China Employee Terminations: Beware Reinstatement

What happens if a China employer makes an employee termination decision that is later ruled unlawful? According to the Responses to Several Issues Regarding Application of Law in Trial of Labor Disputes recently released by the Beijing High People’s Court and the Beijing Labor Personnel Dispute Arbitration Committee, the answer is specific performance. In other words, if you unlawfully terminate an employee, you must reinstate that employee to his or her previous position in your company. This technically applies only to Beijing but we expect this will become the norm in many other places in China as well.

Under this new law, if the employer’s termination decision is unlawful and the employee demands reinstatement such a demand will ordinarily be granted. If the court discovers reinstatement is not possible, the employee will be instructed to bring a severance claim for the unlawful termination. What circumstances will make specific performance “impossible?” The new law provides the following guidance:

1. The employer is declared bankrupt, has had its business license revoked, or has been ordered to close down or has decided to dissolve its entity;
2. The employee has reached mandatory retirement age during the arbitration/litigation process;
3. The employment contract has expired during the arbitration/litigation process, and the employer is not required by law to enter into an open-term contract with the employee;
4. The employee’s original position is critical to the employer’s normal business operation and is of an irreplaceable nature (e.g., general manager, finance manager), and the original position has been filled, and the parties cannot agree on a new position;
5. The employee has started working for another employer;
6. During the arbitration/litigation process, the employer delivered a notice of reinstatement to the employee and the employee refused to accept such notice;
7. Other circumstances that demonstrate obvious impossibility of specific performance.

As is true with many (most?) of China’s employment laws, the employer bears the burden of proving facts sufficient to invoke impossibility. Just because the employer found a replacement for the former employee, without more, it will not be sufficient for the employer to argue “specific performance is impossible.”

This new Beijing law is really not so new at all; it is more a clarification of existing law than anything else. Beijing has a longstanding reputation for a pro-employee approach and we have routinely seen cases where employers were ordered to give terminated employees their jobs back. It is important to note that employer’s cannot contract away their employees’ reinstatement rights.

Bottom Line: As a Beijing employer, you should assume reinstatement will be the norm for an unlawful employee termination, which is all the more reason to be be sure you handle all of your employee terminations lawfully. As for the rest of China, reinstatement will still largely depend on where and how.

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.