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China: Supreme People’s Court clarifies the Criteria for Judging the Legitimacy of the Employer’s Unilateral Termination of the Employment Contract

Mr. Sun (“Employee”) signed an employment contract with the Company (“Employer”). The Employee handbook, regulations of Employer are referred to as an attachment to the employment contract. The Employer believed that the Employee had severely violated regulations of Employer, such as absenteeism, not wearing clothes as required, checking attendance instead of other employees and so on. Considering the work performance of the Employee, the Employer issued the termination notice to the Employee, indicating that the Employer would terminate the employment contract with the Employee due to his absenteeism.

Later, the Employee filed labour arbitration and litigation against the Employer and claimed for the compensation for illegal termination of the employment contract. Company argued that not only the employee’s absenteeism but also other serious violation of the regulation of the Employer resulted in the Employer’s unilateral termination of the employment contract. Intermediate Court of Lianyungang, Jiangsu Province, heard this dispute and ruled in favor of the Employee. The Court came to this decision based on the reasoning that, the content of the termination notice issued by the Employer to the employee shall be the basis for judging the legitimacy of the Employer’s unilateral termination of the employment contract and shall not exceed the content and scope specified in the termination notice. Therefore, the Court required the Employer to bear the burden to prove the employee’s absenteeism and the Employer failed to do that. Finally, the Court ruled that Employer must pay compensation to the Employee for illegal termination. This case was cited by the Supreme People’s Court as a guiding case.

Key Action Points for Human Resources and In-house Counsel

The employer often faces to the dispute on the termination of employment contract. To avoid potential dispute, it is suggested for the Employer to explicitly state all the reasons for termination in the termination notice of the employment contract issued to the employee.