If a branch was deregistered, whether it could terminate the labor contracts with employees?
The reason for this dispute is the different interpretations of Article 44 (5) of the “Labor Contract Law”.
Article 4 of the “Implementation Regulations of the Labor Contract Law” stipulates that, a branch which has obtained a business license, is entitled to conclude labor contracts with employees in the name of the employer. Therefore, a branch undoubtedly could be an employer. Article 44 (5) of the “Labor Contract Law” stipulates that if the employer’s business license is revoked, the employer is ordered to close down, the employer is revoked or the employer has decided to dissolve prematurely, the labor contracts with the employer shall be terminated.
In judicial practice, the current main viewpoint is that Article 44 (5) could be applied to the branch. The key reason is that the employer is the branch rather than its parent company, and when the branch was deregistered, it shall be deemed as the employer no longer exists. For example, in case (2021) Jing 03 Min Zhong No.13848, the court points out that the labor contract is established between the female employee undergoing pregnancy and the branch rather than its parent company, so the deregistration of the branch is a statutory reason for the termination of the labor contract. This viewpoint has another invisible reason that normally the branch and its parent company locate in different cities, if the parent company has to succeed the labor contracts of the branch, there would be many problems related to the work arrangement, the willingness of the employees to relocate and so on. Such consequence is similar to the “significant changes in objective circumstances” as stipulated in Article 40 of the “Labor Contract Law”.
However, in some cases, the courts hold an opposite viewpoint, which says the deregistration of the branch is not a statutory reason for the termination of the labor contract. For example, in the case (2020) Chuan 15 Min Zhong No. 1841, the court held that the female employee undergoing confinement could obtain a special protection in accordance with the “Special Regulations on Labor Protection for Female Employees”, so the parent company shall succeed its branch’s role in the labor contract. From the perspective of the defense, it is recommended to explain the practical obstacles in the continued performance of the labor contract by the parent company, and guide the court to take Article 40 of the “Labor Contract Law” into consideration.
If the deregistration of a branch is a statutory reason for the termination of the labor contract, then when is the termination date?
The relevant laws and regulations have not given an answer to this question. In judicial practice, there are different answers as well. In the case (2016) Zui Gao Fa Min Shen No. 800, the Supreme People’s Court mentioned that, “As the ‘Labor Contract Law’ does not clearly stipulate the specific time point for termination of the labor contract in the event that the employer decides to dissolve it in advance, in consideration of the practice in liquidation, if an employer decides to dissolve in advance, it is more appropriate to take the time when the employer and the employee have accomplished the termination procedure of the labor contract as the time point of termination of the labor contract. In the case (2021) Min 01 Min Zhong No.9317, the court held that the branch deregistered 7 months after issuing a notice of termination of the labor contract to the employee, which should be deemed as an illegally dissolve the labor contract rather than terminate the labor contract.
Therefore, from the perspective of employers, the following two aspects could be taken into consideration. To notify employees at least 1 month in advance before preparing to deregister, and the notification shall state the reason for termination is due to the deregistration according to Article 44 (5) of the “Labor Contract Law”. In addition, in some individual cases, the causal relationship between the termination of labor contracts and the deregistration of a branch has been questioned, and according to Article 44 of the “Implementation Rules of the Regulations on the Administration of Market Entity Registration”, the application for cancellation of registration should be made within 30 days from the date of the decision, it is recommended that the branch shall handle the deregistration procedure as soon as possible.