Pay Attention to the Negotiation on the Termination of a Labor Contract

Lee, the former employee of Huawei, left Huawei at the expiry of his labor contract, and Huawei gave him “2N” compensation. 1 year later, Lee was arrested on suspicion of extortion, and after being detained for 251 days, he was released without charge. This is the “Huawei 251 Incident”. In Qingdao, after resigned from the company, Yang filed alabor arbitration on the ground that the company had induced and coerced him, and required the company to pay economic compensation. In the end, both the court of the first instance and second instance supported Yang’s claim (See (2017) Lu 02 Min Zhong No.4433).

The above two cases are related to the negotiation on the termination of a labor contract. It is interesting that in the “Huawei 251 Incident”, the employer intends to prove the employee attempted extortion, in the Qingdao case, the employee intends to prove the employer induced and coerced. Neither of the 2 results is good for the employer.

So how to control the legal risks related to the negotiation on the termination of a labor contract?

Article 10 of the “Interpretations of Supreme People’s Court on Several Issues Relating to Laws Applicable for Trial of Labour Dispute Cases ((III)” stipulates that an agreement reached between an employee and his employer on the relevant formalities for rescinding or terminating the labor contract, paying wages, remunerations, overtime pay, economic indemnity or compensation, etc., shall be deemed valid as long as it does not violate the mandatory provisions of laws and administrative regulations and is not reached by fraud or threat or by taking advantage of the opposite party’s hardship; and where a party concerned requests revocation of an agreement as mentioned in the preceding paragraph because there is any major misunderstanding therein or it is an obviously unfair agreement, the people’s court shall support such request. In view of this, the employer shall pay attention to the following 3 aspects during the negotiation.

First, the agreement shall not violate the mandatory provisions of laws and administrative regulations. For example, if both parties agree that the employee would renounce his social security claims, but the employee files a lawsuit against the employer later, the employer is likely to lose the lawsuit. Because paying social security is the employer’s legal mandatory obligation, which could not be renounced by agreement.

Second, the employer shall be careful with words and deeds which are easily identified as fraud, coercion, or taking advantage of the employee. Article 109 of the “Interpretations of the Supreme People’s Court on Application of the “Civil Procedural Law” (Fa Shi [2015] No. 5) stipulates that for evidence provided by a litigation to prove the facts of fraud, duress or malicious collusion, or to prove the facts of a verbal will or gift, where a People’s Court concludes that the possibility of existence of the facts sought to be proved is beyond reasonable doubt, the People’s Court shall deem that the facts exist.

In practice, some judgments, such as (2015) Hu Yi Zhong Min San (Min) Zhong Zi No. 121, (2018) Yue 13 Min Zhong No.5108 and etc., have pointed out the factors in identifying “coercion”, that is, during the negotiation, if the employer threats the employee with words or deeds, which leads the employee to believe that the employer might bring negative effect to the life, honor, reputation property and etc. of the employee or his relatives or friends, and the employee has regarding the fraud, the employer shall be caution to the following 3 situations. First, the employer shall not misinterpret laws and regulations intentionally to the employees. For example, in the case of (2017) Lu 02 Min Zhong No.4433, the employer told the employee that there is no economic compensation for the expiry of a labor contract, in consideration of other evidence; the court determined that the employee had been defrauded. Second, if the employer has announced the benefit policies to the employee, then such policies shall be implemented strictly. For example, an employer announced that if the employees resigned voluntarily within 2 weeks, it would compensate “2N”, after then, it would only compensate “N+1”. However, after two weeks, the employer raised compensation to more than“N+1”, then it is likely to be determined as fraud. Third, if an employee accepts the amount of the compensation less than the statutory standard after negotiation, in order to avoid to be deemed as fraud, the words in the agreement shall be appropriate (refer to (2017) Liao 0291 Min Chu No.2336).