Author

Dr. Guang Li, LL.M. (Cornell / Freiburg)

Salary Partner

Read More
Author

Dr. Guang Li, LL.M. (Cornell / Freiburg)

Salary Partner

Read More

11 June 2024

China’s SPC Released Typical Cases of Labor Disputes

  • Briefing

On April 30, 2024, China's Supreme People's Court (“SPC”) released six typical cases of labor disputes. These cases are of strong guiding significance for practice. We hereby summarize them below for reference only.

 

Case 1: Dependency is key to determining whether an employment relationship exists.

In this case, a company signed a so-called “Agreement on Contracted Services in Workshop” with all its workshop personnel. The agreement stipulated that the workshop personnel should comply with the company's safety system and was regarded as a “collective labor contract” with all the workshop personnel. The company also paid the workshop personnel their remunerations monthly. One of the workshop personnel requested the court to confirm the existence of his employment relationship with the company.

In this case, based on the following circumstances, the trial court ruled that there was a personal dependence and an employment relationship between the parties:

  • The parties have the subjective qualifications to establish an employment relationship;
  • the work performed in the company's workshops is part of the company's business and is remunerated on a monthly basis;
  • the Agreement on Contracted Services in Workshop in question states that it is regarded as a collective labor contract; and
  • the person concerned is subject to the company's safety regulations and labor management.

An employment relationship is a private service contract between an employer and an employee where the employee has a personal dependence on the employer. When determining whether an employment relationship exists between the two parties, courts do not only examine the title of the contract signed by the two parties, but also substantively examine the content of the contract and its actual performance.

 

Case 2: After concluding two consecutive fixed-term employment contracts with the same employer, the employee is entitled to unilaterally choose whether to sign an open-ended employment contract or not.

In this case, the employee and his employer had concluded two consecutive fixed-term employment contracts. The employer notified him of the renewal of the employment contract. Later, the employer again notified the employee that the contract would terminate upon expiration (probably due to the employee's reporting of the employer's failure to provide masks as required by applicable regulations). The employee demanded that the employer conclude an open-ended employment contract with him in accordance with the Labor Contract Law.

The trial court in this case found that the employee's complaint against the employer's non-compliance did not justify an immediate dismissal for good cause, nor could it trigger an ordinary no-fault dismissal (i.e., long-term illness and repeated incompetence) stipulated by the law. Pursuant to Article 14, Paragraph 2, Item 3 of the Labor Contract Law, in the absence of such statutory exceptions, the employer is legally obliged to conclude an open-ended employment contract with the employee after two consecutive fixed-term employment contracts have been concluded. The trial court therefore ordered the employer to sign an open-term employment contract with the employee.

This case shows, if an employee meets the conditions for conclusion of the open-term employment contract and no statutory exception applies, he/she is entitled to choose unilaterally, and his/her employer must not refuse to sign an open-ended employment contract.

 

Case 3: Non-competition agreements may not be entered into with employees who have access only to the employer's general business information.

The employee in this case worked for his former employer as a massage therapist and trainer. The parties entered into a confidentiality and post-employment non-competition agreement. The employee left his job and worked in the herbal pharmacy of a community health center two months later. The former employer then claimed from the employee liquidated damages for breach of the non-compete obligation.

The trial court held at first that the employee in this case was neither a senior manager nor a senior technician of his former employer. The evidence provided by his former employer only proved that the employee was exposed to the company's general business information in the course of his daily work, not the core business information. The employee who was only exposed to the general business information of the employer during the normal performance of his/her duties did not fall into the category of other persons subject to the obligation of confidentiality as stipulated in Article 24, Paragraph 1 of the Labor Contract Law. Therefore, the non-competition agreement in this case unlawfully infringed on the employee's freedom of employment, and the employee did not need to follow the non-competition obligation even though he had signed the non-competition agreement.

Article 24, Paragraph 1, Sentence 1 of the Labor Contract Law stipulates that a non-competition agreement can only be concluded with an employer’s senior managers, senior technicians and other employees who are under the obligation of confidentiality. In trial practice, courts did not only examine whether there is a competitive relationship between the new employer and the former employer, but firstly examined whether the employee concerned belongs to the personnel with whom a non-competition agreement may be concluded at all. Concerning the obligation of confidentiality here, it would rather refer to the obligation to keep core business secrets only. For more information about non-competition agreement please refer to this article.  

 

Case 4: When an employee's spouse invests in and/or operates an entity that competes with the employee's former employer, it may constitute a violation of non-competition agreement.

