Who ended the employment contract? Dealing with the case where neither side can prove it

The facts

Ms Hu joined an investment company in April 2018 as an account manager under a three-year employment contract providing for a salary of RMB 8,000 a month. She last worked there on 14 June 2019, and on 19 June received the Shanghai certificate of termination of employment and the employment handbook sent by the company, which recorded 14 June 2019 as the date of termination. In July 2019 she applied for arbitration, claiming RMB 24,000 in compensation for unlawful termination.

The parties' positions

Ms Hu says that on 14 June 2019 the company's human resources manager told her orally that her contract was terminated with effect from that day, the reason given being that she was not competent for the work and could not meet the company's requirements; that she asked for a written notice of termination and was refused; and that the company would only promise to post the employment handbook and the termination certificate to her, so that she had no choice but to leave.

The company says that Ms Hu resigned orally on 14 June 2019 for reasons of personal development but did not write a written resignation, and that the company never terminated the contract: it sent her the termination certificate and the handbook because she had resigned.

The issue

Was the termination effected by Ms Hu or by the investment company?

The award

The arbitration commission held that neither side had direct evidence for its account, but that the company, as employer, occupies the dominant position in performing the employment contract and bears responsibility for managing its workforce, and should therefore actively guide and press the employee to complete the various formalities properly within a lawful and compliant framework. Since neither side disputed that the contract had been terminated, the company should bear the burden of proving which party terminated it, given its powers and responsibilities in managing the workforce. The company must therefore bear the adverse consequences of failing to prove its case and pay Ms Hu compensation.

Commentary

In claims for compensation for unlawful termination the disputed issue is usually whether the facts on which the employer relied are true and whether the reason for termination complies with the law. In some enterprises, however, where workforce management is not well regulated and staff turnover is high, the situation in this case also arises: employee and enterprise each say the other terminated, and neither has direct evidence such as a resignation letter or a notice of termination, which makes the facts difficult to establish.

Practice diverges considerably on this difficulty.

One view is that where neither side can prove the reason for departure, the contract is treated as terminated by the employer by agreement between the parties, and the employer must pay economic compensation. The minutes of the symposium on the trial of labor and personnel disputes issued by the Guangdong High People's Court and the Guangdong arbitration commission so provide.

A second view is that the ordinary rule applies, that whoever asserts must prove. The opinion (for trial implementation) of the Zhejiang High People's Court on the trial of labor dispute provides that where employee and employer dispute which of them proposed the termination of the employment contract or the employment relationship, the burden of proof is allocated on the principle that whoever asserts must prove.

A third view is that the employer should bear the burden of proving the reason for the employee's departure. The guiding opinion (II) of the Jiangsu High People's Court and the Jiangsu arbitration commission on the trial of labor and personnel disputes provides that where an employee alleges an oral dismissal and the employer alleges that the employee left voluntarily, the employer bears the burden of proving the voluntary departure, and bears the adverse consequences if it cannot.

The writer favours the third view. The employment relationship is a civil law relationship marked by personal attachment and subordination to authority and having both personal and proprietary aspects, and in the performance of an employment contract the enterprise undoubtedly occupies the dominant position: the making of internal rules, attendance management, the setting of posts and grades and the calculation of wages and benefits all fall within the employer's autonomous power to manage its workforce.

The employee, by contrast, passively accepts the enterprise's working hours and task allocation and is unconditionally subject to the employee handbook and other rules, and lacks the leverage and strength to put work-related demands to the enterprise. Where, for example, no employment contract has been concluded in time, social insurance is not paid during the probation period, the probation period is unilaterally extended, wages are paid late or termination formalities are not completed, the employee is often powerless to resist or respond. This is precisely why employment legislation lays down numerous mandatory provisions and clear legal liabilities to protect employees' lawful rights and to balance the great disparity in strength between the parties.

The employee's weaker position in performing the contract naturally makes it difficult to gather evidence when a dispute arises, and weakens the force and sufficiency of the grounds relied on in arbitration and litigation. Where an enterprise issues no pay slips, splits wages into several payments under different descriptions, or refuses to let employees complete overtime application forms and keeps no attendance records, the employee's case on wage levels or on the fact of overtime becomes hard to establish. In recognition of this evidential difficulty, Article 13 of the Rules of Procedure for Arbitration of Labor and Personnel Disputes provides that evidence relating to the matters in dispute which is in the keeping and management of the employer shall be provided by the employer, and that an employer which does not provide it bears the adverse consequences. That is a special supplementary rule to the principle that whoever asserts must prove as applied in labor dispute, and it tilts the evidential stage of arbitration somewhat in the employee's favour, reducing or removing part of the employee's burden.

In this case Ms Hu, as the employee, was in the weaker position and faced the difficulty of being unable to obtain from the company any proof of termination. The company, which holds both the power and the responsibility of workforce management, should under Article 37 of the Labor Contract Law have required her to submit a written resignation 30 days in advance. As to the missing evidence on the question which party terminated the contract, the company must therefore bear the adverse consequences of failing to prove its case and pay compensation for unlawful termination.

What the case shows

Although there is no direct evidence of which party terminated the contract, it can only have been either a resignation by the employee or a termination by the employer. Where an employee resigns orally or simply stops coming to work, the employer is advised to take steps promptly to press the employee to return to work or to complete a written resignation, and then to deal with the matter under its internal rules. Where an employer deliberately avoids issuing a written notice of termination in order to escape the various payments due on termination or liability for unlawful termination, it should change its approach: wishful thinking of that kind ends in nothing but trouble.