The labor dispute that followed a board resolution removing a finance director

The facts

Fan joined a technology company as finance director on 5 June 2017, and the parties signed a three-year employment contract providing that his monthly salary was not to be less than 8,000 yuan. Between 5 June 2017 and 31 January 2018 he was paid 40,000 yuan a month before deductions. On 26 January 2018 he received a notice of removal from the company requiring him to hand over the work of finance director and await a new assignment while the company carried out an internal audit, and the company thereafter paid him the local minimum wage for the period from 1 February to 30 June 2018. Fan objected and in July 2018 applied for arbitration, asking the company to make up the difference in his pay for that period at his former rate of 40,000 yuan a month.

The parties' positions

Fan argued that although the contract provided for a salary of not less than 8,000 yuan a month, the company had held a board meeting when he joined which appointed him finance director and fixed his salary at 40,000 yuan a month, and that this had been performed until January 2018. He had not taken part in the board meeting that removed him, and the meeting was a unilateral act of the company, so he did not accept the resolution; it said nothing, moreover, about adjusting or reducing his salary. After the removal the company assigned him no new post and simply left him idle, so that even if the removal stood, the company should go on paying him at his former rate.

The company argued that under its articles of association the appointment and removal of a finance director, as a senior officer, and his remuneration had to be decided by a board resolution; its board had resolved to remove Fan, and the resolution had been registered and filed with the market supervision authorities in accordance with law, regulation and the articles, so that it was entirely lawful and effective. The internal audit was still under way and no new post could be arranged for him, so that paying him the local minimum wage while he stayed at home was reasonable. It did not accept his claim.

The issues

First, how should the company's decision to remove Fan from the post of finance director be assessed?

Second, was it lawful and reasonable for the company to pay him the minimum wage while he was left idle at home?

The award

The tribunal held as follows. The company's convening of a board meeting under its articles and the relevant provisions of the Company Law, and the resolution removing Fan from the post of finance director, were an exercise of its autonomy in business and subject to the Company Law; they fell outside the scope of the arbitration commission. After the removal, however, the employment relationship had not ended, and the company neither discussed a transfer with Fan nor actively arranged a new post and corresponding salary for him, so that the rights and obligations of the parties were in substance suspended and at a standstill. Paying him only the minimum wage therefore both departed from the employment contract and was manifestly unfair. On the evidence and the parties' accounts, the commission ordered the company to pay the difference in his wages for the period from 1 February to 30 June 2018 at the rate agreed in the contract, 8,000 yuan a month.

Analysis

The case concerns one of the intractable problems that internal business activity cannot always avoid: a dispute arising when a senior officer is removed from his post and his pay reduced.

First, the company's articles provided expressly that the appointment, removal and remuneration of the finance director were for the board to decide, and the company proved the board resolution removing Fan together with the materials registered and filed with the market supervision authorities. On the question whether to remove him, therefore, the company had discharged its burden of proof. Whether the resolution was lawful and effective was a matter for the Company Law, on which the commission could not pronounce, and the only question for the case was how the company should pay his wages after the removal.

It is worth noting that at the hearing Fan put in evidence the resolution of the board at the outset of his employment appointing him finance director and fixing his salary at 40,000 yuan a month. He thus knew of and accepted the board's power to decide his post and his salary, and that evidence, which confirmed his former salary of 40,000 yuan and supported his claim, logically weakened the reasonableness of his argument that the board's resolution was a unilateral act of the company.

Second, the standard of his pay after removal. The company's position was that, because Fan performed no work, he was not entitled to wages at all, and that paying him the local minimum wage was entirely reasonable. Fan rejected this outright: the board resolution, he said, removed him from the post of finance director but did not change or reduce his salary, so that the original resolution fixing his salary at 40,000 yuan a month remained effective for him. On this issue the two positions did not meet directly, and each had to be assessed separately and point by point.

Under the articles, the board having removed Fan from the post of finance director and Fan having stayed at home without obtaining any other post whose remuneration the board was to decide — general manager, deputy general manager or finance director — the original resolution fixing the salary of 40,000 yuan a month for his time as finance director should naturally cease to apply to him, and his remuneration while idle at home did not require a board decision. His reliance on the original resolution as the standard for the difference in pay therefore lacked any reasonable basis and was not upheld.

The company's position, however, was equally unreasonable. After the board removed Fan the employment relationship continued, but the company showed no readiness to discuss with him an adjustment of his post and salary so as to continue performing the contract, and offered him no settlement by agreement to terminate it in accordance with law; instead it did nothing and left him in the awkward position of sitting at home with nothing to do. Responsibility for the sharp fall in his income and for the suspension of the contract therefore lay with the company's inaction.

What new post and remuneration Fan should receive was, however, to be settled in equal, voluntary and honest negotiation between him and the company. The commission may assess the reasonableness of a transfer and pay adjustment in accordance with law, regulation and the parties' agreement, and may review whether wages were paid lawfully and correctly, but it has no power to impose its will on the parties or, absent agreement between them, to determine a new post and corresponding salary of its own motion.

The commission accordingly, on the facts and having regard to the terms of the employment contract, ordered the company to pay the difference in Fan's wages for the period from 1 February to 30 June 2018 at 8,000 yuan a month. That order respects the parties' agreement on their labor rights and obligations and, while balancing a senior officer's right to work and to employment against the company's right to manage its business, administers a suitable rebuke to a passive attitude to employment management. It is to be hoped that employers and employees will comply actively with Article 3 of the Labor Contract Law of the People's Republic of China, under which an employment contract concluded in accordance with law is binding and the employer and the employee shall perform the obligations agreed in it.