Recent judicial guidance signals continued high risk of reinstatement in Beijing
Reinstating a terminated employee is, no doubt, one of the worst outcomes for employers in many jurisdictions.1 Judicial guidance recently issued in Beijing signalled that employers in Beijing will continue to be plagued by this for some time. And in other locations, such as Shanghai and Guangzhou, local labour arbitration commissions and courts are becoming less keen to order reinstatement in practice.
New judicial guidance
On 30 April 2024, the Beijing High People’s Court and Beijing Municipal Labour and Personnel Disputes Arbitration Commission jointly issued a Notice on Issuing “Answers from the Beijing High People’s Court and Beijing Municipal Labour and Personnel Disputes Arbitration Commission to Questions about Trial of Labour Dispute Cases (I)” (the Notice). The Notice confirms the prior judicial guidance on local labour arbitration commissions or courts ordering reinstatement following wrongful termination.2 All labour arbitration commissions and courts in Beijing are expected to follow the latest guidance.
When will an Order of Reinstatement not be made
The Notice reiterates the general rule following a finding of wrongful termination. If the terminated employee wishes to be reinstated, an order of reinstatement should be made. That is unless the labour arbitration commission or court determines that the “employment contract [between the parties immediately prior to the termination] indeed cannot be performed any longer” – ie reinstatement is impossible or impractical.
The Notice also lists when reinstatement is impossible or impractical:
- The employer is declared bankrupt, its business license is revoked, it’s ordered to close, or it’s revoked, or the employer decides to dissolve early.
- The terminated employee reaches the statutory retirement age during the arbitration or litigation process.
- The employment contract expires during the arbitration or litigation process and the employer wouldn’t be obligated to offer an open-ended contract even if the terminated employee hadn’t been terminated.
- The position held by the terminated employee immediately before the termination is highly irreplaceable and unique to the normal business operation of the employer (eg general manager, financial director), and the position has been filled by someone else, and the two parties cannot reach an agreement on a new position.
- The terminated employee has joined a new employer.
- During the arbitration or litigation process, the employer sends a notice of resumption of work to the terminated employee, requiring them to return to work, but the terminated employee refuses to do so.
- Other circumstances in which it is obviously impossible to continue to perform the employment contract between the parties.
The Notice also warns the labour arbitration commissions and courts in Beijing not to order reinstatement solely based on the employer’s claim that the position held by the terminated employee immediately before the termination has been filled with a replacement.
‘Highly irreplaceable and unique’ position
Among the circumstances listed above, (d) is one claimed by many employers in vain because of the lack of a clear definition of “highly irreplaceable and unique” position. The Notice doesn’t provide more guidance on this issue, so employers should be cautious about making this claim.
Our observations are that there are certain factors that might be relevant. For example, local labour arbitration commissions and courts would be more likely to recognise a top-level management position as a highly irreplaceable and unique position. This might include Chief Executive Officer, Chief Operating Officer, Chief Human Resources Officer, Chief Financial Officer, Chief Technology Officer, Chair of the Board, General Manager or Deputy General Manager. But a non-managerial position generally would not be considered highly irreplaceable and unique.
Lower or middle-level management positions (eg HR manager, finance manager) are more controversial. The labour arbitration commissions and courts have broad discretion to determine the appropriateness of reinstatement based on the actual circumstances of each case. For example, there are two terminated employees: A and B. A was the finance manager of Company X with a finance director above them and two subordinates below them, while B was the only finance person in Company Y and handled all finance matters for Company Y. Obviously, Company Y would have a better chance of convincing the labour arbitration commission and court that the finance manager position held by B is a highly irreplaceable and unique position.
Loss of trust and confidence
Reinstatement is impractical because employers often claim they’ve lost trust and confidence in the terminated employee. But the Notice is still silent on this important point, which presumably falls into the last (g) “Other circumstances” item mentioned above.
A few recent court judgements issued by the Beijing courts3 indicate that the breakdown of trust and confidence between the employer and the terminated employee is an important factor in determining whether reinstatement is impractical or not. But courts in Beijing are generally cautious about ordering reinstatement solely based on this factor. Rather, the courts often determine that reinstatement is impractical based on some other factor, eg the position held by the terminated employee immediately before the termination is the “highly irreplaceable and unique” position (as discussed above), in addition to the employer’s loss of trust and confidence in the terminated employee.
Some recent court judgements issued by the Beijing courts highlight that the terminated employee’s act of filing a wrongful termination case against the employer alone is not enough for an employer to oppose reinstatement based on the loss of trust and confidence in the terminated employee. As such, employers should consider all the circumstances around the termination and collect solid evidence on the breakdown of trust and confidence between the employer and the terminated employee, especially proof of the terminated employee’s egregious behaviours at the time of the termination or after the termination, eg the employee sharing derogatory social media posts about the employer after being terminated.
Takeaways for employees in China
Considering the high risks of reinstatement in Beijing and some other locations in China, employers in China should be more careful about terminating employees. Where mutual termination cannot be reached, in addition to assessing the risks of the termination being ruled unlawful, the employer should assess the risks of reinstatement before proceeding in the unilateral termination. Given the current workload of labour arbitration commissions and courts in China, it’s not uncommon for an employer to get a final judgement several years after the employee is terminated. This means if reinstatement is ordered, the employer will have to pay back pay, in addition to ongoing salary payments and benefits.
Employers might have experience in handling unilateral termination cases in other locations, especially those where local labour arbitration commissions and courts are more employer-friendly in determining the appropriateness of reinstatement. But that experience might not be useful in handling similar cases in the current location. Employers should have different strategies to handle unilateral termination in different locations.
Ying Wang and Ying Li of Shanghai Kaiman Law Firm also contributed to this article.
1In China, if reinstatement is ordered, the employer will also be ordered to pay back pay to the employee from the day when the employee was wrongfully terminated at the employee’s normal salary rate immediately before the termination or at the local minimum wage rate (if the termination was only procedurally defective).
2See Answers from the Beijing High People’s Court and Beijing Municipal Labour and Personnel Disputes Arbitration Commission to Questions about Application of Law in Trial of Labour Dispute Cases, which was jointly issued by the Beijing High People’s Court and Beijing Municipal Labour and Personnel Disputes Arbitration Commission on 24 April 2017.
3Awards granted by the local labour arbitration commissions in China are not available to the public.
