Amending China Employment Contracts Just Got Tougher

Amending a major term (position/pay) of your China employee’s employment contract involves considerable risk and therefore requires substantial care.

Let’s consider a fairly recent case in Jiangsu province. The employee was hired as a senior engineer for product design and development. The employee made roughly RMB 7,000 per month before leaving his job. Several years into his employment, the employer essentially suspended the employee from his original position as the company was going through structural changes. Right after providing the employee with his suspension notice, the employer stopped giving the employee his original product design and development work tasks and instead was instructed to “stand by” at an empty desk at the HR department. The employee also had his salary reduced. About three months after receiving the suspension notice, the employee resigned, suing for severance pay based no his employer having failed to provide him with normal labor conditions by refusing to allow him to engage in his normal work.

The case went through labor arbitration and courts at two levels. The appellate court first recognized that the employee had the right to terminate the employment contract and ordered the employer pay the employee damages for having failed to provide him the labor protections and conditions set forth in the employment contract. The court ruled that because the employment contract provided for the employee to have the position of senior engineer, having the employee stand by at an empty desk at the HR department, reducing the employee’s salary, and not giving the employee any work constituted an abuse of its right of personnel management and entitled the employee to damages for weakening the employee’s professional skills and demeaning him.

The court rejected the employer’s argument that the employee had implicitly agreed to amend his employment contract by not making any objections within one month following notice of his suspension. The court ruled that the employer was entitled to manage its own personnel according to its business needs but it had abused that right by acting unreasonably. The court ordered the employer to pay the employee severance for the termination. Because the employee had worked for the employer for 16 years before his resignation, the court awarded the 16 months’ salary as severance.

What lessons are to be learned here? The safest way to amend an employment contract is via a mutual agreement. Employees nearly always consider unilateral changes to their job duties, position or remuneration to be a big deal and China’s labor authorities and courts typically feel likewise. Not only will mutual amendments lead to far fewer lawsuits and greatly decreased liability risks, a well-crafted employment contract amendment also ensures both sides are on the same page with what is being amended (and what is not). There are few things more frustrating for our China employment lawyers than being called after an employment contract amendment rather than before. As for our clients, I can tell you that amending an employment contract typically takes our China employment lawyers a few hours, while defending against an angry employee whose contract has been unilaterally amended typically takes us tens of hours.

From a physiological standpoint, working with an employee to amend their employment contract also gives the employee a voice in the process and makes them feel more empowered. Mutual amendments are considerably more likely to achieve an outcomes acceptable to both parties and less likely to result in confrontations and disputes and high costs. If the employer and the employee are unable to reach agreement on amending the contract, the employer should consider whether it might make sense to reach a mutual termination agreement with the employee so the parties can part ways amicably.

The case I wrote about above involved a Chinese company and its Chinese employee, but it highlights how this economic downturn is heightening protections for Chinese employees across the board. In Terminating Your China Employees Just Got Tougher, I wrote about how the Chinese government and its courts are taking a tough line regarding how foreign employees treat their Chinese employees. As a foreign employer, you should always just assume China’s tribunals will be even tougher against you for whatever you do involving your Chinese employees. These are tough times for foreign employers in China and the costs of getting even the smallest things wrong have gone up.

Just saying….

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.