Is a poor performance appraisal result enough for a dismissal in China?

Case:?

In 2015, Mr. Wang joined Company A as a salesman with a basic salary of RMB 4,000 per month. According to the relevant internal regulations of Company A, a performance appraisal for employees is conducted every half a year and the results are divided into four grades A, B, C and D, which represent “Excellent”, “Good”, “Qualified” and “Unqualified”. Employees who are evaluated as A grade account for 10% of the total number of employees. Employees evaluated as B grade account for 80% of the total number of employees. Employees rated C and D account for 10% of the total number of employees.

Since 2015, Wang worked in the distribution section of Company A, but In January 2019, the distribution section was dissolved and he was transferred to another section in East China. After the transfer, Wang was still working as a salesman for the company. In the performance appraisal in the second half of 2018, the first half of 2019 and the second half of 2020, all appraisal results of Wang were D (Unqualified). Later Company A considered Wang incompetent for the job even after the job transfer, so it fired Wang with such cause.

Wang filed labor arbitration immediately after the employment termination and the arbitration committee awarded Company A to pay compensation for illegal termination.

（This case is adapted from the fifth batch of Guiding Case No. 18 published by the Supreme People's Court of the People's Republic of China.）

Issue：

Is a result of being “unqualified” in a performance appraisal equal to the employee not being competent?for the job? Can a company unilaterally terminate the employment contract with an employee based on an “unqualified” in a performance appraisal in China?

Analysis：

A Company has the right to terminate an employment contract for cause, but the exercise of the right to terminate should be under certain conditions stipulated by law. According to Article 26 of the?PRC Labor Law?and Article 40 of the?PRC Labor Contract Law, if an employee is unable to perform his or her job and is still unable to perform his or her job after training or job position adjustment, the employer may terminate the employment contract with the worker by giving him or her 30-day notice in writing. In other words,?to dismiss an employee for incompetence, the requirements of both “employee being incompetence” and “employee being incompetence even after training or job position adjustment" must be met.

In this case, even though all the appraisal results of the second half of 2018, the first half of 2019 and the second half of 2020 are “unqualified”, the results alone still cannot prove that Mr. Wang was "unable to compete for his job" as a salesman.?Mr. Wang's job duties, workload, complaints against Mr. Wang or mistakes made by the employee should also be provided as evidence by Company A to prove that Mr. Wang is incompetent in his job.

In addition, Mr. Wang's job transfer was due to the dissolution of the distribution department of the company, not because he was incompetent in his job. In other words, Mr. Wang's situation did not satisfy the requirement of "employee being incompetence even after job position adjustment".

Therefore, the court did not support Company A’s claim of termination of Mr. Wang's employment contract on the grounds of incompetence and poor performance.

Suggestions：

According to existing judicial precedents, an employer's claim to terminate an employment contract for "employee being incompetence" has a very low chance of being supported by the courts. Courts often find that employers have not provided sufficient evidence to prove the employee's inability to perform his/her job. And results of “unqualified” in a performance appraisal are not equal to the employee not being competent?for the job. If the company wants to terminate the employment contract on the grounds of the employee’s incompetence, it still needs to provide additional evidence, such as job duties, work expectations, workload, complaints against the employee or mistakes made by the employee.

Author:??Peter Lee, who graduated from Fudan University, currently works at the Sunivers Law Firm based in Shenzhen, as Senior Legal Counsel and Director of CSR and also leads a team focusing on?dispute resolution?and?corporate compliance.

??????He has considerable experience in dispute resolution both in China and cross-border. He has worked as an in-house counsel in?a well-known?FORTUNE 500 tech company. During that period, he joined the disputes management team and handled major disputes for business. He has also spent a year working in South America, as a legal Manager in charge of?legal compliance?for a subsidiary including?employment, export control, and data protection.

??????He also has accumulated extensive knowledge and experience in?Charity Law, Non-Profit Organization Law,?and?ESG-related Issues.

Many thanks to?Chen Yaqi?(Intern) for her contribution to this article.

This article is for general information only and does not constitute any legal opinion of the author or his firm on a particular matter, nor should it be used for taking or not taking any action. For advice on your specific matters, please contact the author by phone (86-14776255163), or by email ([email protected]).

Copyright 2023 Jianchao Li (Peter Lee). No reproduction, copying or translation of materials without prior permission of the author.