China: Termination of employment for violation of professional ethics

A recent Interpretation issued jointly by Beijing Higher People's Court and the Beijing Labor Dispute Arbitration Commission on 24 April 2017 suggests that, in Beijing, it may be possible to terminate an employee for a violation of professional ethics. However, this ground will apply only in rare circumstances.

Overview

PRC employment law is broadly considered to be relatively employee-friendly and will only permit a PRC employer to summarily dismiss an employee based on limited grounds and subject to certain conditions and restrictions. For example, when purporting to terminate on the ground of "serious violation of company policy", companies have often found that despite a solid factual basis which proves an employee's misconduct, the validity of a subsequent dismissal is challenged as a result of the company work rules being poorly drafted.

To rely on the ground of "serious violation of company policy" as the basis for termination, an employer must prove:

1. it has valid company work rules which have been implemented following a "democratic consultation procedure";
2. the employee has acknowledged and signed the company work rules; and
3. the employee's act constitutes a "serious violation" of these work rules in accordance with the definition of "serious violation" in work rules and subject to a finding by the labor arbitration commission/court that the dismissal was reasonable having regard to the facts.

In considering dismissal cases, the labor arbitration commission/court strictly apply these criteria and interpret them narrowly. In our experience, there are many examples of instances where an employee has conducted immoral or unreasonable acts however, due to the wording of the company's work rules, the employer cannot lawfully dismiss the employee without paying severance.

Catch-all clause to prevent unfairness towards employer in Beijing

According to a recent Interpretation issued jointly by Beijing Higher People's Court and the Beijing Labor Dispute Arbitration Commission (Jing Gao Fa Fa [2017] No.142) (Interpretation) on 24 April 2017, the threshold for termination due to "serious violation of company policy" is to be relaxed slightly.

One issue that this Interpretation addresses is: "may an employer terminate an employee who seriously violates labor discipline and professional ethics, but both the company's policies and the employment contract have no explicit regulations?"

The Interpretation answers in the affirmative referring to the PRC Employment Law, Article 3 Clause 2 which includes as a fundamental requirement for employees that "an employee shall comply with labor discipline and professional ethics". Accordingly, even where neither the company work rules nor the labor contract have explicit rules, but the employee conducts acts in serious violation of labor discipline or professional ethics, the employer may terminate him/her according to the cited clause under the Employment Law (rather than under company policy) (Termination for Violation of Professional Ethics).

Subsequently, the Beijing Human Resources Bureau issued an article on "10 Typical Cases in Labor Arbitration" (Typical Cases). Case No.9 in this article illustrates how Termination for Violation of Professional Ethics may apply. Ms Fan, a cleaner employed by a vehicle parts company, had an ongoing dispute with the HR Manager and on one occasion, Ms Fan poured urine onto the HR manager. Consequently, Ms Fan was dismissed. Ms Fan brought a claim for wrongful dismissal citing the ground that the company did not have explicit work rules, policies or provisions in the labor contract in this regard. After examining the facts, the Beijing Labor Dispute Arbitration Commission found that, despite the absence of work rules, policies or provisions in the labor contract in this regard, Ms Fan's conduct constituted serious insult and materially violated "labor discipline and professional ethics" which is a fundamental requirement of employees. Accordingly, the company had a permissible ground to terminate Ms Fan's employment.

The Interpretation and Typical Cases signal that Beijing labor authorities are expanding the scope of the ground of "serious violation of company policy" as a permissible basis for termination that may, in certain circumstances, be relied on despite the absence of applicable work rules, policies or provisions in the labor contract.

Key takeaways

As this guidance is recent and its application will depend upon assessment on a case by case basis, the degree to which an employer may rely on this ground in the absence of work rules, policies or provisions in the labor contract is still unclear. In our view, the Termination for Violation of Professional Ethics does not create a new ground for termination, rather, it is a possible (and by no means guaranteed) basis for an employer in Beijing to rely on where the terms of the employer's work rules, policies or labor contract fall short but an employee has materially breached his/her professional ethics.

Given this uncertainty and its assessment on a case by case basis, we consider that, if an alternative permissible ground for termination applies, it may still be prudent for employers to rely on that ground.

Written by Karen Ip, Partner, and Eunice Li, Associate