Many companies have to adjust their structures and departmental settings because of changes in the markets or industries, so their employment relationships with their employees need to be changed accordingly. In light of this, the question arises, whether a company can negotiate with their employees to amend the employment contract? What options does the company have if an employee does not agree to desired changes? To answer those questions take a look at the case below.
Lily joined the business department of a company ( hereinafter “Company” ) in November 2012 and signed an open-ended employment contract with the Company. In March 2018, the Company issued a notice of termination of the contract, stating that the Company is planning to restructure its business and organizational structure and is negotiating with Lily to transfer her to the marketing department, however Lily refused to work there. As a consequence, the Company terminated the employment contract with Lily in accordance with the law.
Lily filed a labor arbitration on the grounds that the Company had illegally terminated the employment contract. She demanded that the Company pay her damages for illegally terminating the contract, which is two months’ wages for each year she was working for the Company. The final judgement was rendered by the appellate court in October 2019, after a labor arbitration and a first instance trial. The appellate court decided that the Company could terminate the employment contract legally under such circumstances and all it had to pay was severance, which was a one month’s salary per each year of employment.
To help our readers better understand applicable laws, we are sharing the Court’s views as follows:
The court of first instance held that: an objective situation generally refers to a situation which can’t be controlled by either parties. Major changes in the Company’s own economic situation such as adjusting operational procedures and strategic adjustments in order to adapt to changing market conditions should fall into the category of changes in an objective economic situation.
In this case, the Company’s adjustment over relevant departments and positions to adapt to the market condition and business operation is kind of a major change in objective economic conditions, but also belongs to the scope of internal adjustment. In addition, the reduction plan of employees has been filed with the local Human Resources and Social Security Bureau, which was in line with procedural labor law requirements.
Lily’s position was abolished. The Company tried to negotiate with Lily about the adjustment of her position, however Lily wanted to continue working in her previous position. As a result, the Company had to terminate the employment relationship with Lily and paid compensation in line with the law. The court doesn’t think the Company had infringed Lily’s legitimate rights and interests by doing so.
The appellate court upheld the opinion of the court of first instance and further held that: the employment contract signed by the Company and Lily expressly specified that an employee’s job and position could be adjusted according to actual needs. The Company’s adjustment of Lily’s position according to the change in objective business conditions is not only an act of employment autonomy, but also is in line with the agreement of the employment contract between the two parties. There is no possibility for the employment to continue, as Lily expressly rejected the Company’s transfer decision. Hence, the Company’s decision to terminate the labor relationship is legal and valid.
Related provisions of the Labor Contract Law of the People’s Republic of China
Article 40 In the case of any of the following circumstances, the company may discharge the labor contract after it notifies the employee himself in writing 30 days in advance or after it pays the employee an extra month’s salary:
…
(3) The objective circumstance has altered significantly, on which the conclusion of the labor contract is based, which results in that the labor contract is unable to be performed. And no agreement concerning the modification of contents of the labor contract is reached after consultations between the employer and the worker.
Useful link:
The Supreme People’s Court of The People’s Republic of China
