Court Awards Employee 43,380 RMB in Wrongful Termination Dispute Over Average Wage Calculation
Court Awards Employee 43,380 RMB in Wrongful Termination Dispute Over Average Wage Calculation
Case Overview
A manufacturing company in Eastern China was ordered to pay 43,380 RMB in compensation and damages to a former employee after the court found the company unlawfully terminated his employment contract. The central dispute concerned the calculation of the employee’s average monthly wage, with the company arguing for a lower figure based on net pay and the employee insisting on a higher figure including all monetary benefits. The court sided with the employee, applying legal standards for wage calculation.
Case Background and Facts
The employee, Mr. Liu, began working for the plaintiff hardware factory on September 20, 1998, serving as an assistant manager in the production department. On May 27, 2009, the parties signed an open-ended labor contract effective from May 6, 2009. On April 30, 2010, the company issued a public notice stating that due to economic downturn and the need for personnel restructuring, Mr. Liu was to stop working immediately and no longer hold his position. On the same day, the company issued a formal notice informing Mr. Liu that his labor contract was terminated effective immediately, with a final departure date of May 31, 2010.
Court Proceedings and Evidence
Mr. Liu filed for arbitration with the local labor dispute arbitration committee on June 3, 2010. On September 30, 2010, the arbitration committee issued a ruling ordering the company to pay Mr. Liu 43,380 RMB in compensation. The company then filed a lawsuit challenging this ruling, arguing that Mr. Liu’s average monthly wage for the 12 months prior to termination was 2,450.33 RMB, not the 2,892 RMB determined by the arbitration committee. The company based its calculation on bank transfer records showing the actual amounts deposited into Mr. Liu’s account. Mr. Liu argued that the bank transfer amounts were net pay after deductions for meals, utilities, temporary residence permits, social insurance, fines, and loan repayments. He asserted that his gross wage, which includes all these deductions, was 2,892 RMB per month. The court examined the wage slips and bank records presented by both parties.
Court Findings and Judgment
The court held that the company’s reason for termination, economic downturn and personnel restructuring, did not meet any legal conditions for lawful termination. The termination was therefore unlawful. Regarding the wage calculation, the court applied Article 27 of the Implementation Regulations of the Labor Contract Law, which states that the monthly wage for calculating economic compensation shall be based on the worker’s gross wages, including time wages, piecework wages, bonuses, allowances, subsidies, and other monetary income. The court rejected the company’s calculation of 2,450.33 RMB as it improperly excluded certain monetary benefits. The court accepted the arbitration committee’s finding that Mr. Liu’s average monthly wage was 2,892 RMB. Applying relevant legal provisions, the court ordered the company to pay economic compensation of 28,920 RMB for the period before January 1, 2008 (10 years at 2,892 RMB per year) and additional compensation of 14,460 RMB for the period after January 1, 2008 (2.5 years at double the monthly wage), totaling 43,380 RMB.
Key Legal Principles
The court applied the principle that the monthly wage for calculating economic compensation under the Labor Contract Law must be the worker’s gross wages, not net wages after deductions. This includes all monetary income such as bonuses, allowances, subsidies, and overtime pay. The court also reaffirmed that termination based on economic downturn or personnel restructuring, without meeting the statutory conditions for economic layoffs, constitutes unlawful termination. For unlawful termination, the worker is entitled to double the economic compensation that would be payable for lawful termination, calculated separately for periods before and after January 1, 2008.
Practical Insights
This case highlights the critical importance of correctly calculating an employee’s average monthly wage when determining termination compensation. Employers must use gross wages, including all monetary benefits and before any deductions, not the net amount deposited into the employee’s bank account. Deductions for meals, social insurance, utilities, and other items are part of the wage and must be included. Additionally, employers should carefully review whether their stated reason for termination meets the strict legal requirements under Chinese labor law. Using vague reasons such as economic downturn without following the proper procedures for economic layoffs will likely result in a finding of unlawful termination and significant financial liability.
Legal References
Implementation Regulations of the Labor Contract Law of the People’s Republic of China: Articles 25, 27
Labor Contract Law of the People’s Republic of China: Article 47, paragraph 1; Article 48; Article 87
Guiding Opinions of the Higher People’s Court of Guangdong Province and the Guangdong Provincial Labor Dispute Arbitration Commission on Several Issues Concerning the Application of the Labor Dispute Mediation and Arbitration Law and the Labor Contract Law: Article 30, paragraph 1
Disclaimer
This article is for informational purposes only and does not constitute legal advice. Consult a qualified attorney for specific legal matters.