Wrongful Termination and Unpaid Wages: An Employee’s Claim for Compensation in a Chinese Labor Dispute

Wrongful Termination and Unpaid Wages: An Employee’s Claim for Compensation in a Chinese Labor Dispute

CASE OVERVIEW

This case involves an appeal by Ms. Song against her employer, An Insurance Company and its Shenzhen branch, regarding wrongful termination, unpaid wages, unpaid annual leave, and other benefits. The dispute centered on the legality of the employer’s decision to dismiss Ms. Song and the calculation of her final compensation. The court ultimately upheld the original judgment, which found the termination unlawful and awarded the employee damages.

CASE BACKGROUND AND FACTS

Ms. Song began her employment with the Shenzhen branch of An Insurance Company on December 26, 2005, under a one-year contract. In May 2006, she was transferred to the company’s headquarters, where she signed a three-year contract running from December 26, 2006, to December 25, 2009, with a monthly salary of 10,000 RMB. Ms. Song claimed the company refused to provide her with a copy of this contract, citing an internal policy against returning contracts to employees.

Ms. Song was transferred back to the Shenzhen branch in May 2007. The department she joined later ceased operations in November 2007. In May 2008, the branch informed her of a potential layoff, offering either a demotion with a salary reduction or a negotiated termination with severance pay. No final decision was communicated. On August 11, 2008, the branch issued a formal notice of dismissal, citing reasons such as chronic lateness and failure to comply with attendance rules. The company later offered to withdraw the dismissal if Ms. Song signed a release agreement waiving all claims. Ms. Song refused, arguing the dismissal was unlawful.

COURT PROCEEDINGS AND EVIDENCE

Ms. Song initiated arbitration, which resulted in an award of 83,330.67 RMB. Dissatisfied, she filed a lawsuit, and the lower court awarded 75,666.52 RMB. Both Ms. Song and the company appealed to the intermediate court.

During the appeal, both parties agreed that Ms. Song’s total bank-transferred salary for the twelve months before her dismissal was 99,901.20 RMB. The company also confirmed it had paid Ms. Song 200 RMB monthly for communication and 220 RMB for lunch subsidies in cash. The court noted that the company had withheld a 1,000 RMB monthly performance bonus from October 2007 to August 2008, totaling 10,000 RMB.

The company argued that the dismissal was justified under its employee handbook, which Ms. Song had acknowledged. It also claimed Ms. Song was not entitled to the performance bonus because she failed to meet performance targets and that she was not owed annual leave pay because she had not requested leave.

COURT FINDINGS AND JUDGMENT

The court rejected the company’s defense on the dismissal. It held that the company failed to provide any evidence to support its claims of Ms. Song’s misconduct, such as chronic lateness or attendance violations. The court affirmed the lower court’s finding that the dismissal was unlawful.

Regarding the calculation of Ms. Song’s average monthly wage, the court noted that the parties agreed on the bank-transferred salary of 99,901.20 RMB. Adding the withheld performance bonus of 10,000 RMB and the monthly cash subsidies of 420 RMB, the court calculated her actual average monthly wage as 9,578.43 RMB. However, because her contract specified a wage of 10,000 RMB, which was higher, the court upheld the lower court’s use of 10,000 RMB as the basis for calculating compensation.

The court also addressed the effective date of dismissal. Ms. Song initially stated in arbitration that her last day was August 5, 2008, but later claimed it was August 11, 2008. The court applied the principle that a party is bound by its own prior admissions unless contradicted by strong evidence. As Ms. Song provided no such evidence, the court confirmed the dismissal date as August 5, 2008.

The court upheld the lower court’s calculation of the penalty for unlawful termination. Using the local statutory cap of 9,699 RMB per month, the court calculated the penalty as 58,194 RMB (9,699 x 3 x 2).

The court dismissed Ms. Song’s claim for contractual违约金 (liquidated damages), noting that the law already provides a remedy for unlawful termination. It also rejected her claim for overtime pay, as she failed to prove she had applied for overtime in accordance with company policy.

On annual leave, the court applied the relevant regulation to calculate Ms. Song’s entitlement for 2008 as 5 days. It ordered the company to pay 4,597.70 RMB for unpaid annual leave, calculated at 200% of her daily wage.

The court also ordered the company to pay the withheld performance bonus of 10,000 RMB plus 25% compensation, and August wages for the days worked.

KEY LEGAL PRINCIPLES

The court applied the principle that an employer bears the burden of proof when dismissing an employee for cause. Failure to provide evidence of misconduct results in a finding of unlawful termination.

The court reaffirmed that a party’s prior admission of a fact in legal proceedings is binding unless rebutted by clear and convincing evidence.

The court held that the statutory remedy for unlawful termination under the Labor Contract Law precludes a separate claim for contractual damages for breach of the employment contract.

The court clarified that an employee’s failure to request annual leave does not waive the employer’s obligation to arrange or pay for such leave.

PRACTICAL INSIGHTS

This case underscores the critical importance of documentation for employers. A dismissal based on alleged misconduct will not be upheld in court without concrete evidence, such as attendance records or disciplinary reports.

For employees, it highlights the need to carefully track and preserve evidence of all communications and transactions with an employer, including salary payments and contract terms. The case also demonstrates that an employee’s own statements in arbitration or court can be used against them.

The ruling on annual leave serves as a reminder that the obligation to provide paid annual leave is an employer’s responsibility, not contingent on an employee’s request.

LEGAL REFERENCES

Enterprise Staff Paid Annual Leave Implementation Measures, Article 5, Paragraph 1.
Civil Procedure Law of the People’s Republic of China (2007 Revision), Article 153, Paragraph 1, Item (1).

DISCLAIMER

This article is for informational purposes only and does not constitute legal advice. Readers should consult a qualified legal professional for advice on specific legal matters.