China: How to lawfully adjust the post or salary of an employee unilaterally by an employer?

Labour Law Newsletter
Last Updated: 18 February 2015

by Maggie Kong, Shane Lou, Susan Shan, Kent Xu, Grace Yang, Anderson Zhang and John Zhou

Unilateral adjustment of post or salary is the most likely situation where a labor dispute may arise. It involves the balance between employers' right to recruitment and employees' right to employment. Hence, the Employment Law and Human Resource Committee of Dacheng Law Offices summarizes the main practices regarding this difficult issue for your reference.

  1. Circumstances stipulated by law where employers are entitled to adjust employee' post or salary

Article 35 of the Employment Contract Law of PRC regulates: 'an employer and an employee may amend the provisions of their employment contract if they so agree after consultations. ' This regulation means that consultation is one way to amend the employment contract, but it does not exclude an employer's right to revise the employment contract unilaterally. On the contrary, Item one and Item two of Article 40 of the Employment Contract Law of PRC not only grant an employer the right to terminate the employment relationship with an employee who does not violate the internal rules or regulations of the employer but grant an employer the right to adjust the post of an employee unilaterally under the circumstances where the employee's medical treatment period expires or the employee is not competent to his job. While pursuant to Item three of Article 40 of the Employment Contract Law of PRC and the Reply regarding Relevant Questions of Disputes due to Post Adjustment between Employees and Employers issued by the General Office of Ministry of Labor, when a major change in the objective circumstances relied upon at the time of conclusion of the employment contract renders it unperformable, if the employers put forward the offer of post or salary adjustment, the employee should either take the offer or accept the termination. Employers, in fact, have the right to unilaterally adjust the employees' posts or salaries.

  1. Circumstances recognized by law where employers are entitled to adjust employee' post or salary indirectly by the lawful internal rules or regulation formulated by the employers

Item one of Article 4 of the Employment Contract Law of PRC regulates that employers shall establish and improve internal rules and regulations, so as to ensure that employees enjoy their labor rights and perform their labor obligations. Besides, Item two of Article 4 of the Employment Contract Law of PRC regulates that the internal rules and regulations cover matters, that have a direct bearing on the immediate interests of employees, such as those concerning labor compensation, work hours, rest, leave, work safety and hygiene, insurance, benefits, employee training, work discipline or work quota management. The post and salary of employees are of course within the scope. Considering this, the evaluation of the legality concerning the unilateral adjustment of employees' post or salary by employers conducted by the judicial authority will focus on whether the employers' internal rules and regulations are lawful, whether these internal rules and regulations are passed through democratic procedures, violate laws, administrative regulations or policies, and are publicly displayed to the employees.

  1. The latest judicial interpretation lowers the strictness of the regulation of Article 35 of the Employment Contract Law of PRC that amendments to an employment contract shall be made in writing. As a result, this leads the legalization of the unilateral adjustment of post or salary for some employees who could not prove their clear objection.

Article 11 of the Supreme People's Court's Interpretation on Several Issues Concerning the Application of the Law in Labor Dispute Trials (IV) regulates that amendments to an employment contract not made in writing, namely made in verbal and the amendments do not go against with the law, administrative regulation, state policies and pubic order and good customs and have been performed for over a month. If the party involved claims that the orally amended employment contract is invalid due to the lack of written form, the People's court shall not uphold. It may mean that if employers unilaterally adjust employees' post or salary and the amended employment contracts which do not go against with the law, administrative regulation, state policies and pubic order and good customs and have been performed for over a month, without opposite evidence to prove that employees have rejected the adjustment, employers' unilateral adjustment of post or salary will become legitimate due to employees' failure to provide evidence.

  1. Of course, employers' right to recruitment which includes the unilateral adjustment of post or salary shall be subject to the law and is likely to receive the judicial review on reasonability.

