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Translator: Normand Gauthier
At present, the epidemic prevention and control is in motion,
and the company’s resumption of work is gradually carried out
in an orderly manner. However, in order to stop the spread of the
epidemic, isolation measures were adopted throughout the country to
reduce the flow and concentration of people as much as possible.
The decrease in the flow of people may not have an obvious impact
on production-oriented enterprises, but it may bring about the
“disaster of extinction” to industries such as tourism,
accommodation and catering. These industries would never expect to
lose countlessly because of COVID-19. Many companies have announced
collective salary cuts or even closed their doors due to the
inability of funds to return or the rupture of capital chain.
According to relevant reports, less than 10% of companies have
enough funds to be maintained for more than half a year. When
enterprises are caught in the epidemic and cannot extricate
themselves, the central and local human resources and social
security departments have launched stabilization policies. On the
one hand, they restrict the unilateral right of enterprises to
rescind the labor contract and, on the other hand, they implement
social security reduction and exemption policies. But no matter
what the final effect is, companies will have many difficulties and
obstacles during the epidemic control and prevention period while
also engaging in production.
1. Overview of the legalization on suspension of labor
contracts
The COVID19 epidemic has caused many enterprises to press the
“pause button” of production and operation. So, can
enterprises themselves choose to temporarily “suspend”
various civil activities and enter a relatively safe “sleep
period”? From this question, we can easily consider the system
of performance suspension of contract.
1.1 What is the suspension of labor
contract
In the field of labor law in China, at legal level there is no
clear provision for suspending the performance of labor
contract1, but there are special reasons in the
performance of the labor contract for employers or employees that
are temporarily unable to perform the labor contract, and in
judicial practice there are labor disputes caused by the suspension
of a labor contract. In the field of civil contracts, when a party
lacks the ability to perform a contract or loses its business
reputation, the party that should perform first may advocate that
the contractual performance be suspended to avoid loss. After the
other party restores its performance capability or provides
appropriate guarantees, the party that suspended the performance
resumes the performance.2 The suspension of performance
of the civil contract is based on the principles of good faith and
fairness, and aims to ensure the effective performance of the
contract and protect the interests of the counterpart of the
transaction.
In the field of labor contract law, when a specific situation
occurs and the conditions for the termination or dissolution of the
labor contract are not met, the employer or the worker may suspend
the performance of the labor contract. During the suspension of the
labor contract, the two parties retain the labor relationship, but
do not assume each other rights and obligations stipulated in the
labor contract. When the suspension of the labor contract
disappears, the performance of the labor contract shall be resumed
except if it is no longer possible to perform.
Although there is a lack of legal system for the suspension of
the performance of a labor contract, the suspension of labor
contracts is often specified at the level of local regulations on
the basis of the possibility of suspension in the process of labor
contract performance.
1.2 The suspension of the labor
contract
In the relevant laws and regulations concerning the suspension
of labor contracts, the situations in which the employer and the
laborer can suspend the performance of the labor contract are
different. It mainly includes the following situations: First, the
suspension of personal freedom due to suspected violations of the
law; such as the original Ministry of Labor’s Opinions on
the Implementation of the Labor Law of the People’s Republic of
China (Lao Fafa [1995] 309)3. Second, it was
suspended due to illness or non-work-related injuries during the
probation period; for example, the Tianjin Human Resources and
Social Security Bureau issued a Notice on Tianjin’s
Implementation Rules on Certain Issues of the Labor Contract
Law (No. 14)4. Another example is
the Notice of the First Tribunal of Civil Trial of the Zhejiang
Provincial Higher People’s Court and the Zhejiang Provincial
Labor and Personnel Dispute Arbitration Court on the Issuance of
Answers on Several Issues Concerning the Trial of Labor
Disputes (4) (Zhejiang High Law People I No. 3)5
etc. Third, the labor contract was temporarily suspended due to
force majeure. Fourth, it was suspended due to agreement between
the parties. The above two situations are stipulated in the
Shandong Province Labor Contract Regulations, Jiangsu
Province Labor Contract Regulations, Anhui Province Labor
Contract Regulations and Ningxia Hui Autonomous Region
Labor Contract Regulations6. In addition to the
above-mentioned circumstances, in some areas, if the laborer is
recruited into the army7, forced8 drug
rehabilitation, or the employer and the laborer do not find each
other for a long period of time9, the labor contract may
be terminated.
