China employment: Do it right and you can avoid and win lawsuits. Do it wrong and you will likely pay the price. Last week in When Your China Employee Leaves. . . . I wrote how when it comes to terminating employment contracts in China, the courts do not treat employee and employers as equal parties; employees have much greater power than employers. I also mentioned how employees can leave their employ without penalty simply by providing advance notice of their intent to leave if their employer has failed to provide labor protection or labor conditions in accordance with the employment contract.
An employer that unilaterally changes its employee’s position (oftentimes, even ever so slightly) will usually be deemed to have breached the labor conditions in its employment contract.
Let’s take at a recent case in Shenzhen (simplified a bit for this post). In this case, a Shenzhen employer executed an employment contract with one of its employees that provided that the employee’s initial position was engineering technologist and the nature of work was to provide engineering technology services and management. According to the employment contract, the work location was Shenzhen and the employer had the right to adjust the employee’s position, responsibilities and work location according to the employer’s business needs. A few years into employment, the employer decided to have the employee work in a different office building within walking distance from the employee’s previous work location, but still within Shenzhen. The employee’s position was also was slightly modified, but the employee was still an engineer.
The employer served written decision on the employee of the two above ultra-minor changes but the employee did not sign off in writing on the decision, but nor did the employee voice any objections. The employee’s salary did not change.
After these adjustments were made, the employee failed to show up to work for several days in a row and each time, the employer made a disciplinary action against the employee, all according to its employer Rules and Regulations, which had been previously published and which were accessible to all employees. After taking a number of disciplinary actions against the employee for non-attendance at work, the employer terminated the employee in accordance with its employer Rules and Regulations.
The employee then initiated a labor arbitration claim against the employer, demanding (among other things) double statutory severance pay for illegal termination. In situations like this, the employer bears the burden of proof to show the court that the change was lawful.
The employee lost at arbitration and then took the case to court, where he lost again. The employee then appealed to the intermediate court and lost, and then petitioned the Guangdong High People’s Court for retrial and lost yet again, making this one of the rare cases where a China employer won. See China Employment Arbitration: Good Luck With That Battle.
The employer in this case won because it was able to prove ALL of the following: (1) the employment change was necessary for the employer’s operations; (2) the employee’s salary remained roughly the same; (3) the adjustment of the employee’s states was not of an “insulting or punishing nature”; and (4) the employer did not otherwise violate any applicable law and regulations. Most importantly, the employer had written evidence in Chinese backing all of this up. In this particular case, the trial court focused on (2) and (3) above and on how the employee’s salary had not been reduced, on how the employer had not changed the employee’s title or primary responsibilities, on how the employer had followed all of the necessary formalities in giving the employee advance notice and on how nothing indicated that the change for the employee was of an insulting or punishing nature. Perhaps most importantly, the court noted that the employment contract clearly provided that the parties agreed to the employer’s having the right to adjust the employee’s position according to the employer’s needs and the employer had disciplined the employee in accordance with the employer’s written Rules and Regulations.
Because the employer satisfied all of the above tests, it was able to terminate the employee without having to pay any statutory severance even though the employee was on an open-term employment contract. This case shows that though it is anything but easy to terminate an employee in China without incurring a financial penalty, it is possible if you have the proper employment contract and the proper employer Rules and Regulations and you document in writing your actions every step of the way.
Truth be told though, the real reason we are such sticklers for having the right employment contract and Rules and Regulations and right termination actions is not so much so that our China clients can get sued and win, but so that they never get sued at all. If you do everything right with your China employees and you pay them a bit of severance you can almost always get them to sign a binding agreement not to sue and that will — 999 times out of 1,000 cost you way less and take up way less of your time and be way less disruptive for your business than being sued three or four times, even if you eventually prevail.
Either way, doing it right pays off.