The Retroactive Wages related to a Resumed Labor Relationship

Company A dissolved the labor contract with Zhang. Then Zhang filed a labor arbitration on the grounds that company A illegally dissolved the labor contract. Hang also requested Company A to resume the labor relationship, and provide retroactive wages from the date when Company A made the dissolution decision, until the date of entry into force of the judgment. In addition, Zhang also request a compensation amount to 25% of the retroactive wages. After the labor arbitration and litigation, the court judged Company A to resume the labor relationship, and pay the retroactive wages. But the court did not order Company A to pay the compensation.

In practice, since laws and regulations did not stipulate clearly on the issues related to retroactive wages, many employers are confused while dealing with such cases. In fact, there are two key issues shall be considered.
Firstly, when is the start date to calculate retroactive wages?

“Reply of the General Office of the Ministry of Labor Regarding the Handling of Labor Dispute Cases” (Lao Ban Fa [1997] No.15) provided, while a labor arbitration committee or a court orders to resume a labor relationship, the employer shall pay retroactive wages from the date when the employer made the dissolution decision. However, this “Reply” has been revoked, so currently, there is no laws or regulations has given a further explanation. In practice, there are different local rules. For example, “Minutes of the Seminar Held by the Beijing High People’s Court and the Beijing Labor Disputes Arbitration Committee Concerning the Application of Laws to Cases of Labor Disputes” hold the same opinion as Lao Ban Fa [1997] No.15. But Article 23 of “Measures of Payment of Shanghai Enterprise” provides that an employer shall pay retroactive wages for the periods of mediation, arbitration and litigation. There are some local judgements have applied Article 23, such as the civil judgement of the Shanghai No. 2 Intermediate People’s Court (Hu 02 Min Zhong No.7627)

Secondly, how to determine the standard of retroactive wages?
At present, though there are no national laws and regulations have stipulated this issue, there are different local rules. For example, Article 23 of “Measures of Payment of Shanghai Enterprise” provides that the base of retroactive wages shall be the employee’s average monthly wage for the 12 months prior to the dissolution of his labor contract. “Minutes of the Seminar Held by the Beijing High People’s Court and the Beijing Labor Disputes Arbitration Committee Concerning the Application of Law to Cases of Labor Disputes” has set different standards for different situations, such as, the minimum wage shall be applied due to procedure flaws, and the normal wages shall be applied due to the substantive problems.

Finally, many companies have doubts about whether 25% of the additional compensation should be paid. According to Article 3 of “Reply on Several Inquiries on Handling with Labor Disputes Cases” (Lao Bu Fa [1995] No.223), if an employer dissolves a labor contract illegally and causes loss to an employee, the employer shall pay retroactive wages, and undertake an additional 25% of the retroactive wages as a compensation. Zhang claimed such compensation in the beginning case. However, Article 85 of “Labor Contract Law” prescribes that if an employer fails to pay an employee his labor remuneration on time and in full, the employer should pay an additional compensation to the employee by the order of the administrative department of labor. Therefore, Article 85 of “Labor Contract Law” is always applied in practice, which means the additional 25% compensation shall be excluded from the retroactive wages.