1.3 Rights and obligations during the suspension of
the labor contract
According to the regulations on the suspension of labor
contracts in various regions, during the period of suspension of
performance, the employer and the laborer shall retain the labor
relationship and suspend the performance of the obligations
stipulated in the labor contract. Specifically: First, the laborer
does not need to provide labor during the suspension period, and
the employer may not pay the labor remuneration and stop paying
social insurance premiums; second, the suspension period is not
counted as the number of working years of the laborer for the
employer. In addition, regarding the question of whether a laborer
can establish a labor relationship with another employer during the
suspension of the labor contract, only the Shanghai region clearly
states that “the laborer shall not establish labor relations
with other employers during the suspension of the performance of
the labor contract”10.
Based on the above analysis, due to the lack of legislation at
the national level, labor contract suspension clauses vary by local
legislation, making it difficult to form a system. Although the
original Ministry of Labor began to try to implement the labor
contract suspension system in 1995, however, because the
application situation is very narrow, the possibility of suspension
of the labor contract is extremely low. With the accumulation of
local legislation and judicial practice, the application of labor
contract suspension has become more complete. It can be said that
the application of local laws has promoted the development of the
labor contract suspension system.
2. Judicial judgment rules for suspension of labor
contract
Although the suspension clause of the labor contract is not
written into the labor laws, in practice, it is not uncommon for
the labor contract to be temporarily suspended and the labor
contract and labor relationship to be retained. Labor disputes
related to the suspension of the performance of the labor contract
do occur. Through case retrieval, more than 500 related cases have
been retrieved in non-litigation cases. This section mainly sorts
out the relevant ruling rules for labor contract suspension through
cases, with a view to forming the operation guidelines for labor
contract suspension.
2.1 Reasons for the suspension of labor contract and
operation basis
2.1.1 The employer and the laborer may suspend the
performance of the labor contract through
consensus
Case One11: On March 3, 2009, Shi joined a bearing
company as a workshop grinder. The two parties signed a three-year
labor contract on March 3, 2009, and signed another labor contract
on March 3, 2012, for the duration of March 4, 2012, to June 30,
2015. On April 26, 2012, Shi and the bearing company signed a
“Labor Contract Suspension Agreement” stating:
“Party B Shi needs to participate in social studies for a long
period to improve his skills, and now Party B is applying to Party
A to suspend the labor contract and the labor relationship between
both parties, after consensus has been reached this agreement is
hereby concluded so as to abide by it.” Regarding the section
on economic compensation for the termination of labor relations,
the “Labor Contract Suspension Agreement” signed by Shi
and the bearing company represent the true intention of both
parties, and the court accepted the agreement.
2.1.2 Difficulty to determine the suspension of
labor contract due to force majeure.
Case 212: In July 1990, the appellee Huang worked in
a plastic company of the appellant. On June 27, 2014, a fire broke
out in the workshop of the plastic company, and the company ceased
production. Since then, the plastic company did not arrange for
Huang to work, nor did Huang work in other units. The court held
that none of the reasons for the suspension of production advocated
by the plastic company belonged to force majeure and did not comply
with the suspension of the labor relationship. Therefore, during
the suspension period, the plastic company should pay the basic
living expenses to the employees. The plastic company argued that
it arranged Huang to work at a new material company after the
suspension of production, but Huang did not agree; and that Huang
had already worked in another company, but the above argument
cannot be confirmed by evidence. The plastics company claimed that
Huang had been absent from work since February 2008, and did not
provide evidence which contradicted with the proposal to arrange
for Huang to work in a new materials company after the suspension
of production.
2.1.3 Unilateral suspension of labor contract
without negotiation and possibility to settle or agree shall be
null and void.
Case 313: The question of whether the suspension of
the labor contract is legal and effective. First, the labor
contract signed by a branch with Hu on December 10, 1999, did not
stipulate the conditions and reasons for the suspension of the
labor contract. On December 1, 2008, the branch issued the notice
of suspension of the labor contract with Hu. Because the party
unilaterally notified the suspension of the contract in accordance
with internal regulations, and did not inform Hu on the remedy, the
two parties did not agree to suspend the contract. Secondly, the
branch has no evidence to prove that there is a situation in which
Hu cannot perform the labor contract when they suspended the
contract. Additionally, the condition to apply the branch’s
unilateral suspension of the labor contract in accordance with the
internal labor contract system is a catch-all clause and is too
large: “other circumstances where the performance of the
labor contract can be suspended or partially suspended “.
