ZTE (Hangzhou) Company Limited - Stanford Law · 2014.02.04 Edition Copyright 2014 by Stanford University 3 year, an arbitration commission rendered an award: ZTE [should] pay WANG

Copyright 2014 by Stanford University

ZTE (Hangzhou) Company Limited

v.

WANG Peng,

A Labor Contract Dispute

Guiding Case No. 18

(Discussed and Passed by the Adjudication Committee of the Supreme People’s Court

Released on November 8, 2013)

CHINA GUIDING CASES PROJECT

English Guiding Case (EGC18)

February 4, 2014 Edition*

* The citation of this translation of the Guiding Case is: 《中兴通讯（杭州）有限责任公司诉王鹏劳动合

同纠纷案》(ZTE (Hangzhou) Company Limited v. WANG Peng, A Labor Contract Dispute), CHINA GUIDING CASES

PROJECT, English Guiding Case (EGC18), Feb. 4, 2014 Edition, available at http://cgc.law.stanford.edu/guiding-

cases/guiding-case-18.

This document was primarily prepared by Jeffrey Chivers, LUO Min, Matthew Waters, and ZHANG

Xinyu, and was reviewed by LU Jiahui. The document was finalized by Jessica Montgomery, Dimitri Phillips, and

Dr. Mei Gechlik. Minor editing, such as splitting long paragraphs, adding a few words included in square brackets,

and boldfacing the headings to correspond with those boldfaced in the original Chinese version, was done to make

the piece more comprehensible to readers. The following text, otherwise, is a direct translation of the original text

and reflects formatting of the Chinese document released by the Supreme People’s Court.

The following Guiding Case was discussed and passed by the Adjudication Committee of the Supreme

People’s Court of the People’s Republic of China and was released on November 8, 2013, available at

http://www.chinacourt.org/article/detail/2013/11/id/1150422.shtml. See also 最高人民法院关于发布第五批指导

性案例的通知 (The Supreme People’s Court’s Notice Concerning the Release of the Fifth Batch of Guiding Cases),

Nov. 8, 2013, available at http://www.chinacourt.org/law/detail/2013/11/id/147238.shtml.

2014.02.04 Edition

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2

Keywords

Civil Labor Contract Unilateral Termination

Main Points of the Adjudication

A worker’s being ranked at the bottom in an employer’s grade assessment does not

equate to [his1] being “incompetent for the job” and does not meet the statutory requirements for

unilateral termination of a labor contract. An employer cannot rely on this ground to unilaterally

terminate a labor contract.

Related Legal Rule(s)

Articles 39 and 40 of the Labor Contract Law of the People’s Republic of China

Basic Facts of the Case

In July 2005, defendant WANG Peng (王 鹏) began working for plaintiff ZTE

(Hangzhou) Company Limited (中兴通讯（杭州）有限责任公司) (hereinafter referred to as

“ZTE”). It was agreed upon in the labor contract that WANG Peng would engage in sales [and

receive] a monthly base salary of RMB 3,840. The Management Measures on Employee

Performance of the company provided: employees [were (to be) given] semiannual and annual

performance assessments with four grades, S, A, C1, and C2, which represented, respectively,

Excellent, Good, [With] Incompatible Personal Values, and Performance Needs to be Improved.

The proportions of [employees with] grades S, A, and C (C1, C2) were to be 20%, 70% and

10%, respectively. In principle, [employees who were] “incompetent for the job” would receive

a grade of C2. WANG Peng originally worked in the distribution division of the company,

engaged in sales. After January 2009, due to the disbandment of the distribution division and

other reasons, [he] was reassigned to the East China region to engage in sales. In the second half

of 2008, the first half of 2009, and the second half of 2010, the results of WANG Peng’s

assessments were all C2. ZTE believed that WANG Peng was incompetent for the job and

remained incompetent for the job after the reassignment, and therefore terminated the labor

contract after making partial payment of economic compensation.

On July 27, 2011, WANG Peng initiated labor arbitration. On October 8 of the same

1 Translators’ note: “he” and “his” as used herein are, unless the context indicates otherwise, gender-neutral

terms that also refer to “she” and “her”.

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3

year, an arbitration commission rendered an award: ZTE [should] pay WANG Peng the

remaining balance of damages,2 equal to RMB 36,596.28, for unlawful termination of the labor

contract. ZTE believed that its acts did not constitute an unlawful termination of the labor

contract, and thus brought suit in court on November 1 of the same year, requesting an order

against payment of the remaining balance of damages for the termination of the labor contract.

Results of the Adjudication

On December 6, 2011, the Binjiang District People’s Court of Hangzhou Municipality,

Zhejiang Province, rendered the (2011) Hang Bin Min Chu Zi No. 885 Civil Judgment: [the

court orders] plaintiff ZTE (Hangzhou) Company Limited to, within fifteen days after the

judgment comes into effect, make a lump-sum payment to defendant WANG Peng in the amount

of RMB 36,596.28, which is the remaining balance of damages for the unlawful termination of

the labor contract. After the judgment was pronounced, neither party appealed. The judgment

has already come into legal effect.

Reasons for the Adjudication

In the effective judgment, the court opined: in order to protect the legal interests of

workers and to establish and develop harmonious and stable labor relations, the Labor Law of the

People’s Republic of China and the Labor Contract Law of the People’s Republic of China

defined clearly the conditions for employers’ unilateral termination of labor contracts. Plaintiff

ZTE terminated the labor contract on the grounds that defendant WANG Peng was incompetent

for the job and that [he] remained incompetent for the job after [his] reassignment. [ZTE] should

bear the burden of proof on these grounds. According to the provisions of the Management

Measures on Employee Performance, “the proportion of [employees with] grade C (C1, C2) is to

be 10%”. Although WANG Peng had been assessed to have a grade of C2, grade C2 did not

completely equate to [his being] “incompetent for the job”. Relying solely on the results of the

assessment with the designated grade-assessment proportions, ZTE could not prove that a worker

was incompetent for the job, and, accordingly, did not meet the statutory requirements for

unilateral termination of labor contracts. Although WANG Peng was reassigned from the

distribution division in January 2009, [he] engaged in sales both before and after the

reassignment. [In light of this, and considering that] the fundamental reason for WANG Peng’s

2 Translators’ note: under the Labor Contract Law of the People’s Republic of China, “赔偿金” (“damages”)

and “经济补偿金” (“economic compensation”) are different types of remedies. Damages are designed to penalize

employers for violating the law. Article 87 of the law requires any employer who terminates a labor contract in

violation of the law to pay an employee “damages at twice the rate of the economic compensation provided for in

Article 47 hereof.” See 《中华人民共和国劳动合同法》(Labor Contract Law of the People’s Republic of China),

adopted on June 29, 2007 and effective as of Jan. 1, 2008, art. 87.

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reassignment was the disbandment of the distribution division, ZTE could not prove that WANG

Peng had been reassigned because of his incompetence for the job. Hence, ZTE’s basis for

claiming that WANG Peng was incompetent for the job and that [he] remained incompetent for

the job after the reassignment was inadequate. The situation constituted an unlawful termination

of the labor contract. ZTE should, in accordance with law, pay WANG Peng damages at twice

the rate of the economic compensation standards [stated in the law].