up at work for several consecutive days. The court did not side with the employer on these arguments either, finding that because the employer had received notice of the employee’s labor arbitration claim it had no basis for issuing a termination notice based on the employee’s not showing up at work.

The court held that an employer may in some circumstances amend an employment contract, but amendment of significant issues such as an employee’s salary or work position should be done through mutual consultation. The court also stated that under ordinary circumstances an employee must give 30 days’ written notice for unilateral termination, that was not the case here since the employer unilaterally amended essential employment terms without first consulting with the employee, where the employer had failed to provide the labor conditions or protections required by Article 38 of the PRC Labor Contract Law. According to the court, the employee had every right to unilaterally terminate his employment contract without notice. As expected, the court also held that the employer’s inappropriate conduct was the basis for the employee’s departure and the employer must pay severance to the employee.

The employee also brought a claim for 30% of his wages from January through July; which according to his contract, he would be entitled to receive only if he passed the year-end evaluation. The court ruled that because the employee had to leave his employment because of employer abuse, he could not receive his year-end evaluation and for that reason, the employer must pay the full amount of the employee’s wages, including the 30% bonus. Long story short, the employer lost big time.

Even though unilateral salary reduction is possible in China, there are many hoops to jump through to accomplish this and the evidentiary burden for an employer to succeed with this is quite high. This case is yet another instance showing how Chinese courts are very protective of employees’ basic rights.

Bottom line: You as employer need to think long and hard before you take any unilateral action involving your employees in China. Unilateral amendment of an employment contract is just as difficult and risky as unilateral termination of an employee and it rarely is the most effective solution to employee problems. As Confucius said, more haste, less speed (欲速则不达). Or as our employment lawyers are always telling our clients, please, please, please come to us before you make your employment decisions, not after!