Key points in disputes over double wages

The facts

Guo joined a technology company on 12 March 2018 and on the day of joining signed a Job Responsibility Statement for the period from 12 March 2018 to 11 September 2018, which provided for a monthly salary of 6,000 yuan, his post as a tester and the duties of that post, working hours and the various forms of leave. On 7 September the company proposed to renew the statement for three years and gave him the text. Guo said that the parties had never signed an employment contract and that the company had acted unlawfully; he demanded six months of double wages and a proper employment contract before he would agree to renew. Several rounds of negotiation came to nothing. On 25 November Guo applied to an arbitration commission for the difference in double wages for the period from 12 March to 25 November 2018, arising from the company's failure to conclude a written employment contract.

The parties' positions

Guo argued that since he joined on 12 March 2018 the company had never concluded an employment contract with him but had signed only a Job Responsibility Statement, in breach of the law; he therefore asked the company to pay double wages and to conclude a contract before he would renew the statement, but the company refused to pay and he applied for arbitration.

The company considered that the statement was a matter of routine in its employment management; although not called an employment contract, it contained the essential terms of one, namely the term, the employee's post, remuneration, work and leave, and the company had promptly proposed renewal before the term expired, and when Guo asked for an employment contract it had, after consideration, agreed to change the title of the statement to employment contract, but it could not agree to his unreasonable demand for double wages.

The issues

1. May the Job Responsibility Statement be treated as an employment contract concluded by the parties?

2. Where Guo was unwilling to renew the statement or an employment contract, is the employer still liable to pay double wages?

The award

The tribunal held as follows. The statement had been signed by agreement of both parties and, although not called an employment contract, its substance already contained the term of the contract, the work content, working hours, working conditions, remuneration and the rights and obligations of both sides, and both parties had performed it accordingly; it therefore served the purpose the law requires of a written employment contract, namely to define the rights and obligations of the parties and to protect their lawful rights and interests, and no double wages were payable for that contract term. Before the original statement expired the company had proposed renewal and delivered the text to Guo, and at his request had agreed that the title could be changed to employment contract, which should be taken as performance of the duty to negotiate honestly; the contract was thereafter not concluded because Guo refused to sign, and the company therefore need not pay double wages. Guo's claims accordingly lacked any basis and were not upheld.

Commentary

An employment contract is not only the evidence by which an employee and an employer establish their employment relationship but also the agreement that defines their respective labor rights and obligations. It performs a protective function, restraining an employer from exploiting an employee's weak position in proving matters so as to underpay or fail to pay social insurance contributions, to evade liability for an employee's work injury benefits and to commit other unlawful acts infringing an employee's legitimate rights and interests. With the enactment of the Labor Contract Law of the People's Republic of China, double wages emerged as the sanction for an employer that unlawfully fails to conclude a written employment contract with an employee.

The reason the Labor Contract Law imposes liability to pay double wages is to protect the employee's contractual interest and to prevent an employee, once a dispute arises, from lacking the evidence to prove the employment relationship, or from finding it hard to establish a claim in arbitration or litigation because certain rights were not clearly agreed. The legislative purpose of the provision is therefore to urge employers to perform their duty to conclude employment contracts, to put an end to evasion of employment liability, and to impose double wages as a penalty for unlawful conduct, which undoubtedly has a positive effect in regulating the labor market.

Unfortunately, this sanction, which protects employees' lawful rights and interests and penalises unlawful employment practices, has gradually become a tool by which some employees go prospecting for gold. Article 82, paragraph 1, of the Labor Contract Law provides: "Where an employer fails, for more than one month but less than one year from the date of employment, to conclude a written employment contract with an employee, it shall pay the employee twice his monthly wage." On its wording the provision does not distinguish between the reasons why no written contract was concluded, and in current arbitration and judicial practice many employees, seeing precisely this, avoid, delay or even refuse to conclude a contract so as to bring that state of affairs about in the hope of the extra income. That plainly runs counter to the purpose of the double wage rule, allows speculators to profit, offends the principle of good faith, disturbs the order of the market and needlessly multiplies the arbitration and litigation it generates, consuming administrative and judicial resources.

The double wage provision therefore has a positive role, but its defects cannot be ignored. The reasons why an employment contract is not concluded are many and complex; although the employer is the dominant party in an employment relationship, not every failure is the employer's fault, and a rule applied without regard to cause will inevitably make some employers liable to pay double wages for an employee's own fault.

The Shanghai High People's Court addressed the point in its Opinions on Several Issues concerning the Application of the Labor Contract Law (Hu Gao Fa [2009] No. 73): "II. Handling of cases where the parties to an employment relationship have not concluded a written contract. The conclusion and performance of an employment contract shall follow the principle of good faith. Where an employee has actually worked for an employer and the employer has failed for more than one month to conclude a written employment contract, whether double wages are payable shall depend on whether the employer performed its duty to negotiate honestly and whether the employee refused to sign. Where the employer has discharged its duty of good faith and the contract was not concluded for reasons outside the employer, such as force majeure, an unforeseen event or the employee's refusal to sign, the case does not fall within the situation described in Article 6 of the Implementing Regulations of the Labor Contract Law of the People's Republic of China as one in which the employer has 'failed to conclude a written employment contract with the employee'." In short, the double wage penalty is directed at an employer that, deliberately or through negligent omission, fails to conclude an employment contract, and does not punish the mere fact that no contract was concluded.

In this case, although what the technology company signed with Guo was not an employment contract, the statement contained the essential terms of one — the particulars of employee and employer, the term, the post and its duties, working hours and leave, and remuneration — and clearly defined the labor rights and obligations of both sides; it was a meeting of minds expressing their true intention and bound them both. In its effect it also protected the lawful rights and interests of both parties, and a defect in form and title did not affect the effect the document produced in substance as an employment contract. It also showed that the company had no intention to resist or evade a written agreement on labor rights and obligations with Guo, and the statement may be recognised as the written "employment contract" by which the parties agreed those rights and obligations; for the term of the statement, therefore, Guo's assertion that no employment contract had been concluded lacked any factual basis.

Before the statement expired, the company's proposal to renew it and delivery of the text to Guo, and its acceptance of his suggestion that it be retitled "employment contract", should both be regarded as performance of its duty to negotiate honestly and as an active expression of its wish to conclude a written employment contract with him; the contract was thereafter not concluded because Guo refused to sign, which was not the company's doing, and the company need not pay double wages for the period from 12 September to 25 November 2018 either.

Lessons from the case

Double wages are probably the most severe liability the Labor Contract Law imposes on an employer, but an employer that abandons any hope that employees will not know their rights, avoids the negligence of forgetting and omitting, and keeps an active and honest attitude will free itself entirely from the trouble of double wages and take the first step in compliant management of employment contracts.