In summary, the branch, without legal reasons or mutual agreement,
unilaterally suspended the labor contract with Hu. In fact, Hu has
been engaged in the branch during the suspension, the branch’s
suspension of the labor contract with Hu was invalid and the labor
contract relationship between the two parties was not actually
suspended.
2.2 Rights and obligations during the suspension of
the labor contract
2.2.1 The employer does not need to pay the
worker’s living expenses during the suspension of the labor
contract
Case 414: Chen signed a labor contract with a textile
company in 2010. In 2012, Chen left the textile company for
self-employment. The textile company no longer paid Chen labor
compensation but has not formally terminated the labor relation and
always paid social insurance for Chen. The court of first instance
determined that the labor relationship between the two parties was
factually suspended. Because Chen was not paid for any labor during
this period, he requested the textile company to pay the minimum
living expenses from 2012 to January 2018, which was not supported
by the court of first instance. Article 30 of the Labor
Contract Regulations of Jiangsu Province stipulates that
during the suspension of the labor contract, the labor relationship
shall be retained and the performance of the labor contract shall
be suspended. There is nothing improper.
2.2.2 The period of suspension of the labor contract
is not included in the working years, and should be deducted when
calculating the economic compensation
Case 515: Wu and a service center have successively
signed three leave-of-service suspension agreements. The agreement
is actually an agreement between the two parties on the related
rights and obligations after the suspension of labor relations from
July 1, 2007, to June 30, 2015. Therefore, this period should not
be counted as Wu’s working years. Moreover, Wu confirmed that
the economic compensation he claimed was CNY 92,400 in the
first-instance trial on November 7, 2017, which was a six-year
period after deduction of the suspension. In the second instance,
he also requested payment of financial compensation for the period
of suspension from 2008 to 2015. The economic compensation amount
obviously exceeded the first-instance litigation request, and also
contradicted the above regulations. Therefore, Wu claim that the
period of suspension of pay should be included in the calculation
period of economic compensation is without facts and legal
basis.
2.3 Legal issues regarding the resumption of
performance of labor contracts
2.3.1 It is not necessary to enter a new written
labor contract if the labor contract is resumed within the validity
period of the labor contract.
Case 616: Zhang and a lighting company entered into a
labor contract from January 1, 2012, to December 31, 2014. From
October 28, 2012, to April 30, 2013, Zhang left the lighting
company to work in other units. Neither side made an intention to
terminate the labor contract, and the lighting company still paid
the social insurance premium of the defendant Zhang since he left
in 2012. During the validity period of the labor contract signed by
the two parties, from May 2013 Zhang returned to the original work
position of the lighting company. The two parties had reached an
agreement to resume the original labor contract and the two parties
did not need to sign a separate labor contract. Therefore,
Zhang’s argument that the lighting company in Chongqing did not
sign a written labor contract with him and should pay double the
wage difference after May 1, 2013, was not accepted.
2.3.2 The labor relationship continues during the
suspension of the labor contract and so does the special
arbitration time limit to the recovery of labor
remuneration.
Case 717: The question of whether Hu’s
application for labor arbitration has exceeded the time limit for
arbitration. The provisions of the first and fourth paragraphs of
Article 27 of the Labor Dispute Mediation and Arbitration Law
of the People’s Republic of China: “The time
limitation period for application for arbitration of a labor
dispute shall be one year. The time limitation period for
arbitration shall be counted as of the date when a party knows or
should know that its right has been violated. (…) Where a dispute
arises from the delayed payment of labor remunerations during the
period of existence of a labor relationship, an employee’s
application for arbitration shall not be subject to the time
limitation period for arbitration prescribed in the first paragraph
hereof…” The labor relationship between the branch and
Hu has not been effectively suspended. Even if it is suspended, the
labor relationship between the two parties still exists. Therefore,
the application for arbitration for the recovery of labor
compensation is not limited by the one-year limitation period and
its application for arbitration do not exceed the limitation
period.
Conclusion
Due to the lack of a systematic legal design for the suspension
of labor contracts, there are differences in the legal
circumstances in which judicial labor practices are determined in
various jurisdictions. For example, there is great disagreement on
whether the stopping the production and production of enterprises
constitutes force majeure and thus can suspend labor contract.
According to Article 12 of the Interim Provisions on Wage
Payments issued by the former Ministry of Labor18,
as long as the halt to production is not caused by a worker, the
employer must pay a huge amount of labor costs during the shutdown,
which the author believes it is unfair to the employer. Affected by
the COVID-19, many enterprises, including the catering, hotel, and
tourism industries, are unable to operate and employees are unable
to provide labor. The enterprise is on the verge of closing down,
but still has to bear the living expenses and social security
expenses of employees. Labor law is a social security law that
protects the legitimate rights and interests of workers; but if the
enterprise is gone, the labor relationship is gone.