Article 5 of Special Provisions on Labor Protection of Female Workers regulates that employers shall not reduce the wages of female workers, dismiss female workers or rescind the labor or employment contracts with female workers when the female workers are pregnant, give birth or breast-feed their babies. As for the female workers who are pregnant, give birth or breast-feed their babies, employers can adjust their post but cannot lower their salary. Besides, although Article 11 of the Supreme People's Court's Interpretation on Several Issues Concerning the Application of the Law in Labor Dispute Trials (IV) gives convenience to employers, it puts forward the review requirement that the amended employment contract shall not go against with the law, administrative regulation, state policies and pubic order and good customs. That is to say, the judicial authority will not only review the legality of unilateral adjustment of post or salary but will review the reasonability of that as well. Hence, there are some local trial practices. For example, Article 22 of the Directive Opinion about Several Issues regarding the Application of Employment Contract Law of PRC and Labor Dispute Mediation and Arbitration Law of PRC Issued by Guangdong Supreme People's Court and Guangdong Provincial Labor Dispute Arbitration Commission in 2012 stipulates that employers adjusting the employees' post would be viewed as the act that employers are exercising the autonomous right of recruitment legally if the circumstances below would be followed at the same time, if the employees request to rescind the employment contract and ask the employers to pay economic compensation using the reason that employers' post adjustment is without permission, the court shall not uphold:(1) post adjustment is out of the need of employers' production and operation; (2) employees'salary of new post is evenly matched to salary of their former ones; (3) post adjustment is not used for insult or punishment; (4) there are no other circumstances that would violate laws or regulations. Item three of Article 6 of Answers to Several Questions regarding Labor Dispute Case Trial Issued by Shanghai Supreme Court specifies that if the employment contract has stipulated the relative conditions of post and salary adjustment, both parties can follow those articles. Although there is agreement in the employment contract and the adjustment conditions and directions are not clear, employers should provide sufficient evidence to prove the reasonability of adjustment. Otherwise, employees could request employers to revoke the decision of adjustment.

Case Study: Cautiously Handling Post Adjustment though Employee fails to Pass Year-end Evaluation but Rejects

In November 2010, a worker found a job at a company, working at the post A. As the worker's year-end evaluation of 2012 was just competent, the company decided not to grant him the year-end bonus and to adjust his post to post B. The worker refused to work at the post B and the company unilaterally terminated his employment relationship pursuant to the company's internal rules and regulations: refusing to obey reasonable post adjustment should be deemed as absent from work for three days.

The worker then applied for labor arbitration, claiming the company to pay the year-end bonus of 2012 and economic compensation for illegal termination. The arbitration commission rejected his claim of year-end bonus but upheld his claim of economic compensation. The company dissatisfied with the award and sued at the court. The court held that when the company adjusted the employee's post according to his working performance but could not reach an agreement with the employee, the company shall positively communicate and negotiate with the employees to reach an agreement upon post adjustment, work suspension or termination of the employment contract. However, when the employee expressively rejected the post adjustment and the company did not put forward evidence to prove that it had notified the employee to work at the new post within specific time limit, the unilateral termination on the ground 'refusing to obey reasonable post adjustment should be deemed as absent from work for three days' was clearly not appropriate. Hence, the court ruled that the company lost the lawsuit. The company appealed, and both parties reached settlement in the second instance.

Our Committee is in the opinion that the ruling of the court in the first instance is not appropriate. Employers' unilateral adjustment of employees' post according to effective internal rules and regulation and employees' working performance belongs to the employers' right to recruitment. The court's request of further communication and negotiation by the company when the employees expressively reject reasonable post adjustment does not have legal grounds. While, as the labor law adopts the tendency of protecting the employees, from the perspective of lowering the legal risks of employers, employers shall formulate effective internal rules and regulations to prove the legality of post adjustment on the one hand. On the other hand, employers shall be cautious when the employees expressively reject the post adjustment by offering reasonable waiting period for employees. If the employees still refuse reasonable adjustment when the waiting period expires, the employer may terminate the employment contract on the ground of material violation of the internal rules and regulations of the employers, which may be recognized by judicial authority more easily.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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