China: Change of Employer Shall Not Be Interpreted as Change of Employment Contract in Shanghai

The Employer transferred all cosmetic business to its subsidiary, while the employee served at a related procurement position. The employer proposed to transfer the employment contract with the employee also to its subsidiary. The employee refused and insisted on performing the employment work with the employer. Pursuant to the PRC Employment Contract Law, employers may unilaterally terminate employment contracts if (1) the objective circumstance upon which the employment was established has changed materially and rendered the employment no longer performable; and (2) the employer and employee have failed to agree to change the employment contract through negotiation. The employer considered to have fulfilled both elements and proceeded to terminate the employee. After the termination, the employee filed a dispute against the employer and claimed the termination was wrongful. The case was eventually ruled in favor of the employee by the Shanghai No.1 Intermediate People’s Court. The Court came to its decision based on (1) the employer’s proposal to transfer the employment contract was to change the employer; (2) change of employer shall not be deemed as a change of employment contract; and (3) the employer failed to negotiate with the employee on the change of the employment contract before termination, and thus the termination was wrongful.

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