Beijing Employee Terminations and The Good Faith Principle

As I have previously written, one of the best grounds for unilaterally terminating a China employee without having to pay statutory severance is for a serious breach of employer rules and regulations.

The basic rule is that if you as an employer do not have specific provisions in your rules and regulations that will justify the termination, you may have no recourse against an employee, no matter how terrible your employee’s conduct. Shanghai courts, however, generally dislike employees who act in bad faith and for that reason, a Shanghai-based employer may still be able to terminate an employee who has acted in bad faith so long as the employer rules and regulations give them reasonable grounds for doing so. If you regularly follow my China employment law blog posts, you know Beijing and Shanghai do not usually see eye to eye on most employment law issues. The recent (decided just last month) Alibaba employee case I write about below indicates Beijing is inching closer to Shanghai in putting more emphasis on the employee’s duty of good faith.

The employee was hired by Alibaba to work as a senior manager in Beijing beginning January 28, 2013, under a fixed-term employment contract without a probation period. On April 19, 2013, the employee notified Alibaba via email that he had to take a 2-week sick leave to treat his neck pain and Alibaba approved. Specifically, the employee told Alibaba he suffered from a severe headache and then after a doctor’s appointment, he learned he had serious neck problems and would need two weeks of full rest and he might need hospitalization for more treatment after his follow-up appointment after the Labor Day holiday. The employee later produced a doctor’s note issued on April 18 that essentially confirmed the above. The employee then went to Brazil on April 19, 2013 and returned on May 4, 2013. On April 25, 2013, Alibaba first tried to terminate the employee by citing the employee’s  failure to satisfy the conditions of his employment during the probation period, but it then withdrew that notice. Alibaba then issued a notice of immediate termination to the employee on May 16, 2013, citing a serious breach of employer rules and regulations based on the employee having deceived his employer and having provided false information to go on a leave. Alibaba seemed to believe that if the employee’s neck problems were so bad, he could not and should not have gone to Brazil. The employee disagreed, claiming his trip to Brazil was not for pleasure and contending it was none of the employer’s business where he was while on an approved sick leave.

The employee brought a claim against Alibaba for unlawful termination and demanded the reinstatement of his old job. The employee won at trial and then again on appeal. The primary basis for Alibaba’s losing was because there was nothing in the employer rules and regulations restricting where an employee must be during sick leave and no such mandate in any Chinese law, there could be no statutory basis for the unilateral termination. Finally, at a re-trial before Beijing High People’s Court, the employee lost, somewhat unexpectedly. The Beijing High People’s Court stated that although it was true employers should have reasonably specific rules and regulations, it would be impractical to require the rules and regulations to cover every single detail regarding an employee’s daily activities and when the document was silent on a specific situation, the basic principle in the civil code should apply and the employee can be expected to follow the principle of good faith, which was the foundation of every employment relationship. It ruled that even though the employer rules and regulations did not specify where employees must take their sick leave, the employee’s behavior during the leave must be consistent with the reasons for taking the leave. It went on to say that based on “common sense,” Alibaba had every right to question the purpose of the employee’s leave request and the employee’s refusal to come forward with the truth when questioned by Alibaba meant he violated the principle of good faith, causing significant bad consequences to Alibaba by disrupting its work order and business operation. Alibaba was therefore justified in terminating the employee for his serious breach of the employer rules and regulations.

Please do not read too much into this case. Note the employer was Alibaba, not some WFOE. Also, think about the time and money and not so good publicity Alibaba got for taking this case through all these proceedings. And is it really reasonable to believe this one employee disrupted Alibaba’s business operations by taking a two week trip to Brazil? Go with mutual termination if you feel you must terminate an employee or maybe just give them a second chance.

Bottom Line:, This may be the beginning of a trend (but it probably isn’t), but the bottom line is still the same: if you don’t have  well-crafted rules and regulations, you will still find it nearly impossible to terminate a problem employee, in Beijing and pretty much everywhere else in China.

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.