 

In this case, the employee worked as a senior manager of his former employer and had certain decision-making power over the former employer's management. They concluded a post-employment non-competition agreement, with non-competition economic compensation and relatively high liquidated damages. After the employee left his employment with his former employer, his wife invested in an entity that competes with his former employer. An affiliate of such competing entity also made social insurance contributions for the employee in this case. The former employer argued that the employee had violated the non-competition agreement and demanded that he return the non-competition economic compensation and pay liquidated damages.

The trial court held that the entity invested by the employee's wife was in competition with his former employer. Considering the close personal and property relationship between the employee and his spouse, the congruence of economic interests, and the fact that his wife's investment behavior basically occurred after the employee's departure from his job with his former employer, the employee was found to have violated the non-competition agreement. The trial court also decided that the employee should pay his former employer a corresponding amount of liquidated damages for his breach of non-competition agreement and ordered the return of the non-competition economic compensation paid by his former employer. When determining the amount of the liquidated damages, the court also considered the actual damage caused by the employee to his former employer, the employee's subjective degree of fault, the level of his salary and income, position, length of employment, the length of his breach of contract, the amount of economic compensation payable by his former employer and the local economic level etc.

As can be seen through this case, courts do not limit themselves to the wording of the parties’ agreement but would investigate the facts of the case fully. Circumvention and abusive practices will not be granted. The high liquidated damages might also be adjusted by considering all relevant circumstances.

 

Case 5: Employee was held liable for Employer’s damages caused by his refusal to hand over work after resignation.

In this case, the employee was engaged in research and development work for the employer. The employee resigned from the employer for no cause, left immediately and refused to complete the work handover procedures stated in his employment contract. As a result, the employer had to initiate backup plans, recruit staff, commission design and other remedial measures, and was held liable for breach of contract due to the delay in delivery. The employer then claimed compensation for damages from the employee.

The trial court held that after the termination of the employment contract, the employee shall, among others according to the contract between the two parties, go through the work handover procedures. If the employee's failure to complete handover caused damage to the employer, he shall be liable for compensation. Considering the employee's involvement in research and development, the timing of his departure, his salary level and other factors, the trial court determined the amount of damages.

Pursuant to Article 37 of the Labor Contract Law, an employee may terminate his/her employment contract by notifying the employer in writing 30 days in advance. During the probation period, an employee may even terminate his/her employment contract by notifying his/her employer 3 days in advance. Article 90 of the Labor Contract Law stipulates further where an employee terminates his/her employment contract unlawfully, he/she shall be liable for compensation of damages caused to the employer. When terminating an employment contract, not only the employer but also the employee should comply with legal and contractual provisions and complete all relevant procedures to avoid significant consequences of non-compliance.

 

Case 6: Male employee is entitled to paid nursing leave.

In this case, a male employee was entitled to nursing leave in accordance with the local regulations of Province Jiangsu after his wife gave birth to a child. His employer refused to pay his regular wages during his nursing leave, and he filed a lawsuit.

According to Article 24 of the Regulations on Population and Family Planning of Province Jiangsu, for couples who give birth to a child in accordance with the provisions of these Regulations, the mother shall be entitled to an extension of her maternity leave of not less than 30 days on top of the maternity leave provided for by the State, and the father shall be entitled to a nursing leave of not less than 15 days. During such leaves the employee concerned shall be paid as usual. The trial court therefore ordered the employer to pay the employee his regular salary during his nursing leave.

Provisions on the length and benefits of marriage leave, maternity leave, paternity leave, nursing leave, childcare leave, etc. vary by location and may be adjusted from time to time. It is strongly recommended that the currently applicable national and local regulations be checked and verified in individual cases to ensure compliance.

Call To Action Arrow Image

Latest insights in your inbox

Subscribe to newsletters on topics relevant to you.

Subscribe
Subscribe

Related Insights

Employees’ Participation in Corporate Governance under the Revised Chinese Company Law

23 January 2024
In-depth analysis

by Dr. Guang Li, LL.M. (Cornell / Freiburg)

Click here to find out more
China

Separation from Senior Managers in China: Care, Control and Compliance required

11 October 2022
Briefing

by Dr. Guang Li, LL.M. (Cornell / Freiburg)

Click here to find out more
China

Labor Authorities of China’s Yangtze River Delta Region Clarified Differences between Labor Dispatch and Labor Outsourcing

2 August 2022
Briefing

by Dr. Guang Li, LL.M. (Cornell / Freiburg)

Click here to find out more