China’s SPC Issued Guiding Cases to Enhance Protection of Labor Rights

The Supreme People's Court issued the 32nd Batch of Guiding Cases (Case No. 179-184) on 4 July 2022, with seven cases all concerning labor and personnel disputes.

Although these cases cannot be directly cited as legal basis for judicial decisions, they can be referred to by judges and lawyers as grounds for judicial reasoning or court arguments, and are therefore of great significance to legal practice in China, especially for employers. The following highlights are worth mentioning: 

Substance over form
In Case No. 179, the plaintiff and the defendant entered into an agreement named “cooperative business contract” on the establishment of a tea business project, agreeing that the plaintiff would be appointed as the project manager and the method in which he would be remunerated. The plaintiff later filed a lawsuit with the court due to a dispute over the remuneration, and the defendant claimed that the relationship between the two parties was not an employment contract, but a cooperative relationship in business. The judge opined that the determination of the nature of the contract should be based on the legal relationship involved in the content of the contract, i.e. the rights and obligations of both parties in the contract. The judge found that Article 3 of the concerning contract explicitly provides the details on how the plaintiff should obtain his remuneration from the defendant, which is a typical feature for an employment contract rather than a cooperation business contract, as for the latter, the key feature should be joint contributions and risk-sharing. Therefore, the nature of the concerning contract in this case was determined to be an employment contract.

Legitimate grounds for termination of the employment contract
In both Case No. 180 and Guiding Case No. 181, the employers terminated the employment contracts with the employees based on the internal rules and regulations of the employers, but the courts took different approaches to this issue.

In Case 180, the notice of termination given by the employer to the employee is emphasized as the key evidence for legal termination. As the law cannot list all the potential legal grounds for unilateral termination of an employment contract, the internal rules and regulations of the employer (provided they were legally made and published and thereby with binding effect to the employees) can provide certain legitimate reasons for the termination by the employer. It is held by the court that the employer should therefore list all the grounds of termination applicable to the circumstances of the employee in the notice. However, the evidence submitted by the employer failed to prove this key point. Therefore, the termination was deemed by the court to be illegal.

In Case 181, the employer fired a manager who condoned sexual harassment and interfered with the investigation of sexual harassment, based on the employer's rules and regulations against sexual harassment in the workplace. The manager later requested the court to rule that the termination was unlawful, which was not upheld by the court. The court held, firstly, that the Employee Handbook and Code of Business Conduct were binding on the parties. Secondly, the manager had violated the provisions of the Employee Handbook and the Code of Business Conduct against sexual harassment and misrepresentation, and the company was entitled to terminate his employment contract in accordance with the company's internal rules. The particularity of this case lies in the fact that in its judgement the court reaffirmed the employer's legal obligation to prevent sexual harassment, which is set out in principle in Article 101 of the Civil Code. Article 25 of the newly amended Law on the Protection of Women's Rights and Interests elaborates and specifies the employer's obligation to combat sexual harassment.

Post-employment bonus request
Case No. 182 and No. 183 both concern bonus requests after the employees left the employers. In Guidance Case No. 182, the court held that the employer cannot turn down a bonus request without justifiable reasons, since it stipulated in its regulation that the employee is entitled to receive bonuses after completing certain performance tasks and the employee met these conditions. It is not only the right but also the obligation of the employer to apply a bonus for the employee.

Case No. 183 deals with the issue of whether an employee who leaves before the payment time of the annual bonus as agreed is entitled to claim such payment. The key takeaway from this case is that the court should take into account the reasons for the employee's leaving, the time of his leaving, the work performance of the employee and the contribution of the employee to the company. However, if the termination is not due to the employee's unilateral fault or resignation, and the employee has completed the annual work tasks, while the employer cannot prove that the employee’s performance did not meet the criteria for his entitlement to the annual bonus, the court shall support the employee’s claim for the payment of annual bonus even before the agreed payment time.

In addition to the above cases, Case No. 184 specifies a situation in which the employer and the employee agree that the period of the employee’s applying for arbitration or filing a lawsuit will not be counted as part of the non-competition period, such agreement should be considered invalid. Case No. 185 reaffirms the principle of equality and anti-discrimination in employment.

In conclusion, this batch of guiding cases have great significance for handling employment law issues in China and show the trend that Chinese courts attribute an increased importance to handling employment cases concerning these important issues.