By Linda Liang and Wen Qin, King & Wood Mallesons’ Labor Group
Ms. Li was first employed by Company A as Chief Financial Officer on November 29, 2012. The two parties had signed a three-year employment contract, the term of which is from November 29, 2012 to November 28, 2015, and the probation period is from November 29, 2012 to January 28, 2013. The Company and Ms. Li agreed in the Offer Letter that, the Company is entitled to extend the probation period based on Ms. Li’s performance during that period. On January 16, 2013, the Company conducted a performance evaluation on Ms. Li, and the result showed that the Company needed to extend Ms. Li’s probation period for another one month. Ms. Li had no objection to this decision and the Company extended her probation period to February 28, 2013. When the extended probation period was about to expire, the Company conducted another performance evaluation on Ms. Li, which showed that Ms. Li’s performance was unsatisfactory. Meanwhile, taking Ms. Li’s fake education credentials, frequent lateness and serious absenteeism into consideration, the Company terminated the employment relationship with Ms. Li on February 23, 2013 in accordance with Article 39 (1) of PRC Employment Contract Law. According to this Article 39 (1), if the employee is proved as having failed to meet the recruitment requirements during the probation period, the employer is entitled to dismiss him/her.
Ms. Li refused to accept the Company’s decision and filed for arbitration to the Labor Dispute Arbitration Commission. She claimed that the Company should pay her economic compensation for wrongful termination. During the arbitration stage, the Commission deemed the termination as wrongful. In response, the Company filed a lawsuit to the first-instance court challenging the award. The first-instance court held that, an employer may agree on only one probationary period with the same employee, and it was illegal for the Company to extend the probation period. Upon termination, Ms. Li should have passed the probation period and become a regular employee, but the Company had still used the ground of “failing to meet the recruitment requirements in probation period” as the termination ground to dismiss Ms. Li. Such termination is in violation with PRC law. The Company refused to accept the judgment and appealed to the second-instance court. The second-instance court sustained the original judgment.
In this case, the key issue was the agreement and extension of the probation period. The following two issues arising from this case worth our special attention:
1. Could the Company be capricious to extend the probation period?
In practice, we have observed two ways to extend the probation period. The first way is to extend the probation period to a term longer than the statutory maximum. For instance, for a one-year employment contract with two month probation, the employer further extends the probation period for another one month. Such extension is void even if the employees have recognized such extension in writing, because it violates the statutory maximum requirements on probation period.
The second way to extend the probation period is shown in this case. The Company and Ms. Li had signed a three-year employment contract, under PRC law, they may agree on a probation period up to six months. However, the Company had initially proposed a two-month probation period, then extended it for another one month based on the actual situation. The total probation period after extension was still within the statutory maximum for the term of probation period. Is this type of extension valid? Our answer remains no. That’s because Article 19 of PRC Employment Contract Law stipulates that, “an employer may agree on only one probationary period with the same employee” .We are of the view that, the extension of the agreed probation period may be deemed as another agreement on probation period, thus violating the mandatory provision of Article 19 of PRC Employment Contract Law. Even though the extended probation period does not exceed the statutory maximum, it will not be deemed as a legal and valid amendment to the employment contract, and should be considered void.
Why the law is not supportive towards extending the probation period? The reason is that, the law intends to protect the employees’ rights and interests during probation period. For employees on probation, many employers will not grant them with full wage as regular employees; in addition, employers may legally dismiss them during probation period by invoking the termination ground of “failing to meet the recruitment requirements during probation”, which may result in greater uncertainty on their employment relationship. By stipulating “an employer may agree on only one probationary period with the same employee”, the law wants to prevent the employer from damaging the employees’ interests by taking advantage of the employer’s strong position in employment relationship, and repeatedly lengthening the probation period to use the employees’ work force in a more flexible and economic way. Therefore, the extension of probation period should not be done in bad faith.
In conclusion, we suggest that when setting the probation period for employees, employer should not rely on the future possible extension of probation period which may be done based on the employees’ actual performance. Instead, employers should fully consider the capability of the employees and fix the term of probation period within the scope allowed by law. For employees with unsatisfactory performance during probation, the employer should conduct a performance evaluation and inform them of the result before the expiry of the probation period. For employees proved to have failed to meet the recruitment requirements, the employer may dismiss them based on Article 39 (1) of PRC Employment Contract Law.
2. Is it fine to end the employees’ probation in advance based on their excellent performance?
In practice, for employees with excellent performance, we have also seen many employers would like to shorten their probation period voluntarily or upon the employees’ request. Will such kind of conduct be deemed as another agreement on probation and thus be void? We do not think so. That’s because shortening the probation period through consultation will not create a second probation period. Such shortening is an amendment to the existing probation period and is beneficial to the employees’ interests. Therefore, we are of the view that such shortening is legal and valid.
In light of the above, the employer needs to note that, once the employer has agreed to shorten the probation period for the employees, the shortened probation period needs to be obeyed when dealing with the employment of the employees. Even if the employees’ performance become unsatisfactory after the shortening of probation period, if the shortened probation period has expired, the employer is not allowed to terminate the employees’ employment based on the ground of “failing to meet recruitment requirements during probation”.
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