By Xu Xiaodan King & Wood Mallesons’ Commercial & Regulatory group

xu_xiaodanAnswers to Questions on Trial of Labor Disputes (IV) (“Answers (IV)”] was released by the Zhejiang High People’s Court and the Labor Disputes Arbitration Commission of Zhejiang Province on 30 December 2016. These clarify some common questions about judicial practice and existing rules. The following questions arise:

Is an employee entitled to double his salary if statutory clauses are not included in his employment contract?

Pursuant to Answers (IV), if an employment contract omits statutory clauses (such as employment duration, job duties, remuneration, labour protection, working conditions) but there is a genuine intention for the parties (employer and employee) to establish an employment relationship, the contract is likely to be deemed valid. The employee’s claim for double his salary will not be supported. In this situation, the parties can negotiate any omissions in the contract. Failing this, relevant provisions from collective contracts (if any), laws and regulations can be applied.

The fundamental factors in determining whether an employment contract is valid are: (a) whether the parties have expressly agreed to establish an employment contract; (b) whether the contract violates the law and; (c) whether the omissions affect the validity of the contract. If this rule is implemented claims for double salary will decrease in Zhejiang courts.

Does sick leave count if it is during the probationary period?

Pursuant to Answers (IV), the purpose of the probationary period is for the parties to observe and test each other. Sick leave affects this purpose and therefore can be excluded.

An amendment to the length of the probation clause must be by the mutual consent of the parties. The clause may not be extended or shortened by either party at will. The Answers (IV) allows an extension of the probationary period when an employee needs time off due to illness.

If an employee resigns before his annual performance is paid, is he entitled to receive that bonus?

According to Answers (IV), if the employer has an internal policy (formulated in accordance with related rules and regulations) whereby an employee’s annual performance bonus will not be paid if he resigns before it is due, this provision will not violate the mandatory requirements of the law. Therefore the provision will be valid and usually will be supported.

Judicial opinion on disputes about end of year bonuses varies across regions. Some arbitration committees and courts rule that if an employee has worked for twelve months to a satisfactory standard, it would be unfair to deprive them of their right to an annual bonus solely because they are no longer on the payroll. If this was allowed, some employers might intentionally postpone the payment of annual bonuses (for example, making payments in May or June of the next year). This would harm the interests of employees.

Can employers terminate post-employment non-compete agreements?

Pursuant to Answers (IV), when terminating an employment contract, the employer can rescind the non-compete agreement and avoid paying the three-month economic compensation.

Unless contrary to the law, an agreement may be altered or terminated by mutual agreement. Answers (IV)allows an employer to unilaterally terminate a non-compete agreement without paying the three-month economic compensation usually required. This is not in the interests of employees. For example, if a non-compete agreement was rescinded on the date of an employee’s departure, and the employee had planned to perform the non-compete agreement and was expecting economic compensation, the rescission will damage the employee financially.

However, the non-compete agreement could incorporate the following: “the employer is entitled to rescind the non-compete requirement when an employee’s departs and as a result, economic compensation will not be paid”. In this case, employees will be aware that such a right exists and will not have the same expectations about compensation.

False identities and work-related injuries – will compensation be given?

According to Answers (IV), if an employee completes an employment contract with a false identity and the employer purchases work injury insurance based on that false identity (without fault such as negligence), the employee must bear the cost of his fraudulent conduct. Insured work injury compensation is supposed to be paid by the work injury insurer not the employer. However, because the employee has de facto labor relationship with the employer, the employer must be responsible for the work injury compensation which it is liable for.

The above provisions are reasonable as they have considered the legitimate interests of both parties.

A definite 24 month period for specific diseases?

The Announcement by the Ministry of Labour on Implementing ‘Provisions regarding Medical Treatment Period for Diseases or Non-work-related Injuries of Enterprise Employees’ [Lao Bu Fa (1995) No. 236]provides that “for an employee who suffers from specific diseases, such as cancer, psychosis, paralysis, their period of medical treatment can be extended with approval from the enterprise and labour administration if he/she cannot be cured in 24 months”.

Answers (IV) states that this must not be interpreted as an assurance that an employee with a specific disease will be given a 24-month medical treatment period. The medical treatment

period will still be determined by the number of years the employee has been working for the employer. The calculated period may be extended if he/she cannot be cured within that time.

Whether an employee with a “special disease” is entitled to a 24-month medical treatment period is controversial. Arbitration commissions and courts in some areas such as Beijing, Jiangsu and Hunan have adopted a pro-employee approach and granted a 24 month period. In other regions, such as in Zhejiang Province, things are different. Employers must consider and handle situations on a case-by-case basis.