China Employment Contracts and Employer Rules and Regulations: Let Harmony Reign

A well-written employment contract, along with a set of China-centric rules and regulations are the starting point of what you must do if you have (or plan to have) employees in China. Though it is good thing to have both of these documents in place, it is even better when these two actually work together. Our employer audits often find a company’s employment contracts and employer rules and regulations to be in conflict with each other, with internal inconsistencies or discrepancies that confuse employees (and employers) and can work against the employer in a labor dispute.

Let’s look at a case in Shanghai for an example of this, with the facts simplified for this post. The parties entered into an employment contract for a fixed term under which the employee would be working as a cargo driver. The employee’s contract stated that if the employee is absent from work for five days without good reason, he will be unilaterally terminated without severance. But the employer’s rules and regulations say that an employee may be terminated for three days of absenteeism. The employee was designated to work flexible hours and the employer would give direct orders to the employee by phone regarding specific assignments, and absent such work orders, the employee would stand by at home.

It is undisputed that on August 11, 2015, the employee failed to dispatch per the employer’s direct order. On the very next day (the 12th), the employee was late in dispatching after having received an urgent work order from his employer. Then on August 19th, the employee received a work order and he then verbally notified his employer that he could not perform his duties because he was sick, but he did not provide a doctor’s note at that time. On August 20th, the employer issued a written notice to the employee giving him two days to provide a doctor’s note to prove he was indeed sick as he claimed to be. The employer also served a serious warning on the employee for being late on the 12th. Further, the notice required the employee to return his driver’s permit and operation permit to the company so someone else could operate his assigned vehicle. Then again on August 25th, the employer sent another notice to the employee requiring him to report to work by the following day (August 26th) or be treated as absent. The employer stated in its notice that because the employee had failed to return the relevant permits, the employer had suffered loss for not being able to operate the car assigned to this particular employee, and therefore this failure to return the permits constituted a serious violation of the employer’s labor disciplines. The employee returned the relevant permits and submitted a doctor’s note regarding his August 19th absence. The employer nonetheless terminated this employee for having violated the employer’s rules and regulations. The employee sued for unlawful termination.

The trial court sided with the employee and the employer appealed. On appeal, Shanghai’s First Intermediate People’s Court held as follows:

1. The employee’s contract expressly gave the employer the right to terminate the employee for being absent from work for five days without justification while the employer’s rules and regulations say three days. The two documents contradict each other on this point. The court went on to hold that applicable judicial interpretations stipulate that when there is a discrepancy between an employer’s rules and regulations and the employment contract and the employee requests the contract prevail, the court will grant such a request. Therefore, the court applied the terms of the employment contract, so only absenteeism for five days or more would justify unilateral termination without severance.

2. The employee produced a doctor’s note to show he was sick from August 19th through the 21st, so it does not make sense to say he was absent from work without a valid reason during that period.

3. Even though the employee failed to submit a doctor’s note within the 2-day period required by the employer in its notice, because August 22nd and 23rd fell on a weekend, the employee was absent from work for only three days: the 11th, 24th and 25th. Because the employment contract (which allows for five days of absences before termination) is the governing document, being absent for three days does not justify unilateral termination.

4. For the reasons stated above, the employer’s termination decision was unlawful.

5. Because the employer had no right to terminate the employee, the employer had no right to demand the employee return all the permits for the company car, so the employee should not have been punished for returning those permits late nor can he be held liable for the alleged damages that allegedly arose from his failure to return the permit.

If the employer in this case had taken the necessary time to make its employee’s contract consistent with its rules and regulations on the number of days of absence, the employer’s termination decision would probably have been held lawful.

Bottom line: Make sure your employee agreements are consistent with your rules and regulations and make sure they work well together. In comparing these two internal employment documents, make sure that you focus on the Chinese language versions of each because that is the version that legally matters.