China: Wrongfully Terminated Employee was still Entitled to Annual Bonus

Authors: Carol Zhu and Yinbing Chen

Mr. Xu (“employee”) joined the H food company (“company”) in 2014 and served as client manager since then. On 23 January 2019, the company terminated the employee with immediate effect for multiple acts of misconduct that were discovered by the company. One week later, the company sent email to all employees and announced details about the bonus payment. Specifically, the company stressed that only the staff employed till 30 January 2019 would be entitled to an annual bonus. The employee filed labour arbitration and litigation against the company and claimed compensation for wrongful termination and payment of the annual bonus. The Shanghai Intermediate People’s court heard this dispute and eventually ruled in favour of the employee. The Court came to its decision based on: i) the company’s reason for the termination of employment was not sufficient and the company shall bear the liability for wrongful termination; ii) although the company prescribed that the pre-condition for employees to receive an annual bonus was to remain employed, the Court shall still consider the reason why the employee was terminated; iii) the company’s wrongful termination shall be viewed as depriving the employee of his entitlement to the annual bonus, by using illegitimate methods; and iv) the employee shall be deemed as having fulfilled the pre-condition to receive the annual bonus.

Key Action Points for Human Resources and In-house Counsel

Employment disputes on annual bonuses usually occur around the Chinese New Year holiday. Employers in China usually require employees to remain employed in order to qualify to receive annual bonus. However, in the case above, legitimacy of the termination decision was also an important factor to determine the employee’s entitlement to the annual bonus. Thus, employers are advised to be cautious and aware of the fact that the termination of employment can also affect the employee’s entitlement to the annual bonus.