Footnotes
1 In addition to the current regulations, the Labor
Contract Law and the Regulation on the Implementation Regulations
of the Labor Contract Law had labor contract suspension clauses in
their drafts for consultation, but unfortunately, they were
ultimately not retained.
2 Contract Law of the People’s Republic of China
Article 68 and 69: the right to suspend performance of
contract.
3 Article 28 If a laborer is suspected of committing an
illegal or criminal act and is under custody, investigated,
detained or arrested by the relevant authority, the employer may
temporarily suspend the performance of the labor contract with the
laborer during the period when the laborer’s personal freedom
is restricted. During the suspension period of the labor contract,
the employer does not assume the corresponding obligations
stipulated in the labor contract.
4 Article 13 If a worker is found to be in eligible for
employment during the probationary period, the employer shall make
a decision to terminate the labor contract within the probationary
period. If a worker becomes ill or is not injured by work during
the probationary period, the probationary period may be suspended
by consensus between the two parties to the labor relationship.
“
5 If workers take sick leave during the probation period,
can the sick period be deducted from the probation period? Answer:
The probationary period is the period of mutual inspection between
the employer and the laborer. Workers taking sick leave during this
period may not meet the inspection purpose, so the sick leave can
be deducted from the probation period.
6 Article 26 of the Regulations on Labor Contracts in
Shandong Province; Article 30 of the Regulations on Labor Contracts
in Jiangsu Province; Article 22 of the Regulations on Labor
Contracts in Anhui Province; and Article 24 of the Regulations on
Labor Contracts of Ningxia Hui Autonomous Region.
7 Regulations on Labor Contracts in Shanghai, Article 26:
During the term of the labor contract, the labor contract shall be
suspended under one of the following circumstances: (1) if the
worker is conscripted into the army or performs other legal
obligations stipulated by the State.
8 Tianjin City Implementation on a Number of Issues of
the Labor Contract Law, Article 12: If a worker has one of the
following circumstances, the employer may temporarily suspend the
performance of the labor contract: (2) during the period of
compulsory drug rehabilitation treatment.
9 Beijing Higher People’s Court’s Seminar on the
Application of Law in Labor Dispute Cases (200-08-17), Article 14:
The laborer has not provided labor to the employing unit for a long
period of time, and the employing unit also no longer pays the
laborer for a long period of time, and if the two sides do not seek
it for a long period of time, they may be found to not enjoy and
assume the rights and obligations of the labor law during this
period
10 Notice of the Shanghai Municipal Labor and Social
Security Bureau on the Implementation of the Regulations on the
Employment Contracts of Shanghai (Shanghai Labor Protection and
Guanfa (2002) No. 13).
11
北京市大兴区人民法院（2013）大民初字第4343号。
Beijing Daxing District People’s Court (2013) Damin
Chu No. 4343.
12
济宁市中级人民法院（2017）鲁08民终1244号。
Jining Intermediate People’s Court (2017) Lu 08 Min
Zhong No. 1244.
13
孝感市中级人民法院（2017）鄂09民终245号。
Xiaogan Intermediate People’s Court (2017) E09 Min
Zhong No. 245.
14
南通市中级人民法院（2019）苏06民终318号。
Nantong Intermediate People’s Court (2019) Su 06 Min
end 318.
15
江苏省高级人民法院（2019）苏民申364号。
Jiangsu Provincial High People’s Court (2019) Su
Minshen No. 364.
16
重庆市第二中级人民法院（2015）渝二中法民终字第01195号。
Chongqing Second Intermediate People’s Court (2015)
Yu II, Final instance no. 01195.
17
孝感市中级人民法院（2017）鄂09民终245号。
Xiaoxian Intermediate People’s Court (2017) E09
People’s End 245.
18 Interim Provision on Payment of Wages, Article 12:
Where an employer stops his or her work or production due to
factors other than the employees within a period of wage payment,
the until shall pay wages to the employees according to the
standards prescribed in the labor contracts. Where an employer
stops its work or production for a duration exceeding a period of
wage payment, it shall pay the employees remuneration not less than
the local standard for minimum wages given the employees have
provided normal labor; or otherwise the cases shall be dealt with
according to the relevant State Provision.
Originally published 2020-05-19.
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guide to the subject matter. Specialist advice should be sought
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