Guangzhou court issues guidance regarding employment disputes

In May 2014, the Guangzhou Intermediate People’s Court, the highest court in Guangzhou, issued the Guangzhou Meeting Minutes on Various Issues in the Trial of Employment Disputes, which provide clarification on some controversial employment issues often faced by employers, such as those related to non-compete compensation, waiver and release of claims, and open-term contracts for dispatched employees.

For example, the Guangzhou meeting minutes provide that if a non-compete agreement is silent on the non-compete compensation, the employee may decide whether to perform the non-compete obligations, which essentially means the company no longer can force the employee to abide by the non-compete restriction.

[ihc-hide-content ihc_mb_type=”show” ihc_mb_who=”1″ ihc_mb_template=”2″ ]

In addition, the employer may reach an agreement with the employee and pay the non-compete compensation in a lump sum after the termination of employment. Current law provides that non-compete compensation should be paid in monthly instalments during the post-termination, non-compete period.

Furthermore, in non-compete disputes, the court would not issue an injunctive order for the competitor to cease employment of the employee who violates non-compete obligations. Rather, it may order the employee to continue performing their non-compete obligations in accordance with the non-compete agreement.

The Guangzhou meeting minutes also provide guidance regarding how to handle employee claims after the employee has signed waiver and release agreements. According to the meeting minutes, the court should consider whether the employee’s claims have been specifically waived in the agreement. If so, the release agreement should be enforceable and will be honoured.

The Guangzhou meeting minutes also make clear that the rules granting employees a right to an open-term contract in certain circumstances also apply to dispatched employees. Currently, the national law is silent on this issue, and courts in other localities – for example, Jiangsu province – have taken the opposite view on this issue.

The Guangzhou meeting minutes also state that unused annual leave compensation should be included as part of the base amount for calculating severance. It is not entirely clear whether the unused annual leave compensation referred to is meant to include annual leave compensation paid out upon termination of employment, or only compensation that was previously paid during the last 12 months of employment (i.e. for unused annual leave that was paid out at the end of the prior calendar year).

Finally, according to the Guangzhou meeting minutes, any contractual agreement on the forum for any employment dispute would not be recognised by the courts. Currently, under national law, courts in the location where the employer is registered, or where the employment contract is performed, can exercise jurisdiction over employment-related claims, though the place of performance would take priority. National law is not clear on whether the parties can agree to choose the jurisdiction of a specific court through agreement, but the Guangzhou meeting minutes expressly prohibit the parties from doing so.

[/ihc-hide-content]