Holding employees liable for damages in court

Additionally, employers may be hampered by many other issues: difficulty in proving misconduct or gross negligence, the ill-defined scope of the employee’s liability, or concealment of the employee’s actions making it difficult to establish a correlation between the wrongdoing and economic loss. Many employers simply lack experience in such cases, leading to inadequate early preparation and failure to produce sufficient evidence. Mishandling at any of these critical junctures may lead to eventual defeat.

Atmi Austar Packaging Technology (Beijing) faced this predicament in its 2019 lawsuit, claiming gross negligence or deliberate misconduct by one of its employees but being unable to produce evidence deemed adequate by the court. Given the absence of evidence, the court believed it unfair for the employee to be held liable for the company’s losses. Moreover, since the company failed to detect the product defect in question at the time of delivery or putting it on sale, the company ought to shoulder some of the blame for its losses. As a result, the court decided not to support Atmi’s claim for damages.

For starters, employers must furnish effective evidence to prove actual economic loss to win such a lawsuit. Employers may have missed the window for preserving evidence. Losses may also prove difficult to identify or prove due to the often complex and diverse nature of the employer’s business or industry.

The legal basis for employers holding employees liable for economic losses can be traced to article 16 of the Tentative Provisions for Wage Payment promulgated by the Ministry of Labour in 1995, which stipulates that employers may demand compensation for economic losses from employees based on their labour contract.

Even if such a scenario was not explicitly covered by the contract, based on current judicial practice, if the employer can substantiate the existence of such an economic loss and the exact amount, gross negligence or deliberate misconduct on the part of the employee, and a direct correlation between such wrongdoings and the economic losses, the court will likely support claims for compensation. Employers should take the following steps.

In labour disputes, courts tend to protect the more vulnerable labourers and impose a rigorous burden of proof on companies. Therefore, employers should pre-emptively conform their operating and management compliance systems with the established legislative standards and judgment practices, set out explicit terms in the contract, conduct timely and effective investigation for the purpose of dispute resolution, and secure all supporting evidence. By doing this, companies can enjoy maximum protection of both their managerial authority and economic interests.