This article was first published on China Business Law Journal column "Labor Law", authorised reprint.
Under the call of the State-owned Assets Supervision and Administration Commission of the State Council to deepen the reform of state-owned enterprises (SOEs), a growing number of SOEs have in recent years begun to implement the co-investment mechanism for employees. This article analyses the legal risks that may arise from the mechanism according to the Labour Law, and offers compliance suggestions.
Risks under the Labour Law
Wage deduction. SOEs implementing an employee co-investment mechanism often mandate employees to contribute a portion of their post-tax performance bonuses as co-investment capital. In cases where employees do not voluntarily contribute, the company may directly deduct from their basic salary, which is likely to be identified as a “malicious wage deduction” or “bonus deduction”.
According to the Labour Law and the Labour Contract Law of China, employers shall not deduct employee wages and compensation in any form. On the one hand, performance bonuses disbursed to employees are, in principle, already part of their legitimate income and there is no legal basis to mandate employees to return part of their income. On the other hand, directly deducting the basic salary of an employee who does not voluntarily co-invest can also be identified as a wage deduction.
Therefore, SOEs are advised to place conditions on bonus distribution, specifying the co-investment principal as a bonus subject to conditions, which will be paid to employees only when the conditions are fulfilled.
Unlawful dismissal. SOEs often regard the behaviour of employees who refuse to take part in co-investment as a serious violation of the company’s rules, and deal with it according to relevant laws and rules.
The Labour Law and the Labour Contract Law stipulate that the employer enjoys autonomy in management, can set rules and regulations as the employee’s code of conduct through democratic publicity procedures, and can unilaterally dismiss employees who commit a serious violation.
However, as current judicial practice in labour disputes still tends to protect the employees’ rights and interests, it would be hard to exclude the risk of committing unlawful dismissal if an employee is punished or unilaterally dismissed.
Return of investment on dismission. Currently, publicly available and effective judgments on labour disputes arising from the mandatory co-investment mechanism in SOEs are very limited. Some courts have held that a co-investment agreement is based on the labour relationship and that the investment should be returned after the relationship is dissolved. But some courts have also paid attention to the company’s evidence and have mostly approved employees’ claims for wages or bonuses due to insufficient evidence.
In Beijing Longzhiyi Investment v Zhang Tianhai (2017), the employee left the company and requested the return of the investment. The court ruled that the project co-investment agreement involved constraints on Zhang Tianhai as a party to the labour relationship. Therefore, its formation was based on the labour relationship, and if the labour relationship was terminated, the company should return the investment.
In Zhongji Investment v Zhao Wei (2018), the company’s debt collection was overdue and the court supported its resulting suspension of the monthly performance bonus, and the employee’s claim that the company had deducted wages. The company provided the Remuneration Management System, the Investment Accountability Management Measures and the labourer’s performance appraisal form in a democratic process. The court held that there was nothing wrong with the company’s payment of wages and non-payment of year-end bonuses.
In the two cases regarding a Chongqing non-performing assets project and a Guangdong property project, the company either pegged commission to the project recovery or set aside part of the year-end bonus as project investment income. The courts all decided that the company’s evidence was insufficient and therefore supported the employees’ claim for wages.
If an SOE requests its employees to not withdraw from the co-investment project when they leave the company, and decides whether to pay bonuses and return the investment principal according to the future profitability of the project, given that there is still no consensus in judicial practice, the court may directly conclude that the co-investment agreement is based on the labour relationship and that the company should return the profitability and the principal by the end of the relationship.
In addition, deducting the co-investment principal of employees who leave at fault also poses a high compliance risk. On the one hand, the investment is mandatory based on the labour relationship. On the other hand, even if employees agree not to withdraw from the project after leaving the company, it does not mean the company is entitled to deduct their principal due to their dismission at fault.
Compliance Suggestions
Set up deferred conditional bonuses. If the performance bonus has already been disbursed to the employee, there would be a compliance risk to ask the employee to return a portion of it as a co-investment principal. However, if the performance bonus is agreed as a conditional bonus, the related risks can be reduced.
The condition is that the employee must not withdraw from the investment project, and only if the project achieves an agreed profit will the bonus be paid at the agreed percentage. Meanwhile, the bonus will be deferred after the employee leaves the company, contingent on project progress. Until the exit or end of the project, the employee cannot withdraw, otherwise, the company may withhold the bonus.
Strictly implement democratic disclosure procedures. To hedge risks in the event of project deficit resulting in deductions from employees’ salaries, bonuses or principal, SOEs need to strictly implement the democratic disclosure procedures of the co-investment mechanism.
