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JULY 2013
Legal Focus
71
Recognition of Prior Years of Service in Employee Transfers and Reassignments. When an employee is reassigned or transferred to a new employer in an acquisition or group transfer, the existing employment relationship will be terminated and a new one established with a new employer. One issue that the law does not address is whether the new employer is required to recognize the years of service of the employee where the previous employer did not pay statutory severance at the time of reassignment or transfer. New employers would sometimes try to take the position that they could not be required to recognize prior years of service since they effectively had new employment relationships with the employees. Interpretation 4 indicates that position is incorrect, and states that a new employer will be deemed to recognize prior years of service in such situations.
Payment for Post-termination Non-compete Obligations. In order for post-termination non- compete restrictions to be enforceable, the ECL requires employers to pay employees monthly compensation during the post-termination non-compete period.
employment contract but has not obtained a valid work permit, his or her employment relationship will not be recognized.
Notifying Labor Unions of Terminations. The ECL requires employers with a labor union to notify the union in advance whenever they will unilaterally terminate an employee. However, it does not specify the consequences for failing to do so. Interpretation 4 addresses this point by stating that an employee may seek damages for unlawful dismissal if an employer has not notified the labor union.
What main effects will interpretation 4 have on business?
It does not, however,
indicate how much compensation should be paid, and this has been left to the authorities to regulate in each location.
Uncertainty as to the enforceability of a non- compete restriction can arise where the amount of compensation has not been agreed by the parties. Interpretation 4 provides guidance on this point. If the parties have agreed to a post-termination non-compete restriction but have failed to stipulate the amount of compensation, then the employee will be entitled to 30% of his or her average monthly wage for each month of the post-termination non-compete period, provided that he or she has fulfilled such obligation. Average monthly wage is calculated by taking the total compensation received in the 12 months prior to termination, and dividing this amount by 12.
In some locations the local requirement for the monthly compensation is higher than 30% of an employee’s average monthly wage. While Interpretation 4 does not specifically state that in such case the local higher standard should apply, this will likely to be the case in practice.
Termination of Post-termination Non-compete Obligations. Interpretation 4 states that if an employer has not paid the non-compete compensation for three months, an employee can terminate the non-compete obligation. Additionally, an employer may terminate a post- termination non-compete obligation by paying three months of the agreed non-compete compensation.
Verbal Amendments to Employment Contracts. Interpretation 4 states that verbal amendments to employment contracts are valid provided that the amendment is lawful and the parties have performed the amended contract for more than a month.
Employment of Foreigners. Interpretation 4 states that if a foreign employee has signed an
The guidance that the Supreme People’s Court provides from time to time is invaluable. As a civil law jurisdiction, there is no case law that can provide guidance as to how law is to be interpreted and applied, which is particularly important where ambiguities exist. As indicated earlier, a significant portion of the work we do for clients involves labor disputes. The main effect that this interpretation will have on businesses is that they will now know what pre-emptive action is required to reduce or avoid labor disputes relating to the issues covered by the guidance.
For instance, the ECL does not address the termination of post-termination non-compete restrictions. Previously, some employers thought that if they simply did not pay or stopped paying the agreed compensation, then the obligation would be waived. However, some employees were able to come back after the stipulated non-compete period and successfully argue that they had complied with the obligation and should be paid the related compensation. The guidance now states what should be done to terminate such obligations (although in addition to making the required payment, best practice would be to also obtain a written waiver from the employee). LM
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Kevin Jones Partner
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