Article 48 of the Labor Contract Law of the People's Republic of China [1] grants employees the right to choose to continue performing the labor contract when an employer unlawfully terminates or ends the labor contract. The employer cannot decide otherwise, and even if the employer is willing to pay compensation for the unlawful termination or ending of the labor contract, it cannot exclude the employee's right to choose to continue performing the labor contract.

In practice, there are numerous cases where employees choose to continue performing the labor contract, especially for employees under the following circumstances:

(1) Employees with higher incomes. If an employee chooses to claim compensation for the unlawful termination/ending of the labor contract from the employer, he/she is subject to the limit of "three times the average monthly salary of employees in the region announced by the people's government of the municipality directly under the central government or the city with districts where the employer is located for the previous year". However, if the employee chooses to claim the continuation of the labor contract, he/she can receive salary and benefits from the time the employer unlawfully terminates/ends the labor contract until the contract is terminated/ended again. Compared to claiming compensation, this is obviously more advantageous for the employee.

(2) Employees who have been with the company for a short time. Considering that the compensation for unlawful termination of the labor contract is proportional to the employee's tenure, employees who have been with the company for a short time are more motivated to choose to continue performing the labor contract.

(3) Employees who face employment difficulties or have no intention of being employed. In Beijing, labor dispute cases usually take 1 to 2 years to go through the "one arbitration and two trials" process. Even if an employee has no actual intention of returning to the original employer to continue working, by advocating for the continuation of the labor contract, he/she can still receive salary and benefits during the labor arbitration and litigation period.

For cases where an employer unlawfully terminates or ends a labor contract and the employee requests the continuation of the labor contract, if there is no situation where "the labor contract indeed cannot be continued," the adjudicating authorities will generally support the employee's request. According to Article 76 of Answers on the Trial of Labor Dispute Cases (I) issued by the High People's Court of Beijing Municipality and Beijing Labor and Personnel Dispute Arbitration Commission (hereinafter referred to as "Answers (I)"), the main situations where "the labor contract indeed cannot be continued" are as follows: "

(1) The employer is legally declared bankrupt, has its business license revoked, is ordered to close or is closed down, or the employer decides on early dissolution;

(2) The employee reaches the statutory retirement age during the arbitration or litigation process;

(3) The labor contract expires during the arbitration or litigation process and there are no circumstances requiring the establishment of an open-ended labor contract as stipulated in Article 14 of the Labor Contract Law;

(4) The employee's original position is highly irreplaceable and unique to the normal business operations of the employer (such as general manager, financial officer, etc.), and the employee's original position has been taken over by someone else, with both parties unable to reach an agreement on a new position;

(5) The employee has already joined a new employer;

(6) During the arbitration or litigation process, the employer sends a notice of resumption of work to the employee, requiring the employee to continue working, but the employee refuses;

(7) Other situations that clearly do not meet the conditions for the continued performance of the labor contract.

If an employee's original position has been taken over by someone else, the employer should not solely rely on this reason to argue that it is a situation where 'the labor contract indeed cannot be continued'."

Based on our experience, regarding whether it constitutes a situation where "the labor contract indeed cannot be continued", the adjudicating authorities also have a certain degree of discretion. In practice, it is not limited to the circumstances listed in Answers (I). For example, in the following two scenarios, the adjudicating authorities generally do not support the employee's request for continued performance of the labor contract:

(1) The trust relationship between the employee and the employer has broken down. Considering the personal subordination and financial dependence inherent in the employment relationship, the loss of trust is a reason many employers argue for not being able to reinstate the employment relationship. However, the adjudicating authorities are cautious about this and generally do not support this reason put forth by employers. Common situations such as the employee initiating arbitration or litigation, filing complaints or reports with regulatory departments, refusing to handle departure procedures, or verbal or minor physical conflicts between the employee and the employer, are usually seen by the adjudicating authorities as reasonable ways for the employee to protect his/her rights and are not sufficient to determine that the trust relationship has been lost. However, if there is a serious physical conflict between the employee and the employer, especially in situations that may endanger the personal safety of other employees, the adjudicating authorities tend to determine that the trust foundation has been lost and the employment relationship cannot continue.

(2) The employee's subjective desire to reinstate the employment relationship is not strong. If the employee takes a considerable amount of time (for example, more than 2 years) to initiate labor arbitration to request the continued performance of the labor contract, and has not actively claimed the continuation of the labor contract through other means before; or if the employee has previously applied for labor arbitration on the grounds of requiring the employer to pay compensation for unlawful termination of the labor contract, the adjudicating authorities generally consider the employee's subjective desire to reinstate the employment relationship to be not strong and therefore do not support the employee's request.

Employers are required to reinstate the labor relationship with employees from the effective date of the judgment/award and to pay back salaries and benefits from the date of the unlawful termination/cessation of the labor contract until the date of reinstatement, as well as to make up for social security and housing fund contributions.

Regarding whether employers can adjust the employee's position or workplace after the reinstatement of the labor relationship, in principle, employers should reinstate the labor relationship according to the employee's original position and workplace. However, if the employer and employee have explicitly agreed in the labor contract that the employer can unilaterally change the position and workplace, and such changes are reasonable, or if they meet other circumstances stipulated in Articles 59 and 60 of Answers (I) [2], then the employe can make appropriate adjustments to the employee's position or workplace.

In addition, in a few cases, employers arranged for employees to work from home or adjusted the employee's work content but still paid the employee's salary according to the original standard, and the employee once again applied for arbitration/litigation to restore the original job content or to return to the original workplace, then the adjudicating authorities determined that such requests from employees do not fall within the scope of labor disputes accepted.

Taking the Beijing area as an example, based on our experience, the salaries for the arbitration/litigation period are generally paid back according to the employee's original salary standard. However, if the employee's salary structure includes variable components such as performance-based pay and commission, the adjudicating authorities usually believe that the payment should be made based on the more fixed salary standard of the employee.

In addition, we have observed that in a few cases, the arbitration authorities, based on the principles of fairness and reasonableness, decided to refer to the local minimum salary, local social average salary, and other standards for retroactive salary based on reasons such as the employee's failure to actually provide labor during the litigation arbitration period, the employee's certain fault, and the original salary standard being relatively high.

(1) It is recommended that employers carefully assess the associated risks before making a decision to terminate/end a labor contract, including whether the reasons for termination/ending the labor contract comply with legal provisions, whether the relevant evidence is sufficient, and whether the statutory procedures for termination/ending the labor contract have been followed. They should also estimate the likelihood of employees choosing to claim the continuation of the labor contract and the highest possible compensation amount based on factors such as the employee's length of service, salary standards, and personal characteristics. Moreover, during the process of termination/ending the labor contract, it is advised that employers avoid antagonizing employees and guide them to focus on seeking new employment and claiming compensation for unlawful termination/ending.

(2) In cases where the employer is operating normally and the employee has not reached the statutory retirement age, it is recommended that the employer collect the following evidence and documents, if possible, to demonstrate that the labor contract between both parties can no longer be continued:

a. Evidence or clues that the employee has joined a new employer or started his/her own business;

b. Adequate evidence to demonstrate the uniqueness and irreplaceability of the employee's position, for example:

If it is ultimately judged that the labor contract must continue to be performed, we advise employers to approach the situation with prudence and rationality, avoiding impulsive actions that could further exacerbate conflicts. It is also recommended to engage lawyers as early as possible to identify the most suitable solution based on the actual circumstances.