After the mechanism is finalised and approved by the labour union and workers’ congress, all employees should sign the confirmation of the mechanism and the paper version of the confirmation should be retained. However, it cannot be ruled out that the confirmation may be invalidated by a court or arbitration commission for violating mandatory legal provisions.
劳动和雇佣专栏往期文章  
  1. 解答关于员工竞业限制义务的高频问题
  2. FAQs about employees’ non-compete obligations
  3. 中国企业建立ESG劳动用工合规体系的实操建议
  4. How companies should establish an ESG labour compliance system
  5. 劳动争议解决中程序性规则的运用
  6. 用人单位以员工被拘留为由解除劳动合同的合法性分析
  7. Terminating labour contracts on grounds of detention
  8. 竞业限制违约行为的裁判认定与调查取证
  9. 浅谈竞业限制员工报告义务争议问题
  10. 北京地区违反落户服务期协议的损失赔偿
  11. 企业如何开展人力资源合规体检？
  12. How enterprises should conduct HR compliance self-inspection
  13. 员工安置现状的360°探讨
  14. 对新冠病毒感染实施“乙类乙管”后企业用工合规问题解答
  15. 奖金发放的法律实务要点
  16. 新防疫时期的企业用工合规问题九问九答
  17. 用人单位应对新《妇女权益保障法》之合规建议
  18. 解雇违纪高管行动方案的设计与执行
  19. Effecting strategic dismissals of senior management
  20. 股权激励的设计与风险防控
  21. 企业员工舞弊风险的应对
  22. 试用期使用的一些探讨
  23. 广东省新就业形态劳动者及劳动保障权益新规
  24. Protecting the rights of ‘new form’ labourers in Guangdong
  25. 员工舞弊案件中调查访谈的规范操作
  26. Normative Investigative Interviews in Employee Fraud Cases
  27. 因客观情况发生重大变化而解雇员工的传统困局和破解方向——聚焦上海地区近年司法实践
  28. 企业员工手册的常见问题及设计建议
  29. 《证券公司建立稳健薪酬制度指引》要点解析与合规建议
  30. Interpretation of New Regulations of Securities Companies
  31. 中国企业ESG劳动用工合规问题探讨
  32. Labour-related ESG compliance in China
  33. 浅谈互联网企业裁员的风险与合规
  34. Risk and compliance in layoffs at internet companies
  35. 用人单位在虚假报销劳动争议中的举证和应对
  36. Employer’s burden of proof in false reimbursement disputes
  37. 《深圳市员工工资支付条例》修订重点条款解读
  38. 用人单位在反职场性骚扰中的合规治理
  39. Employer compliance governance in workplace
  40. 员工舞弊处理中的停职调查要点
  41. 従業員による不正行為の処理対応における停職調査のポイント
  42. Pitfalls in suspending employees amid fraud investigations
  43. Personal information protection in internal corporate probes
  44. 《个人信息保护法》对企业用工管理的影响与合规建议
  45. Impact of personal information protection law on enterprise
  46. 居家办公涉及的常见用工法律问题与解答
  47. 员工造成经济损失，企业如何主张赔偿
  48. Holding employees liable for damages in court
  49. Remedial Measures for Non-Renewal of a Fixed-Term Labor Contract
  50. 用人单位如何应对职场中的性骚扰
  51. 未及时续签劳动合同的补救措施
  52. 如何认定劳动争议案件中的高级管理人员？
  53. Identifying senior management in labour disputes
  54. 创业企业联合创始人的竞业限制操作要点
  55. How startups enforce non-competition of departing co-founders
  56. 京沪两地退休年龄问题
  57. Retirement ages in Beijing and Shanghai
  58. 舞弊员工处理的合规要点分析
  59. 不正従業員の処遇に関するコンプライアンス上のポイントに関する分析
  60. Key compliance points when disciplining employees for fraud
  61. 竞业限制启动条款的效力分析
  62. 《民法典》生效，影响劳动合同了吗
  63. 『民法典』の施行は労働契約に影響を及ぼしたか？
  64. Does Civil Code affect the labour contract ?
  65. 客观情况发生重大变化下的劳动合同解除
  66. Termination of Employment under Changes of Circumstances
  67. 简析金融机构“风险金”制度
  68. Analysis of ‘risk fund’ system of financial institutions
  69. 类案检索制度影响下的单方待岗的合规注意事项
  70. Typical cases guide compliance on unilateral furloughing
  71. “协商变更”劳动合同常见误区
  72. Misconception with changing employment contract by consultation
  73. 劳动争议案件中的证据选择和准备
  74. Selection, preparation of evidence in labour dispute cases
  75. “社保入税”的新阶段与影响
  76. 试用期的深度解析（下）
  77. 试用期的深度解析（上）
  78. Non-compete Restriction
  79. 竞业限制调查取证的“新方法”
  80. 类案检索新规对企业劳动风险管理的重要影响
  81. The New Regulations on the Similar Cases Retrieval
  82. 公司提前解散关键法律问题解答
  83. 疫情影响下企业的灵活用工和员工安置
  84. 语音课堂丨劳动法第二期：停工停产
  85. 语音课堂丨劳动法第一期：疫情影响下企业的灵活用工安排
  86. Key Employment Issues amid COVID-19
  87. 疫情防控下的企业用工合规问题解答
  88. 疫病予防制御期間における使用者のコンプライアンス上の問題に関する回答
  89. 2019年劳动法领域重点立法与政策变化回顾
  90. Review of Key Updates to Employment Laws and Policies in 2019
  91. 关于“三期”员工的问与答——从上海地区的规定和实践出发
  92. 关于“三期员工”的问与答 Q&A About “Employee Undergoing Three Periods”
  93. 全球员工股权激励指引（中国篇）
  94. Employment Issues in China M&A Deals 中国并购交易中的劳动法问题 
  95. 收集和使用员工个人信息合规问题分析（上篇）
  96. 收集和使用员工个人信息合规问题分析（下篇）
  97. Compliance Issues on Employees' Personal Information
  98. 离职员工递延奖金发放的法律风险分析
  99. 从劳动法视角看“996工作制”
  100. 董事与高级管理人员的法定竞业限制义务——用人单位救济障碍与应对策略分析
  101. Directors and Senior Management's Non-Compete Obligations
  102. 用人单位是否需要为非全日制员工缴存住房公积金
  103. 防止被收购企业股东另起炉灶，竞业禁止条款如何巧妙设置？
  104. 谈谈企业规章制度民主程序的“是与非” ——以《劳动合同法》第四条第二款的司法实践解读为视角
作者介绍
赵骁律师毕业于武汉大学法学院及中央财经大学法学院，分别获得学士及硕士学位，具有14年以上的法律从业经验，主要业务领域为人力资源法律和争议解决。
赵律师在为大中型企业提供法律服务方面有丰富的经验。赵律师擅长为内外资企业提供高标准的人力资源法律服务，包括代理劳动争议案件，劳资谈判，处理竞业限制与商业秘密争议，审查、起草和修改规章制度、法律文件等。除此之外，赵律师在商业秘密与人才争夺、人力资源合规、员工安置、高管解雇、突发事件处理、劳务派遣与人力资源外包以及企业控制权争夺等项目业务上拥有很多成功案例。
赵律师于2021年被评选为CLECSS“十大杰出青年法律人”和《商法》“Rising Stars律师新星”；于2022年荣登《商法》“The A-List法律精英：2022年中国业务优秀律师”榜单，并被The Legal 500评为《2023年度中国大陆榜单》劳动与雇佣领域“特别推荐律师”；于2023年被LEGALBAND评选为“2023年度LEGALBAND客户首选：劳动法律师15强”。
赵骁律师历史文章  
  1. ‍‍‍‍‍
    境外员工股票期权纠纷的抗辩要点
  2. 用人单位以员工被拘留为由解除劳动合同的合法性分析‍‍
  3. Terminating labour contracts on grounds of detention
  4. 北京地区违反落户服务期协议的损失赔偿
  5. 奖金发放的法律实务要点
  6. Legal essentials related to bonus payments
  7. 广东省新就业形态劳动者及劳动保障权益新规
  8. Protecting the rights of ‘new form’ labourers in Guangdong
  9. 浅谈互联网企业裁员的风险与合规
  10. Risk and compliance in layoffs at internet companies
  11. 用人单位发出offer后“反悔”法律实务分析
  12. 育儿假与护理假的合规指引
王淼在中国政法大学先后获得法学学士学位和法学硕士学位。
王淼主要业务领域为人力资源合规、股权激励、公司内部治理及商事争议解决。王淼为数家大中型企业提供过法律服务，具有扎实的法学功底和专业水平，在人力资源合规体系架构、员工安置、复杂劳动争议解决、商业秘密与人才争夺等业务上拥有很多成功案例。
王淼历史文章  
  1. 境外员工股票期权纠纷的抗辩要点
  2. 北京地区违反落户服务期协议的损失赔偿
  3. Compensation for breaching ‘hukou’ employment period
  4. 广东省新就业形态劳动者及劳动保障权益新规
  5. Protecting the rights of ‘new form’ labourers in Guangdong
  6. 用人单位发出offer后“反悔”法律实务分析
继续阅读
阅读原文